News
12-29-2006, 09:49 PM
Spelling Out Brokers’ and Agents’ Duties
By JAY ROMANO
BEGINNING tomorrow, New York real estate brokers will have to provide clients with new forms to sign that describe the relationship between the broker and the client.
The forms, created by the division of licensing services in the New York Department of State, are designed to provide expanded, clearer definitions of the different agency relationships and explain the duties owed by brokers and sales agents to their clients.
Neil Garfinkle, a Manhattan lawyer who is counsel to the Real Estate Board of New York, an organization of real estate professionals in New York City, said the most noticeable change was that while the previous form lumped together both lease and sale transactions on the same piece of paper, the regulations now require separate forms for each. “The old form was full of “buyer/tenant, seller/landlord language that confused everyone,” he said.
The new forms, he said, describe five legal relationships that a brokerage firm can have with a client: a seller’s agency; buyer’s agency; dual agency; dual agency with designated sales associates; and broker’s agency.
Diane Saatchi, a senior vice president of the Corcoran Group whose office is in East Hampton, N.Y., said the vast majority of brokers took the role of seller’s agent.
And although that type of agency is common, it can also be confusing for clients. That is because while one broker in a firm may take a listing from a seller, other brokers — both in that firm and in others — will be working with buyers and showing them that listing and others. While the brokers working with the buyers might appear to be working on the buyers’ behalf, in reality — and legally — those brokers may still owe their undivided loyalty to the seller, even if the brokers or sales agents have never even met the seller.
Mr. Garfinkle, the lawyer, said that with a buyer’s agency, the agent owes his or her undivided loyalty to the buyer. In fact, he said, for members of the Real Estate Board of New York, when a member broker or agent is representing a buyer who is interested in another member broker’s listing, that broker will act as a buyer’s agent and the seller’s broker will act as a seller’s agent.
The third category is a dual agency. In this role, Mr. Garfinkle said, the broker or sales agent is explicitly representing both the buyer and seller, but just as explicitly cannot provide undivided loyalty to either. In fact, he said, an agent acting as a dual agent has an obligation to explain to both the buyer and the seller that he is acting on behalf of the other party as well.
Another improvement on the new forms, Mr. Garfinkle said, is that they describe in detail a fairly common, but potentially confusing, type of agency known as dual agency with designated sales associates.
“This occurs when you have a broker with a listing who has a buyer interested in that listing or other listings held by the company,” he said. In that case, if both the seller and buyer consent, the broker can designate one sales associate to represent the seller and another to represent the buyer.
In this situation, he said, as with a dual agency, neither the seller’s nor buyer’s agent owes undivided loyalty to his or her client. At the same time, he said, each has an obligation to his or her client to exercise reasonable skill, act fairly and honestly and in good faith, and disclose any fact known to the agent that materially affects the value or desirability of the listing.
Since many large firms have scores of offices and hundreds of sales associates, if not thousands, a dual agency with designated sales associates offers a reasonable amount of protection to both the buyer and the seller because each has a different agent in the negotiations.
Mr. Garfinkle said that the fifth type of agency — broker’s agency — is, at present, somewhat poorly defined on the forms.
“The forms allow a client to authorize an agent to engage other agents to work on the client’s behalf without the client being liable for the second agent’s conduct,” Mr. Garfinkle said. “If that sounds confusing, it is. We’re waiting for the Department of State to explain to us what that means.”
By JAY ROMANO
BEGINNING tomorrow, New York real estate brokers will have to provide clients with new forms to sign that describe the relationship between the broker and the client.
The forms, created by the division of licensing services in the New York Department of State, are designed to provide expanded, clearer definitions of the different agency relationships and explain the duties owed by brokers and sales agents to their clients.
Neil Garfinkle, a Manhattan lawyer who is counsel to the Real Estate Board of New York, an organization of real estate professionals in New York City, said the most noticeable change was that while the previous form lumped together both lease and sale transactions on the same piece of paper, the regulations now require separate forms for each. “The old form was full of “buyer/tenant, seller/landlord language that confused everyone,” he said.
The new forms, he said, describe five legal relationships that a brokerage firm can have with a client: a seller’s agency; buyer’s agency; dual agency; dual agency with designated sales associates; and broker’s agency.
Diane Saatchi, a senior vice president of the Corcoran Group whose office is in East Hampton, N.Y., said the vast majority of brokers took the role of seller’s agent.
And although that type of agency is common, it can also be confusing for clients. That is because while one broker in a firm may take a listing from a seller, other brokers — both in that firm and in others — will be working with buyers and showing them that listing and others. While the brokers working with the buyers might appear to be working on the buyers’ behalf, in reality — and legally — those brokers may still owe their undivided loyalty to the seller, even if the brokers or sales agents have never even met the seller.
Mr. Garfinkle, the lawyer, said that with a buyer’s agency, the agent owes his or her undivided loyalty to the buyer. In fact, he said, for members of the Real Estate Board of New York, when a member broker or agent is representing a buyer who is interested in another member broker’s listing, that broker will act as a buyer’s agent and the seller’s broker will act as a seller’s agent.
The third category is a dual agency. In this role, Mr. Garfinkle said, the broker or sales agent is explicitly representing both the buyer and seller, but just as explicitly cannot provide undivided loyalty to either. In fact, he said, an agent acting as a dual agent has an obligation to explain to both the buyer and the seller that he is acting on behalf of the other party as well.
Another improvement on the new forms, Mr. Garfinkle said, is that they describe in detail a fairly common, but potentially confusing, type of agency known as dual agency with designated sales associates.
“This occurs when you have a broker with a listing who has a buyer interested in that listing or other listings held by the company,” he said. In that case, if both the seller and buyer consent, the broker can designate one sales associate to represent the seller and another to represent the buyer.
In this situation, he said, as with a dual agency, neither the seller’s nor buyer’s agent owes undivided loyalty to his or her client. At the same time, he said, each has an obligation to his or her client to exercise reasonable skill, act fairly and honestly and in good faith, and disclose any fact known to the agent that materially affects the value or desirability of the listing.
Since many large firms have scores of offices and hundreds of sales associates, if not thousands, a dual agency with designated sales associates offers a reasonable amount of protection to both the buyer and the seller because each has a different agent in the negotiations.
Mr. Garfinkle said that the fifth type of agency — broker’s agency — is, at present, somewhat poorly defined on the forms.
“The forms allow a client to authorize an agent to engage other agents to work on the client’s behalf without the client being liable for the second agent’s conduct,” Mr. Garfinkle said. “If that sounds confusing, it is. We’re waiting for the Department of State to explain to us what that means.”