Designated Agency Legislation Terribly Flawed – Part Two


I just came upon some awesome historical presentations about how flawed the designated agency legislation was when it was proposed and passed in the late 1990’s.  These come from a not-for-profit consumer organization that is no longer in existence but shows just how convoluted this legislation was then and still is today.  The organization was known as Real Estate Agents for Real Agency.  It consisted of both buyer and seller agents who were concerned about how large real estate companies in Massachusetts were able to dominate the actions of their association and legislators to do their bidding to their benefit.  The legislation that passed still benefits only large real estate companies in Massachusetts and continues to harm small real estate companies as well as real estate consumers.  I will continue to post numerous articles and postings from their original website as these issues brought up nearly twenty years ago are still at the heart of the problems consumers are facing today.  This is part Two of Nine.  Tom Wemett

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The Massachusetts Association of Realtors (MAR) proposal for agency legislation specifies the following goals:

1) to ‘create the opportunity’ for ‘designated agency’ in Massachusetts (which really means to ‘create business opportunities for disguised dual-agency’ in Massachusetts)

2) to provide “clear guidelines” to permit a non-agency intermediary role,

3) to require express written consent for sub-agency,

The Massachusetts Association of Realtors is making a legislative proposal to fundamentally alter real estate agency practice in Massachusetts. The proposal seeks to legitimize “Designated” Dual Agency as its primary goal and eliminate the need for “informed consent” of the home buyer and seller. Designated Dual Agency occurs when the firm promises to represent both parties in the same transaction and appoints individual licensees to separately represent the buyer and seller, thereby disguising the inherent conflicts of interests of the firm. In the guise of requiring ‘written’ consent, the proposal will provide for the ‘presumption of informed consent’ from an unwary consumer’s signature on an innocuous-looking form. The legislative proposal will also seek to legitimize a non-agency practice, a finder, facilitator, or intermediary in which the licensee represents neither party in the transaction. The third component of the legislation would be a requirement of any firm employing sub-agents as part of their service to disclose the vicarious liability inherent in the sub-agency relationship. These last two components are already allowed under the current common law in Massachusetts; no radical new legislation is needed to establish them. MAR can explain both facilitation and sub-agency liabilities in its very own forms, which it sells to real estate agents, as could the Board of Registration i\on its existing Agency Disclosure form.

Designated Dual Agency

Under this proposal, a real estate firm and its principal could practice disguised and essentially undisclosed dual agency, a radical departure from Common Law principles. The sole representation and advocacy for a firm’s clients could be limited to just one individual agent designated by the agency and need no longer carry over to any other licensees in the firm. This idea conceals the conflicts of interest inherent when an agent (traditionally referred to as a ‘servant’ in common law) seeks to “serve two masters”. It effectively eliminates important master/servant responsibilities and well-established grounds of confidentially and accountability for a real estate agency. In a 100-agent firm, just one agent could be designated to represent the seller, and 99 other agents could be designated to represent various buyers

REAFRA (Real Estate Agents For Real Agency, Inc.) cannot support limited, individual, designated dual agency with its failure to disclose so many potential Conflicts of Interest:

  • The consumer is deprived of material facts related to the multiplicity of roles the an agency may be engaging in, representing not only the other side of a transaction from its principal, but also a variety of multiple other in-house business interests, such as mortgages, insurance, moving, and home inspection services, under terms which may be adverse to the consumer’s best interests.
  • There is no additional required training and continuing education in handling internal conflicts of interest for the individual designated agent
  • There is no additional required training and continuing education in handling the sole advocacy for a client within a firm, large or small, with a multitude of competing interests for the individual designated agent
  • There is no requirement to enforce a “Chinese Wall”, a fire wall between each agent as independent fiduciaries of the firms individual clients
  • There is no requirement for separate phone, fax, files, and offices to protect their individual clients privacy and confidentiality while doing their business.
  • There is no requirement to guarantee confidentiality for all its agents’ clients
  • There is no requirement to guarantee a level playing field in every aspect of the transaction for all its clients not favoring one client over another
  • There is no requirement to insure a level playing field in on an in-house transaction verses a co-brokered transaction in which the firm would make less money.
  • There is no requirement that the firm eliminate all incentives for in-house transactions.
  • There is no requirement that the firm eliminate all preferences for one agent over another so that the client is not compromised by their agent’s position or experience in the firm.
  • When consumers exclusively list their property for sale or hire a buyer broker, they naturally expect confidentiality and loyalty from their agency, full professional service with full fiduciary representation (trust, loyalty, advocacy and professionalism) based on consumers’ prior exposure to the firm’s advertising. Under Common Law and as well as the REALTOR Code of Ethics, they are entitled to full disclosure and truly informed consent if these natural expectations are not in fact matched by the realities of the relationship.

