This summer has been very busy with new buyers coming into our area, looking to buy new homes and join our thriving community. One of the constants that seems to crop up with many of these buyers is that they are unaware of the role the real estate broker plays and who the real estate broker represents when taking them out and showing them a house.
In the system we presently use, when dealing with a real estate broker for the first time, the broker sits down with the buyer and shows them the form from the Department of State of New York called the real estate disclosure form, and you look at it and think, “What do I need to sign this for?”
This form, created by the N.Y. Department of State, is required to be signed by both buyer and seller (and lookers as well) in all residential real estate transactions, as well as prior to being shown any residential real estate for the first time.
The purpose of this disclosure is to make sure that the consumer, whether a buyer or a seller, is properly informed of the agency relationship of the real estate agent they are working with and the rights and obligations it creates. What does this mean exactly?
If a seller hires a real estate broker to sell their home, which means they are paying the broker a fee to sell their home, the broker now has the relationship of a seller’s agent with the seller. This means that the broker has a fiduciary responsibility to the seller to sell their home with undivided loyalty to the seller. Any information in the course of selling or negotiating the seller’s home must be done with reasonable care taken to represent the rights of the seller. The broker in fact is representing the seller and the seller’s best interests towards the goal of selling their home.
As the seller’s agent, it is the responsibility of the real estate broker to disclose to each buyer the relationship they have with the seller by having them sign the Real Estate Disclosure Form (with a copy retained for the buyer as well) where it states the broker has disclosed to the buyer that they are the “seller’s agent.”
By the way, if a real estate broker is a seller’s agent, it does not mean that they will not deal fairly and honestly with the buyer; in fact, quite the opposite. By disclosing this relationship up front with the buyer, they show the buyer the broker’s good faith in making them aware of this relationship and their willingness to deal honestly by disclosing all facts known to the agent so they, in turn, can make an informed decision regarding the property.
Another agency relationship is one where the buyer comes into the real estate broker’s office and engages the broker to represent the buyer’s interests. (This means the buyer is responsible for the real estate broker’s fees.)
In this instance, the real estate broker has a fiduciary responsibility to the buyer to represent their interests with undivided loyalty.
The buyer’s agent does this by negotiating the purchase of a home at a price and on terms acceptable to the buyer with the buyer’s interests in mind.
When representing the buyer as a buyer’s agent, the real estate broker must also disclose to the seller when showing their home that they are doing so as a buyer’s agent and representing the buyer, not the seller.
But—and there’s always a “but”—under Multiple Listing Service rules (MLS), all houses listed on MLS are exclusive of a member broker of MLS, how the commission is structured, and how much goes to whom needs to be stated in each listing so there’s no misunderstanding of what is being paid to a seller’s agent, a broker’s agent, or a buyer’s agent. Sounds simple, right?
Now that I have said this with tongue in cheek, I must add the latest change that is coming down the pike, this time from the U.S. Department of Justice, is to make buying and selling a house even more complex with more new rules that most of us still do not quite understand although the changes are due to go into effect August 17th.
Due to a court settlement with the National Association of Realtors—the essence of which I still think makes absolutely no sense in the DOJ’s concern of protecting everybody and yet ending up by protecting no one—new rules regarding disclosure need to be written both for the buyer separately and the seller separately, spelling out specific terms of who pays what commission when, where, and how, and it forbids any of the details to be posted on the Multiple Listing Service Sites. From now on, according to the DOJ, each buyer must sign a disclosure which also states how much commission they will pay the real estate agent selling them a house, and a new disclosure is required for each and every house the buyer is being shown prior to a broker being able to show it to them. Sounds like a formula for chaos!
As a seasoned broker, I must tell you that after reading dozens of explanations and questions and answers that have been sent out by all the Realtor Associations and Multiple Listing Services, I am no nearer to understanding what this entails in this new disclosure system that is only a few weeks away and continually see notes of those associations still going back to the Department of Justice for clarification on how to implement whatever the DOJ is trying to achieve.
My concerns are if the associations are not quite sure of the specifics of what has to be created in the new disclosures, how can the rest of us hope to serve the public with concise and correct information which complies with the new law but at the same time explains everything clearly to both the seller and the buyer so everyone understands the new system? And, to be clear, this will generate a new format of getting to know a new system of buying and selling residential real estate. (Yes, the DOJ does not feel it important for this new system to also be a part of commercial real estate sales.)
Since the real estate laws in each state are different, it also remains to be seen how this directive by the DOJ will be generated on a state-by-state basis.
Does this sound confusing? Yes, I agree it does, since most of us are just as confused as you are and it seems like the confusion will continue to the last moment when hopefully more specific directives will come down the pike showing us how to translate this DOJ decision into the new version of buyer and seller real estate disclosures being presented to the public.
Stay tuned!
Anessa Cohen lives in Cedarhurst and is a Licensed Real Estate Broker (Anessa V Cohen Realty) with over 20 years of experience offering full service residential, management and commercial real estate services in the 5 towns of Long Island as well as the tri-state area . She can be reached at 516-569-5007 or Readers are encouraged to send any questions or scenarios by email to anessa@avcrealty.com.
