Real Estate Agency Issue Risk Managment

The Power of A Relationship Matthew Rathbun ABR, ABRM, AHWD, ASR, CSP, e-PRO, GREEN, GRI, SFR, SRS, SRES EarthCraft and Eco-Broker Certified TheAgentTrainer.com

Clients Likelyhood To Be A Repeat Client Don’t Know - 1% Deﬁnitely Not -7% Probably Not - 9% 1% Probably - 19% 7% 9% Deﬁnitely - 63% 19% 63%

Client Customer Designated Dual Agency Limited Services Sub-Agent Non-Client

Statutory Duties Honesty Disclosure Obedience Accounting Loyalty Reasonable Care Conﬁdentiality

Opinion Fact

Control Consult Communicate

Agency Disclosure Revisited Must be (one of the following) Conspicuous Printed in bold letters All capital letters Underlined In a separate box Dual Agency Disclosed to ALL parties and agreed to in writing Listing agreement does not cover the change

Divorcing the Commission

Negotiating the Commission • MLS Dictates • MRIS Article IV, Section 15 • Code of Ethics Considerations • Arbitration • Who Do You Work For?

Related 2008 DPOR Changes 18 VAC 135-20-180 c.5 amended to require principal brokers to report all instances where they believe that escrow accounts are not being properly maintained. (3 days) 18 VAC 135-20-280 (paragraph 2) amended to require prior written consent of the principal broker for performing certain commission based acts.

18 VAC 135-20-160 Broker Oversight Every place of business must have a Supervising Broker. Responsibility may ONLY be given to another licensed broker. Must oversee and approve all contracts and agency agreements Must provide training AND policies on: Escrow Handling Fair Housing Advertising

18 VAC 135-20-160 Broker Oversight Negotiating and drafting of contracts, leases and brokerage agreements; Use of unlicensed individuals; Agency relationships; Distribution of information on new or changed statutory or regulatory requirements; Disclosure of matters relating to the condition of the property. Such other matters as necessary to assure the competence of licensees to comply with this chapter

18 VAC 135-20-160 Broker Oversight Supervising broker must undertake reasonable steps to ensure compliance by all licensees assigned to the branch ofﬁce; Supervising broker located more than 50 miles from the branch ofﬁce must certify in writing on a quarterly basis their supervision efforts. Records to be kept for 3 years.

No Off-Site Agent Ofﬁces •No place of business shall be in a residence unless it is separate and distinct from the living quarters of the residence and is accessible by the public. 18 VAC 135-20-160.

• Code of Ethics Consideration ▫ Article 1: Honesty ▫ SOP 1-13: Offers Not Confidential  SOP 1-15: Disclose competing offers and their authors ▫ Article 3: Variable Rate Commissions must be disclosed ▫ Article 16: Prohibition to work with another REALTORS client  SOP 16-12: Agency Disclosures no later than executing offer.

Disclosures Imputed Knowledge Imputed Notice Material Facts Disclosure Latent Facts Disclosure

Virginia’s Limited Services Every Agent Must: If Waived, Results in Limited Representation: • Perform to Agreements • Promote Best Interests • Assist In Marketing • Maintain Conﬁdentiality • Assist in Drafting / Negotiating • Exercise Ordinary Care • Account For All Money • Establish Strategies for Accomplishing Objectives • Disclose Material Facts • Comply With All Laws • Reasonable Assistance to Satisfy Contract Obligations • Provide All Disclosure Docs

Required Disclosure Language “By entering into this brokerage agreement, the undersigned do hereby acknowledge their informed consent to the limited service representation by the licensee and do further acknowledge that neither the other party to the transaction nor any real estate licensee representing the other party is under any legal obligation ot assist the undersigned with the performance of any duties and responsibilities of the undersigned not performed by the limited service representative.”

Dangers of Dual in the Law Hawkins A dual agent added an "as is" clause to the purchase agreement without the buyer's consent. The jury returned a $62,641 verdict. Source: NAR 2009 Legal Scan

Dangers of Dual in the Law • Jenkins The seller's agent, acting as an undisclosed dual agent, executed a sales agreement for the sellers that contained provisions the sellers never agreed to, resulting in a $24,843 verdict.

