Delegate David Albo
General Assembly Building, Room 529
Capitol Square
Richmond, Virginia 23219
February 14 , 2006
BY EMAIL and Fax: DelDAlbo@house.state.va.us; FAX 804 - 786-6310
Dear Delegate Albo:
We are writing to commend you for introducing the Agent Services Legislation
(House Bill 316) which appropriately requires agents and other non-agent
real estate service providers to disclose the services they provide. Some
other states have prohibited alternative real estate service practices that
provide consumers with lower-cost alternatives. Your legislation more
appropriately addresses this issue through disclosure. For the most part it
sets an example that hopefully will be followed by other states.
However, we believe the legislation would benefit by making the deadline for
disclosures earlier in the relationship with consumers and increasing the
compliance with the disclosure requirements. Suggestions to strengthen your
bill in these regards follow, along with a suggestion related to the bill’s
language related to service provider categorization in the MLS and
non-agency services.
We strongly support the use of disclosure requirements to avoid confusion
and/or protect the interests of consumers in real estate transactions. The
bill’s requirement that all real estate licensees disclose brokerage
relationships in writing at the earliest practicable time and in no event
later than the time that real estate assistance is provided is a good one.
However if the disclosure is not made until the service is provided the
result could be that a consumer may not be made aware of important
information that might affect their decision to proceed, or how to proceed,
until a point where it is impossible or impracticable to consider other
alternatives.
First, the legislation should be amended to require that all appropriate
statutory real estate disclosures be made in writing at a real estate
licensee’s first personal meeting with a consumer. Currently the bill’s
language would allow disclosure to be provided concurrently with providing
assistance. This may prevent consumers from being aware of important
information that might affect their decision to proceed, or how to proceed,
until a point where it is impossible or impracticable to consider other
alternatives. An earlier disclosure requirement would avoid that confusion.
The disclosure should also include established or proposed fee structures in
the first physical meeting. It is extremely important that that this
requirement be applied to all appropriate disclosures, especially those
related to dual or designated agency, which we believe are a far greater
source of consumer dissatisfaction than issues with minimum real estate
service providers.
Second, we recommend that Virginia take action to reverse the decline in
compliance with real estate disclosure requirements, which has fallen
nationwide in recent years. Although current state laws across the country
require that homebuyers are told the role of their real estate agent and
whom they represent in the sales process less than one-third of real estate
agents comply, according to the National Association of Realtors’ (NAR) 2005
Profile of Home Buyers and Sellers. In 2005, 30 percent of homebuyers
received their disclosure at the first meeting, down from 38 percent in
2000. NAR general counsel Laurie Janik stated in the enclosed RealtyTimes
article that “These statistics say that people are being sloppy. They need
to take agency disclosure requirements seriously; it is a critical element
of consumer protection.” For this reason we believe that a provision be
added to establish fines for failure to make written disclosures of all
appropriate areas of real estate disclosure in the first physical meeting
and to establish private rights of action for damages arising out of
breeches of fiduciary duty through nondisclosure.
Third, we recommend that the provision requiring the identification of
service provider type in the multiple listing service be removed because
mandating the identification of limited service agents and non-agents could
have the appearance or impact of labeling and discriminating against these
real estate service providers. One of the concerns of consumer
organizations, the U.S. Department of Justice, and the Federal Trade
Commission has been over efforts to prohibit or discriminate against limited
service brokers or agents by traditional brokers or agents. Discrimination
against limited service companies has been well documented and
distinguishing them from all other listings may serve as a vehicle to foster
such discrimination in Virginia. An agent representing a buyer has the
fiduciary duty to the client to show them all homes that meet the client’s
purchase criteria. The type of listing agent is immaterial to prospective
home buyers and it thus serves no apparent other beneficial purpose. For
that reason, we strongly recommend that this provision be removed.
Fourth, the language regarding non-agency services is vague and promotes
market confusion. It is unclear that non-agency services provided by
companies not acting in a brokerage/fiduciary capacity are allowed under
this bill. We believe that services that are truly fiduciary in nature
should not be severed from fiduciary liability and responsibility.
Conversely services that are completely ministerial (i.e. imply no fiduciary
duty whatsoever), should be allowed under this legislation. We suggest that
clarifying language be added to that effect.
