Agency disclosure is becoming more familiar to consumers, to the point that they are reporting malfeasance by agents to state regulatory commissions. In addition, they are filing civil suitsuits, as proven lately in Alaska where a determined attorney has asked the court for class action status in a lawsuit filed against a brokerage firm. The defendants had testified in a previous suit that ignoring Alaska agency disclosure statutes was common practice at the firm because the statutes were "impractical."

Suits over improper disclosure are upsetting to the industry which bases most of its business models upon the ability when the opportunity presents itself to perform dual agency, or its diminutives - transactional brokerage and designated agency. These dual transactions can account for as much as 20 to 30 percent of a brokerage's revenues.

But instead of cracking down on miscreants, some state associations are working instead on changing the laws to better mirror industry practices.

At least two states are in the middle of a push to get their statutes modified to make agency disclosures more favorable to agents.

An Alaska task force sponsored by the Kachemak Board of Realtors has proposed legislative changes for Alaska SEC.08.88.396. Significant modifications, according to the most recent draft available to Realty Times, include the removal of key words - "in writing," and "agency."

"To disclose in writing the licensee's agency relationship with the seller to each prospective buyer at the time that the licensee begins to provide specific assistance to locate or acquire real estate for the buyer, and obtain from each prospective buyer a signed acknowledgement that the buyer is aware of the agency relationship between the licensee and the seller," would be changed to "disclose the licensee's relationship with the seller to to a prospective buyer of real estate, or to the buyer's agent, at the time of the initial contact between licensee and the prospective buyer or the buyer's agent, and confirm the relationship in writing as soon as possible after the initial contact."

This proposal offers a verbal disclosure at first contact with a written follow-up in exchange for a written disclosure at "specific assistance."

Dual agency only begins with informed and written consent by both the buyer and seller. Alaska statutes mandate that "a person licensed under this chapter may act as an agent for both a prospective seller and a prospective buyer of real estate only after the licensee informs both the seller and the buyer of te dual agency and obtains written consent to the dual agency from both principals.

The task force would like the statute to read as follows: a person licensed "under this chapter may act as an agent for both a prospective seller and a prospective buyer of real estate with permission from both the seller and the buyer. Written confirmation of that consent to the dual agency by both principals shall be obtained as soon as possible after the establishment of the dual agency."

This proposal eliminates the urgency for written consent to dual agency, and in fact, allows a licensee to act as a dual agent before obtaining written consent.

Justifications for the changes were supplied by the Task Force alongside the proposed changes.

They include:

1. Under Sec.08.396 (a) the moment in time that an agent must disclose that he is an agent of the seller, or sellers, is the moment that he begins to act as though he is representing the buyer also. If the agent is in fact only representing the seller, or sellers, he/she will never act in that manner regardless of how specific assistance is defined. This paragraph is incongruent and illogical.
2. Disclosure of seller agency to a buyer or buyer's agent should be no different in legal nature than disclosure of buyer agency to a seller or seller's agent.
3. Agency is created by actions not intentions, assumptions, or compensation.
4. Written confirmation of agency is not disclosure, but evidence of disclosure and explicit understanding of the disclosure and the nature of the disclosed agency.
5. Actual disclosure of your existing agency relationship with either a buyer or a seller, and the legal option available to also represent the other party, can be accomplished with a simple one sentence introduction that should satisfy statutory requirements as proposed above. Any ensuing dialogue or discussion of agency beyond the required disclosure is a matter of agent judgment, principals of practice, and the interest of the client or customer.
6. Immediate written confirmation of agency disclosure upon initial contact is the most desirable protection for agent and client or customer, but it is not always practical or in many cases possible. A reasonable standard such as "as soon as possible" after either the initial contact and disclosure, or the establishment of dual agency, shoudl afford the licensee the flexibility to comply with statutory requirements without driving away a prospective client or customer.
7. If all or most of your sellers agree to dual agency in an addendum to the listing agreement, or buyers in a buyer's agency agreement, then you will not be exposed to risk of recourse if you approach each prospect with dual agency as your preference or expectation. If dual agency is in fact not appropriate for any reason, a written disclosure will follow addressing that reality.

In the report to the state commission, Task Force spokesperson and co-chair Mark Korting said, "Probably half of the real estate business done in Alaska is through dual agency. At best, our statutes are hard to comply with 100 percent. There's a glitch or two in the wording." While admitting that practitioners have "gotten lazy," Korting also suggested that the laws are badly written, and that "some of the procedures are unwieldy and cumbersome in timing and paperwork flow."

In Ohio, a task force has proposed statute changes to the Ohio Division of Real Estate and the Ohio Real Estate Commission which when approved will be brought before the legislature for proposed modification.

These changes center on timing – when agency disclosure forms are presented to the consumer. Current statutes require signed disclosures before properties are shown, prequalification of the buyer, or discussions of financial ability to purchase a property or discussing or submitting an offer. Instead, the task force proposes offering the customer “the licensee’s written agency policy at first substantive contact.”

Bradd Knapp, Task Force chairperson, was quoted in the Ohio Realtor magazine, published by the Ohio Association of Realtors, as saying, "For the better part of eight months, our group has diligently reviewed and dissected Ohio's current law, as well as statutes from across the country. We firmly believe that our report offers the best of all worlds – for both licensees and consumers – by safeguarding the protections created by timely disclosure, but also trying to alleviate the objections the public often has with signing the form at such an early juncture.”

Knapp also said in the article, “Despite the form’s revisions and ongoing efforts to educate licensees, evidence of noncompliance and/or resistance to the form on the part of the consumer continues to exist. We continue to believe that the law’s intent is sound. However, the Task Force concluded that the real estate environment has changed drastically in the six years since (the law) was initially adopted. The emergence of buyer brokerage and increased awareness among consumers of the business relationship they have with a licensee are rationale for change at this time.”

Calls and/or e-mails to association spokespersons were unreturned.

What is interesting about this emerging trend is that the revisions do little to generate more trust by consumers.

How much information might a consumer share with an agent before being informed at the time of contract that the agent represents the other side? How consumer-friendly is it to be handed a company policy (which is bound to lack other alternatives besides the brokerage's practices) instead of a state-mandated disclosure form?

These revisions make it clear that agency disclosure laws are put in place to protect the consumer, but they also protect the licensee from lawsuits through the gauntlet of proper disclosure.

By easing the timing of disclosure and replacing state-mandated disclosure with company policy, future statutes would make it very easy for agents to comply.

In effect, the disclosure forms is a barrier to the deal moving forward in a timely manner, and that is the real reason they are being modified by the associations - even as the new forms invite greater liability for brokers and agents.

In the words of one association officer who disagrees with the proposed changes of his state, "It's like we've come full circle back to 1985, when the industry was exposed by the Federal Trade Commission in a report that said we allowed buyers to think we represented them when we were really representing the sellers. If these laws go into effect, we'll be right back there again."