One broker, a former real estate investigator for the state of Missouri, says that agency disclosure violations would stop in a heartbeat if regulators would sanction noncompliant agents and get investigators to spot-check brokerages for missing or incomplete disclosure forms on homes under contract. But, he says, that might not happen. Real estate commissions have a dual agency conflict of their own - they represent consumers and the real estate industry.

Commissioners and investigators on the job beg to differ. They say they investigate agency disclosure violations, and sanction agents appropriately.

Bringing the issue to national attention is Alaska, where one of the largest brokers in the state is facing down a determined attorney who has already won one case against the firm. During the hearing, agent Bonnie Mehner, also named in the suit, told the court that following statutes regarding agency disclosure was “impractical.” The court was not impressed and promptly ruled against the defendants.

Representing clients who claim they were improperly disclosed about dual agency, the triumphant attorney has filed a new suit, and has asked the court for class action status against the brokerage. That's got the attention of the whole state, and the nation's brokers and agents.

Associations in Alaska have responded to the suit by asking the commission to review proposed changes to the statutes which allow a little more wiggle room to agents when obtaining written disclosures. This is akin to making curfew later when a teenager habitually won't come home on time.

So the question is - are commissioners and investigators caught in their own web of dual agency - between the interests of the consumer and the real estate industry?

Investigator Margo Mandell, assigned to the Real Estate Commission for the Alaska Division Of Occupational Licensing, says that an investigation has been opened regarding the principals in the Alaska lawsuit, but could not comment further.

While some commissioners may be real estate industry appointees, Mandell says it isn’t her job to play politics. Her background is law enforcement, not real estate.

”There are laws that address all real estate practices,” explains Mandell. “We investigate complaints that we receive regarding a violation. A complaint can come from the public, other people in the industry, or employees. - Complaints from many sources. If we see something, we can open an investigation.”

According to Mandell, real estate commission investigators can take any steps that law enforcement would take. “You gather facts and evidence and interview the people involved. This is law enforcement on the civil side. License violation is a civil matter. We don't help people get their money back, but we can look for license violation, and if there is valid evidence we proceed from there.”

How prolific is license violation due to improper disclosure? “We don’t sort our database by type of violation, but we consider it a very serious violation,” says Mandell. “Our concern is public safety.”

Yet, critics of real estate enforcement, including a former investigator and broker, say that agency disclosure would happen with no problem if licensing authorities would pursue brokers and agents who violate statutes. One suggested spot-checks of contracts to see if disclosures are being properly handled.

”In a perfect world, that would be great,” replies Mandell. “I'm one investigator for the entire state. It takes money. We can only investigate what is brought to our attention. The public has a duty to report this when it is occurring.”

Mandell says she believes the issue of agency disclosures is very serious. “People need to be protected, and I think it is difficult to act in the capacity as dual agent. I would like to see Alaska law rewritten so you can't practice dual agency. I don't think you can impartially represent both parties on the transaction even if you have the best intentions.”

However, she admits, “It is a fine line serving the industry and the consumer, and even though I’m part of the real estate commission, there is a real fine line between our unit and my capacity as an investigator. “The industry needs to understand that if they want to generate public trust, they have to practice above the law.”

Yet, while Mandell is trying to do her job, the Alaska real estate commission has been given proposed changes to agency disclosure statutes that would make the timing of disclosure a little more elastic, more favorable to agents.

Does that mean real estate commissions pull their punches when policing their own? Other jurisdictions say they don’t, and won’t.

Colorado

Colorado commissioner Fran Winston says, “I do not feel that there is a conflict of interest on our part in the investigation of complaints and the enforcement of the license law. I feel strongly that our Commissioners, investigators, and auditors are extremely fair and unbiased in the discharge of their duties. I have never thought of our role as one of representative or agent of either the public or the broker community. As such, I do not believe that the Commission is acting in the capacity of a dual agent.

”I have been actively involved with the issues of brokerage relationships and agency law for many years and Colorado's disclosure laws do a good job of serving the industry and protecting the public. Our current modification of the Brokerage Relationship Law which recognizes Designated Brokerage, effective 01/01/03, may be the last substantial modification necessary. I absolutely know we have the full support of the Commissioners in pursuing violations of our Brokerage Relationships Law.”

Winston explains, “We do not specifically track enforcement actions by violation code. However, we did receive approximately 50 complaints related to agency disclosure or breach of agency. That represents approximately seven percent of our total complaints.

”Agency disclosure complaints are rarely filed alone,” she says. “they usually have additional complaints (misrepresentation) attached to them. As a result, it is difficult to say what level of discipline is given just for agency disclosure violations.

