Real Estate Agency Issue Risk Managment


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Presentation for Risk Reduction with Agency issues, from Procuring Cause to representation.

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Real Estate Agency Issue Risk Managment

  1. 1. The Power of A Relationship Matthew Rathbun ABR, ABRM, AHWD, ASR, CSP, e-PRO, GREEN, GRI, SFR, SRS, SRES EarthCraft and Eco-Broker Certified
  2. 2. 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%
  3. 3. Client Customer Designated Dual Agency Limited Services Sub-Agent Non-Client
  4. 4. Statutory Duties Honesty Disclosure Obedience Accounting Loyalty Reasonable Care Confidentiality
  5. 5. Opinion Fact
  6. 6. Control Consult Communicate
  7. 7. 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
  8. 8. Divorcing the Commission
  9. 9. Negotiating the Commission • MLS Dictates • MRIS Article IV, Section 15 • Code of Ethics Considerations • Arbitration • Who Do You Work For?
  10. 10. 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.
  11. 11. 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
  12. 12. 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
  13. 13. 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.
  14. 14. 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.
  15. 15. • 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.
  16. 16. Disclosures Imputed Knowledge Imputed Notice Material Facts Disclosure Latent Facts Disclosure
  17. 17. 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
  18. 18. 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.”
  19. 19. 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
  20. 20. 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.
  21. 21. 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.
  22. 22. 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.
  23. 23. Ralph Sampson wanted a pool... The case settled for $450,000. Source: NAR 2009 Legal Scan
  24. 24. Statutory Duties Perception of Dual Agency Honesty Disclosure Obedience Accounting Loyalty Reasonable Care Confidentiality
  25. 25. A New Kind of Dual Agency • Amador Zuazua vs. Tibbles (Montana 2006) • Upheld by Supreme Court • 2 Buyers = Dual Agency
  26. 26. 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
  27. 27. 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
  28. 28. 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
  29. 29. Creation of Agency Expressed Agency Implied Agency MLS Does Not Establish Agency!
  30. 30. Termination of Agency Revocation Renunciation Death of Principal / Agent Insanity Bankruptcy Illegal Destruction Expiration
  31. 31. 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
  33. 33. • Potential Penalties of Agency Breach • Forfeiture of Commission • Actual damages • Punitive damages • Consequences for NAR Code of Ethics • Loss of Real Estate License
  34. 34. Disclosure Documents Regional Contract Exclusive Right to Represent Listing Agreement Buyer Agency Agreement VAR Disclosure of Brokerage Relationship NVAR Disclosure of Brokerage Relationship
  35. 35. Record Keeping To include time Disclosures to place and date of be kept for 3 disclosure even years if unsigned or oral
  36. 36.