    It is unimaginable that a law firm would represent the plaintiff and defendant in the same law case. Why should a realty firm be enabled easily to represent both the seller and the buyer of the same property? A home purchase represents the average consumer’s largest lifetime investment. Why would most consumers ever consent to a compromised agency representation for their key investment, if they did really understand the consequences? What is the real motivation for promoting this “choice”?

    Elimination of “Informed” Consent

    In the guise of requiring “written” consent the proposal will substitute the “presumption” of informed consent with a signature on an innocuous form for any kind of disclosure. “True” informed consent, under Massachusetts common law, requires that the agent inform their principle of all of the relevant and germane issues surrounding their decision to consent to a potential conflict scenario AT THE TIME AND SITUATION OF THE ACTUAL EVENT, so that ALL of the potential ramifications of their decision to consent are clear. Prior consent is NOT, written or otherwise, “informed consent” in the common law.

    REAFRA believes signing a brief “Consent Form” weeks, or months before the actual event should not PRESUME anything, between an agent and his/her client. It is highly unlikely that the Supreme Judicial Court will allow the Legislature such a large eraser!

    Caveat: REAFRA cannot support any express written “consent” without adequate Common Law protections. Under our Common Law, as well as the true meaning of the REALTOR Code of Ethics, every consumer is entitled to and every REALTOR is obligated to give full and meaningful disclosure, with full, informed consumer consent, expressed in clear and unambiguous terms, just before consumers enter into any kind of actual or potential dual agency conflicts. The ‘designated agent’ term in the proposal is inherently ambiguous and misleading and contrary to important common law standards.

    Express Written Consent for Sub-agency

    Any agency employing sub-agents as part of their service will be required to disclose the vicarious liability inherent in the sub-agency relationship.

    This is a laudable suggestion, but it already is part of Common Law and the Realtor Code of Ethics and therefore nothing new. No radical new legislation is needed to implement MAR’s suggestion here. MAR could simply include the warning in its printed agency contracts, and the Board of Registration could include it in the text of its Agency Disclosure Form. Principals, whether sellers or buyers, are liable for the actions of their agents and sub-agents; and it is certainly wise to inform them more clearly of this.

    Non-agency Intermediary Role

    MAR also suggesting promoting the facilitator concept, which is really identical to the finder or intermediary already existing in the Common Law. A facilitator firm performs ministerial acts that may facilitate a transaction, providing customer-level, non-client service only, without advocacy for any party. There are real estate firms in our state already providing this intermediary service. While it is not defined in our license law, such facilitation practice is not prohibited under our Massachusetts common law, and is already widespread in the Berkshires.

    The finder, intermediary, facilitator agency role is an appropriate relationship for sophisticated consumers who know how to protect themselves in a real estate transaction, but should only be entered into with full, meaningful disclosure and informed consent. This role could be especially useful in co-brokering where sub-agency is not offered and the co-broker does not represent the buyer, as a legitimate alternative to dual agency, in fee for service offerings, in discount brokerage, and for large firms representing both sellers and buyers, which,are often encounter too many conflicts of interests to be full fiduciary agents. MAR itself suggests this legitimate facilitator solution for the problems of large agencies. Why does it also need to suggest the illegitimate one of designated agency/disguised dual agency?

    Caveat: REAFRA supports the option of a non-agency intermediary role only with the principles of Common Law, as well as the REALTOR Code of Ethics, in which the consumer is entitled to and the REALTOR is obligated to give full, meaningful disclosure of the relationship, with full, informed consent prior to entering into this or any other kind of business relationship.

     

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