Don't Be Secret Agents

From the NAR President: Make sure for your protection and your customers that you’re providing agency disclosures that are timely, meaningful, and memorable.

May 1, 2006

We all know how important it is, and how challenging it can be, to explain agency issues to consumers. Well, a recent report by nationally syndicated columnist Ken Harney—highlighting the NATIONAL ASSOCIATION OF REALTORS®’ own data—shows we’re not doing a good enough job.

Harney cited the 2005 NAR Profile of Home Buyers and Sellers, a survey of consumers who bought a home between August 2004 and July 2005. In the survey, respondents were asked whether they signed an agent representation disclosure statement.

A majority, 58 percent, said they signed a statement either at their first meeting with a practitioner or when the contract was written. But one in five said they didn’t sign a statement and another one in five didn’t know whether they’d signed one. Among first-time buyers, more than one-quarter said they hadn’t signed an agent representation disclosure statement.

The NAR Code of Ethics requires REALTORS® to disclose to consumers whom they represent—the buyer, the seller, or both. Most states also have laws requiring agency disclosure. And many risk-management experts recommend getting a signed statement even when state law doesn’t require it. So why did so many consumers either not sign a disclosure statement or not recall signing one? There are many possible explanations.

First, the survey depended on consumer recall. Given the number of documents consumers are asked to review and sign during the course of a transaction, it’s not surprising that many didn’t recall a specific agency disclosure.

Second, there have been literally hundreds of thousands of new entrants to the business since most states passed laws requiring agency disclosure. It’s certainly possible that some rookies aren’t as well versed in the requirements as they should be.

Finally, the disclosure laws can be confusing. I’m sure some practitioners are tempted to gloss over the details when they seek consumers’ signatures.

None of those factors is an excuse for not doing our utmost to educate consumers about agency. Harney’s column should be a wake-up call to brokers and REALTOR® associations to review their policies and renew their training.

Every real estate broker should have a written company policy that addresses and outlines brokerage relationships with consumers. That policy should provide your sales associates with clear guidelines about their duties and obligations to consumers. If your state doesn’t have a standard agency disclosure form, create one when you write your policy—and have an attorney review both.

Education is another key. State regulatory bodies should require pre-licensing courses and core continuing education programs to accomplish the goal of teaching licensees about disclosure. And state and local associations need to ensure their course offerings include instruction in the agency disclosure requirements in their state.

Twenty years ago, most states applied the common law of agency to the practice of real estate, most practitioners working with buyers were actually subagents of the seller, and there was no disclosure. Changes in agency laws were brought about by the hard work of our state REALTOR® associations.

Let's make sure—for our own protection and that of our customers—that we’re providing agency disclosures that are timely, meaningful, and memorable.