New Disclosure Law For Real Estate Agents

On January 1, 2011, the Real Property Law was amended to permit real estate licensees to obtain informed, advance consent to dual agency relationships. Additionally, the new law also requires agents to provide agency disclosure statements to renters, landlords, buyers, and sellers (including parties involved in cooperative apartment and condominium unit transactions). The following is a recent NY Times article on the new law:

A New Broker Disclosure Law

By VIVIAN S. TOY

Published: January 02, 2011

AS if the process of shopping for an apartment weren’t fraught enough, potential buyers and renters will have to deal with another wrinkle this year, when a new real estate broker-disclosure law goes into effect in New York.

The law requires a real estate agent to have clients sign a form stating that they understand whom the agent represents and to whom the agent will give “undivided loyalty,” as soon as they enter into a relationship.

Brokers are interpreting that to mean that the form does not have to be produced for everyone who walks into an open house, but rather as soon as someone starts asking substantive questions about a property, and certainly when someone asks for an appointment to see it a second time. Given that many apartment hunters are reluctant even to put their names on a sign-in sheet at an open house, agents do not want to have to present them with forms any sooner than necessary.

The disclosure law is designed to clarify the roles of buyers’ and sellers’ agents, in order to, as the form itself states, “help you to make informed choices about your relationship with the real estate broker and its sales associates.” The form goes on to define the various categories of agent.

Assemblyman Jonathan L. Bing, a Democrat who sponsored the legislation, says the new law increases consumer protection because previous disclosure forms were required only in transactions involving single-family homes and buildings with four or fewer units. Mr. Bing said the state and city Realtors’ associations had joined with him in urging passage of the law because it simplifies disclosure of dual agency, in which an agent represents both a buyer and a seller. Buyers can now sign one form providing advance consent to dual agency rather than having to sign a form for each listing that they might see.

“This is a consumer protection law,” said Neil Garfinkel, residential counsel to the Real Estate Board of New York, “but it also protects brokers, because now they will have a written record of what they’re already required to do now verbally.” If a complaint is filed against an agent for not producing a disclosure form, the penalty is a fine of up to $1,000 and, potentially, a requirement that the agency return the commission.

The law will also apply to sellers and landlords, but for them it will presumably be less jarring, because they will already be in negotiation with an agent for an exclusive contract. The disclosure forms will be fairly straightforward when agents are acting either for the buyer or for the seller. But often circumstances are less clear-cut, because they are acting as dual agents.

If, for example, a buyer is working with an agent and becomes interested in a listing represented by another agent who works at the same firm, then both agents become dual agents, and neither can provide undivided loyalty to either the buyer or the seller. But they can advocate and maintain confidences for each party. Some agents worry that having to discuss these kinds of possibilities when first meeting clients could frighten them off.

Diane M. Ramirez, the president of Halstead Property, said she favored the law, and noted that Connecticut and New Jersey had similar ones. “Things will be more transparent,” Ms. Ramirez said, “and that’s good for our industry, and the public will be happy to know that nothing has been hidden.”

Ms. Ramirez said that in training seminars some agents worried that the new forms would make it more difficult to make direct deals, in which a seller’s agent also represents the buyer. “Those buyers may say they want their own representation when they fully understand that they won’t have the agent’s undivided loyalty,” she said. “But if you disclose it all, there’s no reason you can’t treat someone honestly and in good faith, and have the buyer and seller more than pleased with the outcome.”

Gary L. Malin, the president of Citi Habitats, said, “Agents are always fearful about anything that can change the ebb and flow of business, but it’s a change that we all have to adapt to.” He said his firm had trained more than 600 agents on how to explain the form to potential clients and had also written more than 400 landlords with whom Citi Habitats has done business to introduce the new law and form to them. “We thought it would be a good thing to advise everybody,” he said, “because it’s going to be part of the process for all of us from now on.”

Mr. Malin said that while some potential clients might balk at signing the form when they had essentially just met an agent, he hoped that in a few months it would simply become a part of doing business.

Donna Olshan, the president of Olshan Realty, said her agents had been trained by officials from the Real Estate Board of New York, but added, “Nobody knows how this is going to work.” Brokers have been told that they must retain every form for three years, including “affirmation” forms, in which an agent states that although he or she has presented a disclosure form to a client, the client has refused to sign it. “We’re going to be up to our eyeballs in forms,” she said.

The disclosure forms may also be quite an eye-opener for renters. In many cases, when an agent has an exclusive rental listing, the agent is the landlord’s agent, even though the broker’s fee will be paid by the potential renter.

“Some future tenants may get a little freaked out when we have to put in writing that we represent the landlord,” said Steven Halpern, a sales manager for A. C. Lawrence and Company. “But it’s not a bad thing to clarify who we represent. And if a good agent builds a relationship in a good way, it won’t matter.”

As always, BAYVIEW ESTATES REALTY is here to assist you.  Contact us at (516) 777-0283.

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