Designated Agency Legislation Terribly Flawed – Part Six


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 (REAFRA).  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 Six of Nine.  Tom Wemett

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The Massachusetts Association of REALTORS (MAR) Agency Proposal – Consumer Issues Position Paper

Consumer Choice?

The major argument by MAR for rewriting the agency law in Massachusetts in the public arena, to legislators, and the various stakeholders will be to “expand consumer choice in the marketplace”. This is a worthy goal, however, the MAR proposal is fraught with numerous flaws and anti-consumer provisions.

REAFRA’s observation, after careful review, with some of its own members diligently involved in the agency work groups at MAR, is that the real motivation for this proposal is the business expediency driven by its largest members, not consumer benefits. MAR has not met with one genuine consumer group as of this writing and has not gained one endorsement from consumer advocates for Designated Dual Agency.

Conflicts of Interest Are Undisclosed.

With Designated Dual Agency, only one of the firms’ agents represents the client, therefore, the need for disclosure of the conflicts of interest involved is eliminated by definition. The fact that other agents in the firm will most likely represent adversarial interests to the Client is disguised in designated dual agency. The consumer is deprived of material facts related to the role of the firm in their representation. This proposal conceals the conflicts of interests inherent when the servant (the real estate firm) seeks to serve two masters.

REAFRA believes in the Common Law principles that the entire firm and its agents all represent the Client. REAFRA also believes that all conflicts of interest must be fully disclosed as soon as, and whenever they arise. The consumer should always be assured of their rights to full and complete disclosure and informed consent if they choose to continue the relationship when conflicts of interest arise. Consumers should always have the right to terminate the relationship in the event of a conflict of interest if they so choose.

Mandated Disclosure Without Meaningful Explanations.

While not admitting to abrogating the Common Law, the MAR proposal currently being drafted will only seek to protect the brokerage firms and whatever form of practice they choose individually and will eliminate the normal disclosure requirements of the Common Law. There will be no explicit disclosures required regarding the following:

  •      Conflicts of interest inherent in the in-house transaction with limited individual Designated Dual Agency and what they mean to the consumer
  •      Reduced advocacy inherent in limited individual Designated Dual Agency representation and what that means to the consumer
  •      Reduced agency when the firm is no longer an agent in limited individual Designated Dual Agency firms and what that means to the consumer
  •      Absence of advocacy inherent in a non-agency finder, intermediary, facilitator role and what that means to the consumer

REAFRA believes that in the creation of credible legislation that “enhances consumer choice” immediate disclosure is a pre-requisite. Disclosure needs to happen at first contact prior to any transfer of confidential information, be it phone, fax, email, on the web, or in person, and must be confirmed and signed in writing as soon as possible, not later than the first substantive exchange of information. Disclosure needs to be in simple, straightforward consumer language, with simple illustrations that the average consumer can comprehend and it must include the major pros and cons of each kind of service as well as the specific kind of service the licensee is offering.

Informed Consent Is Eliminated

Informed consent is replaced by the concept of presumptive written consent, meaning that when the consumer signs a written form regardless of its detail, informed consent will be assumed with the signature. These forms will likely only disclose the brokerage practice. They will not explain the consumers’ options, benefits and liabilities of the practitioners offering.

There are no explicit forms or requirements that even approach a level needed to achieve full, meaningful informed consent for consumers when entering into the various proposed forms of real estate practice.

REAFRA believes in the Common Law principles that the consumer is entitled to and a Licensee is obligated to give a complete disclosure of all the pros and cons before entering into any business relationship, especially one involving a conflict of interest. In order to create credible legislation that enhances consumer choice the consumer is entitled to know and understand the service being offered as well as what is not being offered and how it relates to their transaction.

Potential Impact on Consumers

Deceptive Sales Practices – The MAR proposal creates the opportunity for the unscrupulous among us to truly run amuck in their dealings with the consumers and their fellow licensees. Why would MAR not want to elevate real estate practice to a more professional level that would be consistent with the REALTOR Code of Ethics instead of creating more opportunity for greater consumer abuse at the hands of the unprofessional practitioner.

False and Misleading Labeling – Designated Dual Agency is in effect undisclosed dual agency. The firm in effect is a dual agency because it contracts with potentially adversarial parties, buyers and sellers promising exclusive agency relationships. Undisclosed because the firm in the MAR proposal is therefore not required to disclose the inherent conflicts of interest when the conflict arises.

Bait and Switch Sales Strategies – The consumer is enticed into an exclusive relationship, a promise of “full service” expecting full representation (trust, loyalty, advocacy. professionalism, etc.) and competence based on the corporate advertising only to find that their only advocate is the individual agent who may be a brand new sales licensee.

Insider Trading – Consumers will not know on an in-house transaction when their designated agent does not have an arms length relationship with the opposing designated agents in the firm. Consumers will not know whether their individual agent negotiated aggressively in good faith to their benefit or conspired with their office mates to put the deal together that gave them or the firm the most benefit.

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