While there has been much debate regarding what broker data to post online, how to post it, and who should do the posting, little has been said about the pros and cons of forming instant client relationships on the Internet.

The current theory seems to be that a consumer can sign on, sign up, click a few buttons and magically become a real estate client, someone entitled to a bundle of professional brokerage services in exchange for a given fee. Current regulation, in the main, seems to support this arrangement, but are yesterday's rules sufficient in the face of today's realities?

It is surely true that consumers are spending money online to buy books, airline tickets and other items. It is equally true that not everything can be done online. For instance, electronic signatures are now legal for most documents -- but not all.

In June 2000, federal legislation -- the Electronic Signatures in Global and National Commerce Act or "E-Sign" -- was enacted to permit the use of electronic signatures. However, as computer and technology lawyer attorney David Millstein points out, "E-Sign now makes it clear that an electronic contract which is formed by using electronic signatures is as legally enforceable as its paper equivalent under most conditions. Note that there are certain exceptions, such as a will or trust, which must continue to be executed with a handwritten signature and retained in paper format. In addition, entering into an electronic transaction is an entirely voluntary endeavor, as a party may choose not to conduct business online." (See: Make your electronic transactions enforceable agreements, The Albany Business Review, March 28, 2003)

Given their enormous importance should real estate listing agreements, sale contracts and related documents be enforceable when created online? Or should they be treated like wills and trusts and require actual paperwork and signatures?

The assumption that an online form is automatically binding may or may not be true -- it is at least necessary to look at state rules. The question then becomes, which state? The state where the site owner is located? The state where the consumer pressed the button? The state where the server is located? And if the consumer is overseas, then which country's laws apply?

It's a routine matter for authorities to determine what professionals in a given field can do or not do, to establish the rules of the game. Such rules apply universally to all of those who are regulated and are designed to protect the public interest.

California, as one example, mandates extensive standards for licensed real estate activities online. Nationwide, HUD has outlined specific requirements under the Real Estate Settlement and Procedures Act (RESPA) which explain what lenders must do before they can establish certain business relationships.

Given this brief background a number of questions regarding instant online contracts for realty services are beginning to emerge:

• Do consumers have enough information to instantly enter into a binding contractual agreement online with a real estate broker which may cost them thousands of dollars?

• Is it in the public interest to have consumers instantly and immediately commit to binding contractual arrangements which may substantially impact where they live for decades?

• What happens if a consumer fills out forms on several sites?

• If Mr. Green pushes an online button but Mrs. Green does not, is either Green a client?

• In the age of identity theft and online "spoofing," how do we know Green signed up with anyone? The FBI reports that it found more than 48,000 cases of Internet fraud last year -- three times the number of cases in 2001.

• Were the price and terms of the online agreement negotiated?

• Should consumers be advised to consult an attorney before signing up?

• What if a consumer simply presses the wrong button -- is there a no-penalty cooling-off period during which time the broker has to cement the agreement in writing? If yes, how long is the amnesty period? If there is an amnesty period, should it not be the same for all brokers in each state? What notifications are received by the consumer?

• Does broker Smith have the right to give the consumer's name and information to other licensees without the consumer's express permission? Should there be a separate and adequate permission form consumers must complete?

• What about privacy? Must consumers be told if broker Smith will allow the use of their data by others? If consumers object to such arrangements can they opt out?

• Suppose the consumer does not like the broker? Must the consumer continue to work with the broker? For how long?

• What about the use of online disclaimers? How much protection can consumers get if links to disclaimers are in microscopic type at the bottom of web pages, disclaimers written in dense legalese and typefaces which demonstrate new advances in miniaturization? Should there be a minimum type-size requirement? A required page location?

The Broker's Perspective

Given their client obligations, do brokers under the current system have enough information to serve the needs of someone pressing an online button? Can a broker "decline" to serve someone who signs-up online? Can the decision to reject a prospective client be seen as discriminatory? What if the person signing up is age 17 -- has the broker made an agreement which a minor can enforce but a broker cannot? What if a buyer wants the broker to find a $50,000 property in a community of million-dollar homes?

But wait: If push-button contractual relationships were banned will brokers be able to obtain listings, buyer brokerage agreements and referrals online?

Business was generated before the emergence of instant online agreements -- sites with good content and marketing attracted public interest and such interest lead to broker/client relationships and referral fees. But unlike today's situation, consumers were not tied into contractual relationships with the press of a button.

Instead, brokers and consumers developed relationships individually over time. Questions were asked and answers given. In effect, traditional practices recognize that all realty transactions are unique, that all buyers and sellers are different, that brokers are distinctive, and that listing agreements are negotiable.

Consumer Groups

Meanwhile, the use of online forms and data are drawing new interest.

Recently, for example, several consumer groups alleged that H&R Block is improperly soliciting mortgages and requiring personal information when individuals use the firm to participate in the "Free File" tax filing program from the IRS, an allegation the company denies. (See: The Washington Post, "H&R Block Web Ads Stir Consumer Groups," March 26, 2003)

What's interesting here are the groups involved: the Consumer Federation of America (CFA), Consumers Union, the Electronic Privacy Information Center (EPIC), the National Consumer Law Center, and the U.S. Public Interest Research Group (US PIRG).

Does anyone honestly believe that consumer groups in general are not going to take a new and profound interest in real estate matters if instant online agreements become common? Will trial attorneys question the use of instant online agreements? Would it not be better for real estate regulators to address this issue now, before it becomes a consumer issue, a media staple, a court case or a federal matter "requiring" HUD involvement?

The time has come for state realty commissions to determine whether the public interest is protected with the creation of instant "client" relationships. Should binding online broker contracts be prohibited or allowed? If allowed, under what terms and conditions? Should there be a requirement to negotiate online terms and conditions? Should brokers be allowed to transfer consumer information captured online without separate and express permission?

Both brokers and consumers need clear and settled answers to these questions, otherwise enterprising attorneys and consumer groups may well ask if instant online forms are worth the paper they could be written on. No less important, the answers are needed now, before the industry adopts or declines given online policies.

For more articles by Peter G. Miller, please press here.

Published: April 15, 2003

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Peter G. Miller, also known as OurBroker®, is the author of six real estate books -- including The Common-Sense Mortgage -- and is the original creator and host of America Online's Real Estate Center. Peter's weekly columns appear in more than 100 newspapers nationwide, he is also published in a variety of other media outlets and he is a frequent speaker at national events and conventions. Peter welcomes your questions, comments, and news releases via e-mail at .