Your bill is on the docket of the Senate General Law and Technology
Committee on Wednesday, February 15. We hope that you will agree to support
any amendments that may be offered in Senate General Law and Technology
Committee to modify your legislation along the lines we have suggested if
you are appearing at that hearing. We would also be happy to meet with you
prior to future legislative sessions to discuss any potential legislation
related to real estate law that would impact consumers.
Sincerely,
Irene Leech Stephen Brobeck
President Executive Director
Virginia Citizens Consumer Council Consumer Federation of America
Bruce Hahn
President
American Homeowners Grassroots Alliance and
The American Homeowners Foundation
January 24, 2006
Agent Disclosure Worse Than Ever
by Blanche Evan
Although agency disclosure is required by state law that homebuyers are told
the role of their real estate agent in the sales process, and most
importantly, whom the agent represents, less than one-third of real estate
agents comply, according to the National Association of Realtors' 2005
Profile of Home Buyers and Sellers.
Agency disclosure compliance has been on a downward trend since 2000, when
38 percent of homebuyers were disclosed at first meeting, 28 percent when
the contract was written, and nineteen percent weren't disclosed at all.
One out of five buyers weren't sure whether they had been disclosed or not.
By 2002, compliance was worse. According to the National Association of
Realtors Profile Of Home Buyers And Sellers in 2002, the NAR found that 35
percent of all buyers were disclosed at first meeting, 26 percent when the
contract for purchase was written, and 18 percent weren't disclosed at all.
Twenty-one percent were unsure whether or not they had been disclosed.
At the time, NAR general counsel Laurie Janik told Realty Times, "Disclosed
dual agency is probably the most difficult form of representation to perform
properly," says Janik. "These statistics say that people are being sloppy.
They need to take agency disclosure requirements seriously; it is a critical
element of consumer protection. I don't think it is good for practitioners
or consumers that the trend line is going down. We aren't going in the right
direction -- compliance is worsening."
Fast-forward to the 2005 Profile of Home Buyers & Sellers when the NAR found
that only 30 percent of homebuyers were disclosed at first meeting; 28
percent when the contract was written; 22 percent weren't disclosed at all,
and one in five were uncertain if they were disclosed at all.
A shockingly low number of first-time buyers were disclosed at first meeting
-- only 23 percent, while repeat buyers were more readily disclosed (35
percent.)
That is a precipitous drop from 2004, when 37 percent of first-time buyers
were disclosed at first meeting, but an improvement for repeat buyers. In
2004, only 23 percent were disclosed at first meeting.
According to the 2005 report, "Homebuyers should understand the role of
their real estate agent in the sales transaction and who their agents
represent. Agents usually require that a disclosure agreement be signed that
describes who the agent represents in the transaction - buyer or seller."
What the reasons are for the deteriorating disclosures aren't clear, but
there are a couple of factors that may be driving poor disclosures.
Since 2000, the population of real estate professionals has doubled, with
NAR memberships bursting from approximately 750,000 in 2001 to nearly 1.5
million by the end of 2005. It's possible that there hasn't been enough
training of these new licencees.
Second, the NAR points out that disclosure laws by the states are "all over
the place."
Iverson Moore, senior associate in public affairs for the NAR says, "There
are a lot of newcomers, and in most cases they should be trained to disclose
as early as possible, but not all state laws require it."
For example, in Alabama, disclosures are to take place "as soon as
reasonably possible and before a licensee discloses any confidential
information the licensee must provide a written disclosure, to be signed by
the consumer, that describes the alternative types of brokerage services
available ... ."
But in Arizona, disclosure isn't required until much later in the
transaction. "Before closing, a real estate broker must disclose in writing
to all parties the name of each employing broker who represents a party to
the transaction, and who will receive compensation from the transaction."
Arkansas' policy doesn't have a date when disclosures are required. All the
statute says is that "a licensee must clearly disclose to all parties to a
real estate transaction or their agents which party the licensee is
representing, as required by the commission."
Comments Laurie Janik, general counsel for the NAR, "Almost all states
require disclosure of agency relationships.
These statistics are truly disappointing to me. I would have thought the
numbers on compliance with agency disclosures would be increasing year by
year as agents become accustomed to making them on a regular basis."
She advises, "I think greater emphasis in agent training on the benefits of
agency disclosure might help to boost these numbers. Agency disclosure
benefits everyone. It helps avoid any confusion among buyers and sellers as
to whom the agent represents. It also helps the agents avoid creating
unintended agency relationships with consumers."
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