Understanding Real Estate Disclosures
This summer has been very busy with new buyers coming into our area looking to buy homes and join our thriving community. One of the constants that seem to crop up with many of these buyers when I take them out is that they are unaware of the role the real estate broker plays and whom the real estate broker represents.
Since the New York State Dept. of State (https://dos.ny.gov/) requires a disclosure be given to each buyer by the real estate broker when showing them a house, if the broker fails to comply with this regulation, the buyer may not be properly informed as to who the real estate broker represents.
I thought I would delve into this topic, especially for first-time home buyers. When dealing with a real estate broker for the first time, the broker sits down with you and shows you a 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 is required to be signed by both buyer and seller in all residential real estate transactions, as well as prior to being shown any residential real estate for the first time. The purpose of the disclosure is to protect you, the consumer, whether buyer or seller, to make sure you are properly informed about the relationship between the agency and the seller and the rights and obligations this relationship creates. What does this mean exactly?
If a seller hires a real estate broker to sell their home, the broker 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 is in fact representing the seller’s best interests towards the goal of selling their home.
As a seller’s agent, it is the responsibility of the real estate broker to disclose to each buyer their relationship with the seller by having them sign the Real Estate Disclosure Form (with a copy retained for the buyer as well) in which it states that the broker has disclosed to the buyer that they are a “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 with the buyer. In fact, just the opposite. Disclosing to the buyer upfront their relationship with the seller should only show the buyer the real estate broker’s good faith in making them aware of this relationship and their willingness to deal honestly with the buyer in disclosing all facts known to the agent so they can make a knowledgeable decision regarding the property involved.
A new “buyer relationship” has come into effect. Actually, there are two kinds. One is where the buyer must sign a buyer disclosure stating that the broker is taking them to see a house or is working for them, the buyer. This disclosure will have a commission section where the buyer and broker agree in advance to the amount the broker will be paid, and that this will be the buyer’s responsibility unless the seller has agreed to pay this commission and to include the amount to be paid as part of the gross price of the house. In this case, the seller agrees to pay buyer’s commission.
This was put into effect by the U.S. Dept. of Justice across the country in the last couple of years, essentially separating what the buyer or seller are responsible for as separate entities while purchasing a house. (This means that the buyer is responsible for the real estate broker’s fee and the real estate broker has a fiduciary responsibility to the buyer.)
The second buyer’s disclosure is one that has been in effect for a long time. This is when a buyer exclusively hires a real estate broker to represent them and find them a house to buy. In this instance, the real estate broker has a fiduciary responsibility to the buyer and represents their interests with undivided loyalty.
The buyer’s agent does this by negotiating the purchase price of a home that is 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 disclose to the seller when showing their home that they are doing so as a buyer’s agent and is representing the buyer, not the seller.
The other category added to the real estate disclosure form is called a “dual agency.” This is not a common category, but it does happen sometimes that a real estate broker who is a seller’s agent for a particular seller has a situation where they also represent a buyer as a buyer’s agent specifically on the proposed negotiation of one specific real estate transaction. In such a case where the broker is representing both parties in this transaction, it must be disclosed to both buyer and seller prior to showing and negotiating a deal between the two parties of the dual relationship that the real estate broker has with them.
No matter which category you fall into, the most important thing is to make sure you are given this disclosure form to sign prior to looking, buying, or selling any properties, so you may know up front which category you fall into regarding broker’s fees.
If anyone has any questions regarding this disclosure or any of the other issues that I have discussed in my weekly column, please do not hesitate to call or write.
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. Readers are encouraged to send any questions or scenarios by email to [email protected].
