Robert Freedman is the former director of multimedia communications at NAR.
Legal Danger Zones
Most disputes are over agency issues, RESPA, and disclosure.
September 1, 2009
Despite nearly two decades of effort to clarify agency laws at the state level, agency issues continue to create risk for sales practitioners.
According to the NATIONAL ASSOCIATION OF REALTORS® 2009 Legal Scan, agency issues — including breach of fiduciary duty, dual agency, agency disclosure, and buyer representation — are among the biggest sources of legal disputes involving real estate professionals and are expected to become more prevalent in the courts in the next two years.
NAR's Legal Scan is a comprehensive research project produced biennially. Through surveys of real estate commissioners and other key people in the real estate industry, along with a close analysis of case law and recently enacted state statutes, the report sheds light on top legal issues facing today's real estate professionals.
The only topic generating a higher number of disputes than agency issues is money — more specifically, who gets the commission. "In these difficult economic times, each commission dollar is carefully guarded," one survey respondent wrote. "Brokers are fighting over a smaller pot of money," said another.
The increase in commission-related arguments also may stem from a lack of understanding about procuring cause. Several respondents noted that licensees do not understand what it is. That — along with fewer transactions overall — leads to more disputes. (To demonstrate that they are the procuring cause of the sale and are entitled to a commission, practitioners must show that they initiated an unbroken chain of events that resulted in the deal between the buyer and the seller.)
On agency matters, breach of fiduciary duty is one of the biggest sources of disputes. The main problem, according to the Legal Scan, is that many practitioners are unclear about the breadth of responsibility owed to clients. "It is easy to underestimate or fail to appreciate the level of duty that is required," one survey respondent wrote.
The report also cited problems with disclosure of agency relationship. Practitioners are supposed to disclose agency relationships at their first substantive contact with customers, but the disclosure is "often overlooked and not sufficiently explained to prospects," one respondent said.
At the statutory level, states continue to heavily regulate agency relationships. The Legal Scan identifies 144 agency-related statutes enacted in the last two years, by far the highest number among all legal topic areas and about the same number as in the 2007 report. That suggests a persistent level of uncertainty about requirements.
Other major areas of concern, according to the report: property-condition disclosure and issues related to the federal Real Estate Settlement Procedures Act. RESPA also was identified as the most significant training need.
2009 Legal Scan
REALTORS® have free online access to the entire report. Read more about the today's top legal risks and learn about the survey's research methodology. Go to REALTOR.org/law_and_policy.