Dangers of Dual in the Law • Maali A dual agent arranged the sale of a gas station, but the national franchisor refused to approve the transfer of the franchise agreement to the buyer. The agent's broker was found vicariously liable for the agent's conduct; the jury awarded $149,000 in compensatory damages and $50,000 in punitive damages.

Dangers of Dual in the Law • Martinez v. AFM Realtors of Am. The buyer wanted to purchase an apartment complex that was not subject to rent control, and the dual agent did not tell him the property was subject to rent control. The jury returned a $209,100 verdict.

Ralph Sampson wanted a pool... The case settled for $450,000. Source: NAR 2009 Legal Scan

Statutory Duties Perception of Dual Agency Honesty Disclosure Obedience Accounting Loyalty Reasonable Care Conﬁdentiality

A New Kind of Dual Agency • Amador Zuazua vs. Tibbles (Montana 2006) • Upheld by Supreme Court • 2 Buyers = Dual Agency

DPOR Responds “Don't forget the problems caused by being a Dual Agent. The difficulties associated with this perfectly legal agency relationship seem to be on the increase. Be very careful to communicate and explain dual agency to prospects and clients and avoid dual representation if at all possible.” Schafer Oglesby, VREB Chairman VREB Speaking – Winter 2006

VAR Responds Dual Agency is ALWAYS a conflict of interest. Virginia law merely permits you to engage in it with the informed consent of the parties provided you act accordingly. Their informed consent, once obtained, does not mean the conflict ceases to exist, merely that the clients consent to your acting as a dual agent notwithstanding the existence of the conflict. This is an important point to remember: the conflict does not go away just because you get the requisite consent. You still must act in a manner consistent with the conflicting interests of your clients. Lem Marshall, VAR General Counsel March/April 2004 issue of “Commonwealth” Magazine

NAR Responds “Realizing that cooperation with other real estate professionals promotes the best interests of those who utilize their services, REALTORS ® urge exclusive representation of clients; do not attempt to gain any unfair advantage over their competitors; and they refrain from making unsolicited comments about other practitioners. In instances where their opinion is sought, or where REALTORS® believe that comment is necessary, their opinion is offered in an objective, professional manner, uninfluenced by any personal motivation or potential advantage or gain.” Paragraph 5 of the Preamble to the Code of Ethics

Creation of Agency Expressed Agency Implied Agency MLS Does Not Establish Agency!

Termination of Agency Revocation Renunciation Death of Principal / Agent Insanity Bankruptcy Illegal Destruction Expiration

Odds and Ends Personal Presentations of Offers Lockboxes Limbo State of Transfers “Can’t Reach the Seller’s Agent” “The Buyer Called Me Directly…” “Being Contacted for Different Service” Presenting all offers

LIMITATIONS FOR LICENSEE LIABILITY FALSE INFORMATION PROVIDED BY SELLER REVEALING INFORMATION REQUIRED BY LAW MISREPRESENTATION MADE BY SUB-AGENT (UNLESS BROKER / LICENSEE SHOULD HAVE KNOWN) NEGLIGENCE OR GROSS NEGLIGENCE OR INTENTIONAL ACTS OF THE ASSISTING BROKER / SALESPERSON

• Potential Penalties of Agency Breach • Forfeiture of Commission • Actual damages • Punitive damages • Consequences for NAR Code of Ethics • Loss of Real Estate License

Disclosure Documents Regional Contract Exclusive Right to Represent Listing Agreement Buyer Agency Agreement VAR Disclosure of Brokerage Relationship NVAR Disclosure of Brokerage Relationship

Record Keeping To include time Disclosures to place and date of be kept for 3 disclosure even years if unsigned or oral

www.TheAgentTrainer.com matthew@realtor.com Facebook.com/mattrathbun Twitter.com/mattrathbun

Real Estate Agency Issue Risk Managment

by Matthew Rathbun

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