”I can tell you that a lengthy suspension or revocation would probably not result from just a disclosure violation. The most serious cases resulting in suspension/revocation usually involve other violations such as misrepresentation, dishonest dealings, unworthiness etc. and involve substantial harm to the public.

”Most violations of agency disclosure would result in one or a combination of the following: admonishment, censure, fine, educational courses, restitution to the public, short suspension.”

New Mexico

”In New Mexico,” says New Mexico’s Chief Investigator Lee McDaniel, “it depends on the circumstances of the transaction. If a consumer is greatly harmed from the action, the Commission will suspend or revoke a license. If the harm is not as substantial, the Commission will issue a Letter of Reprimand, impose a fine, and order a class in disclosure to be taken for no credit.”

Missouri

Explains Joseph Denkler, Investigation Supervisor for the Missouri Real Estate Commission, “Agents in the state of Missouri are required to disclose their agency status to parties. The initial disclosure should be made by an agent when contacted by a potential client, be it either a seller or purchaser. The agent is required to provided an unrepresented customer a copy of the Missouri Broker Disclosure form which outlines the various types of agency relationships available in this state. In the instance of a potential buyer, if the buyer refuses to enter into a buyer's agency or transaction broker agreement, then the agent must disclose to the potential purchaser that they will then be acting as a subagent for the seller. This agent is also required to disclose his or her agency status to the to the listing agent or property owner. If an offer is drafted, both the listing agent and selling agent are required to make a written disclosure of their agency status to the buyer and seller. This is typically incorporated into the offer to purchase.

”There is not a predetermined type of action to be taken against a licensee who fails to disclose, or properly disclose, their license status,” says Denkler. “Each case is reviewed on its own merits, and possible actions the Commission could take are: issue a letter of caution to the licensee, which is not a form of discipline; place the license on either probation or suspension; or revocation of the license.”

Kansas "Kansas is a little different because we audit brokerages about every 18 months to two years," says Executive Director, Sherry C. Diel, Kansas Real Estate Commission. "We pick up agency disclosure problems as part of the normal audit process--rarely does something come up on a complaint. We have agency, designated agency and transaction brokerage. Dual agency is prohibited."

"The maximum fine pursuant to statute is $500 per violation," explains Diel. "The Commission has an established fine and penalty schedule that we follow, unless there is something egregious. Our fines for agency disclosure violations range from $50 (ie. checked the wrong box on the agency disclosure, no disclosure in the contract, no acknowledgement of receipt by the parties of the brokerage relationships brochure, etc.) to $500 plus penalty hours of education (agent acted as a principal in the transaction without disclosure in the contract). The fines for failure to have an agency agreement in the file, lack of required terms and conditions in the agency agreement, etc. are $150. The fines for a licensee who has an agency relationship with one party but not the other, and the licensee tries to put the deal together as a transaction broker is a $300 fine plus required education. Any allegation of breach of fiduciary duties is looked at on a case-by-case basis. This is most likely where suspension or revocation would come into play."

”Our Commission looks at every violation of the law seriously,” says David Pierce Chief Investigator, Kansas Real Estate Commission. “Agency issues and questions are looked at no matter if they come in from an audit, or from a complaint from the public or from another real estate licensee.

”The phrase "agency disclosure" has many definitions. We have to look into it on a case by case basis. As in any inquiry or investigation we make, we have to understand exactly what is being claimed, what are the facts, what does the paperwork reflect, what damage may have been done, mitigating circumstances, etc. If we feel that circumstances warrant, we proceed before a presiding officer, which is an administrative law judge. The judge makes the ruling.”

”I do not believe that agency is much ado about nothing. We are to the point where the public not only deserves it, they expect it. More and more of the time, I am getting phone calls from the public wherein they are asking about fiduciary duties of their agent. Ten years ago, most people couldn't pronounce the word, let alone know what it meant.

Pierce defends his state’s laws. “We are not thinking about softening agency,” says Pierce, ”to the contrary, we passed a whole new body of law concerning agency and brokerage relationships that went into effect on January 1, 1996. It was amended somewhat with the addition of transaction brokerage, and another form of designated agency on October 1, 1997. In addition, dual agency was abolished. I believe it is here to stay, and should stay.”

”There are licensees that will be motivated by some type of possible punishment, and I suppose that is why, in part, we take disciplinary actions against licensees. But it is just as true that we are there to try and educate the licensee into providing a better service to the public. The vast majority of the licensees in Kansas are trying to do a good job, and in fact are doing a good job. Most brokers want to do it right.”

Published: October 25, 2002

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