The Law & You: Rewriting Agency Law

With the growth of buyer agency, 44 states have either changed or are in the process of changing their statutes dealing with realty brokerage relationships. NAR guidelines spurred the move.

February 1, 1998

During the last four years, it has shaken up the residential real estate industry, fundamentally changing the way business is practiced.

What has caused this upheaval? Revision of state laws applying to realty brokerage relationships.

Since 1993 at least 38 states have changed their agency laws, creating a statutory basis for buyer agency and clarifying the duties of real estate practitioners to their clients and customers. Two states substantially revamped their agency laws before 1993, and four other states are currently considering revisions--bringing to 44 the number that either have rewritten or are in the process of rewriting their laws.

“By the beginning of the new century, every state will either have passed agency law revisions or be considering them,” predicts Sharon A. Millett, president-elect of the National Association of REALTORS®.

In 1993 the legal presumption in most states was that a real estate professional was practicing seller agency. The practitioner's legal duties were to the seller, even when working with a buyer. Although buyer representation could be practiced, few states specified exactly how it should be done.

Today the overwhelming majority of states statutorily authorize realty professionals to practice buyer representation and specify how they should do it. As a result, many practitioners now represent the buyer in at least some transactions. A few states have gone so far as to create a presumption that a practitioner is a buyer's representative from first contact with a prospect.

The rapid shift doesn’t come as a surprise to Millett. “The marketplace was ready for the change,” she says. “This is what buyers said they wanted.”

The trend toward agency revision started in the early 1980s when consumer advocates complained that some buyers didn’t understand that the real estate professional represented the seller and not them. In response, NAR recommended that practitioners adopt a practice of disclosing their agency status to buyers. That practice raised the buyers’ awareness of the issue, causing more buyers to seek representation.

Most state realty laws didn’t specifically recognize buyer representation. In 1993 NAR’s Board of Directors adopted a list of nine recommended elements that states contemplating agency revisions might want to include in laws clarifying realty agency relationships. The recommendations had been developed by an NAR presidential advisory group. The recommended legislative framework opened the floodgates, enabling a wave of agency revision to wash over the nation. (For the text of the recommendations, go to One Realtor Place® at www.REALTOR.com. Search “agency and facilitator”; choose Facilitator/Non-Agency Concept PAG, and then click on Recommendations. The nine elements are listed in Recommendation #2.)

Millett, who served as vice chairman of the presidential advisory group that came up with the nine elements, says she's gratified by the fact that the majority of the states that have revised so far have included at least six of the nine elements in new laws.

The rising tide of revision means that more buyers are finding easier access to buyer representation in the residential real estate transaction.

But has revision benefited the average practitioner?

Yes, says Millett. Changes have cleared up confusion that existed in the marketplace, making it possible for brokers and sales associates to work more effectively. “In the early days, you had some practitioners who were trying to respond to buyers’ needs, but they didn’t know how to be buyer's representatives,” she says. “Very few practitioners were doing it, and the real estate commissions weren’t offering much guidance.” Revision ended the uncertainty by establishing a set of standards.

In some cases, newly established standards may be headed for more modification. Some states that recently overhauled their agency laws are already contemplating further revisions. Missouri, for example, is likely to introduce another agency bill in the state Legislature this year, despite the fact that a new agency law just went into effect Sept. 1.

The new proposal will most likely designate nonagency status or “transactional brokerage” as an option or default position for practitioners, according to Bruce H. Aydt, senior vice president and general counsel for Prudential Alliance, REALTORS®, St. Louis.

Missouri's existing agency law includes all nine elements recommended by NAR, as well as a couple of others, says Aydt, who's past chairman of the License Law Committee of the Missouri Association of REALTORS®. The law establishes a presumption that a practitioner who's working with a buyer is a buyer's representative until such time as the practitioner signs an agreement designating a different status, such as a seller's representative or subagent. It also creates “designated agency” to replace disclosed dual agency. When a buyer shows an interest in one of the realty company's own listings, for example, the broker names “designated” representatives for the buyer and the seller, respectively.

The law has posed the usual difficulties of training practitioners about new requirements, says Aydt, but otherwise implementation has been smooth. The push to amend the law developed when the neighboring state of Kansas passed revision that permitted transactional brokerage. Kansas is one of at least 14 states that have enacted some form of nonagency status.

One of Missouri's two major urban centers is Kansas City, which lies on the border with Kansas. Some Kansas City practitioners sell property on both the Missouri and Kansas sides of the border. “Two agency laws are confusing,” Aydt says in explaining the move toward recognition of nonagency status in Missouri.

Agency Scorecard

  • Two states substantially revised their realty agency laws before 1993.
  • Thirty-eight states have substantially rewritten their laws during or after 1993.
  • Four states are currently considering revisions.

Recent Revisions of State Agency Laws

New agency laws became effective in five states last year. Another will take effect in 1998. Here are highlights of the changes.

Effective in 1997:

  • Connecticut: Subagency offered only with written consent of the seller. (Effective June 1)
  • Florida: Replaces disclosed dual agency with nonagency transactional brokerage. (Effective Oct. 1)
  • Missouri: Presumes buyer agency unless otherwise established; replaces disclosed dual agency with designated agency. (Effective Sept. 1)
  • Washington: Presumes buyer agency until there's a written agency agreement; authorizes designated agency on in-house transactions. (Effective Jan. 1)
  • Wyoming: Defines seller agency, buyer agency, subagency, and nonagency (called “intermediary” status). Also defines how a practitioner can go from being a buyer's representative to being an intermediary for in-house transactions. (Effective July 1)

Effective 1998

  • Louisiana: Presumes buyer agency unless a written agreement specifies otherwise; no subagency; dual agency permitted with written disclosure. (Effective March 1)

Source: NAR Government Affairs

Walt Albro is a former senior editor for REALTOR® Magazine.

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