Washington, D.C. – Today the Consumer Federation of America (CFA) released a new report analyzing diverse real estate disclosures about agent representation required by 50 states and DC.  The report – Why Required Real Estate Agent Disclosures About Representation Fail and How They Can Be Improved – concludes that these disclosures are often complex and legalistic, lack important information, are not timely, and are not understood by many home sellers and buyers.  The fact that different state disclosure laws use more than 50 different terms to identify seven possible agent roles provides an additional barrier to consumer understanding.

“Not knowing whether your real estate agent represents your interests or those of the other party can be costly,” said Stephen Brobeck, a senior fellow at CFA and author of the report.  “An agent working for the other party could, and may be legally required to, pass on compromising information such as the purchase price you’re prepared to sell for or spend.  And this agent would have no obligation to help you find the right buyer or the right house at the right price,” he added.

In several states, notably Florida, many home sellers and buyers work with “transaction brokers” (i.e., facilitators).  And in all states, some consumers work with agents who represent the other party in the home sale.  Yet, an October 2018 national survey commissioned by CFA found that two-thirds of respondents mistakenly said that real estate agents are “always” or “almost always” required to represent the interests of the home buyer or seller with whom they are working.

CFA recommends that all states take steps to improve their agency disclosures.  Essential information about representation should be prominently, briefly, and simply communicated by agents at first contact with customers, most importantly – the agent does not represent the customer and, if the case, represents another party.  Only home sellers and buyers with a signed agreement from a fiduciary agent can expect complete loyalty from that agent.  The three states with disclosures that best meet these criteria are South Dakota, Vermont, and New Hampshire.

“State real estate regulators need to prioritize home sellers and buyers receiving timely information about whom their agent represents,” noted CFA’s Brobeck.  “Even when not required by state law, regulators can urge agents to communicate to prospective clients that they do not represent their interests until a written agreement is signed,” he added.  CFA also urges these regulators to work with state legislators to make disclosures more consumer-friendly.

The report identified six different types of barriers to effective consumer disclosures on agent representation:

• No disclosure or awareness of disclosure: In a 2017 National Association of Realtors survey of recent home buyers, 40 percent said they did not receive the disclosure or did not know whether they had.  In a 2015 survey of Utah real estate agents, only 27 percent said they provided a required buyer agency disclosure signed at the first meeting.  As one real estate professional explained:  Most agents “simply tell the Buyer and the Seller it [agency disclosure] is a required document they must sign before they can assist them in a transaction.  The client or consumer signs this form without the slightest idea of what they are signing or what ‘Agency’ means.”
• No timely disclosure: Only sixteen states require agency disclosure at the first contact or first substantive contact.  Eight states allow this disclosure fairly late in the sales process, for example, “before the sales agreement” or “before sales contract presented.”
• Complexity of agent roles: Subject to certain individual state limitations, an agent can play any one of seven different roles – with total loyalty as an independent agent, with required loyalty as a designated agent, with required loyalty to the other party as a subagent, with no loyalty to you as a customer, with partial loyalty to you as a dual agent or as a facilitator, or with total loyalty as a fiduciary agent that later is shifted to partial loyalty as a dual agent.
• Complexity and diversity of state agency laws: These laws use more than 50 terms to identify the roles of agents.  A facilitator, for example, could also be called a transaction broker, transaction coordinator, transaction licensee, transaction agent, neutral transaction facilitator, neutral dual facilitator, neutral transaction coordinator, transaction facilitator, neutral licensee, or intermediary.  And no two states use exactly the same set of roles and terms for these roles.  In Rhode Island, for instance, consumers can work with a “neutral transaction facilitator,” “designed client representative,” “neutral dual facilitator,” or neutral transaction coordinator” while in Massachusetts consumers could work with a “seller’s agent,” “buyer’s agent,” “non-agent facilitator,” “designated sellers’ agent,” “designated buyer’s agent,” or “dual agent.”
• Long, legal, and poorly presented disclosure forms: Only 31 states have developed a disclosure form that agents are required to use.  In most other states, agents can use a disclosure form developed by their state realtor association.  Perhaps the least consumer friendly of the state forms is that of Washington State, which includes a one-page legal summary and five attached pages of legal language (headings include “vicarious liability” and “imputed knowledge and notice”).  Many other disclosures are long, use small print, contain long lists that consumers must compare to understand, and use legal language and concepts.
• Failure to include important information about agency: The disclosures of 14 states do not clearly identify whom the agent represents if anyone.  In only five states do disclosures mention the possibility of an agent switching from single agency to dual agency or transaction brokerage.  Most states permitting assigned designated agents do not require mentioning the possibility of conflicts of interest.

The report recommends that the agent’s relationship to seller or buyer be defined in terms of loyalty – total, partial, or none.  While the term “representative” connotes loyalty to customers, in some states it is used to describe dual agency.  The report also recommends that the disclosure be:

• in writing,
• presented at first contact without distractions,
• short, written in plain language with user-friendly format and type size,
• required and written by states not the industry, and
• include the agent’s name and the date.

Contact: Stephen Brobeck, sbrobeck@consumerfed.org