In a quiet policy change that will affect hundreds of thousands of home-buying transactions, the National Association of Realtors has called for mandatory written disclosures to consumers of realty brokers' representation arrangements on behalf of home sellers.
The 710,000-member trade group, the dominant organization in the American real estate field, wants immediate state-by-state legislative or regulatory action to end what it now concedes is widespread and dangerous "confusion" among buyers, agents and sellers.
Among the potentially controversial changes favored by the realty group would be a requirement that no commission could be accepted by any broker, on any sales transaction, unless the buyer signed a printed statement explaining the broker's role on behalf of the seller.
The mandatory form would make it clear that the sales agent was working for the seller, not the buyer. It would note that, although the agent could provide "market information and assistance" to the buyer, the agent's legal duty, "loyalty and faithfulness" are owed to the seller.
The disclosure form would be handed to prospective purchasers at the earliest stage of the home search and sales process. Under one option contemplated by the Realtor group, an agent or broker would be subject to legal action for not including a copy of the disclosure form -- signed by both the buyer and broker -- as part of the closing documents of any home sale.
The Realtors' new recommendations represent a major shift for the industry. Consumer advocates have charged for years that the American home-buying system is weighted too heavily in the seller's favor.
As Washington consumer-law expert Alan Morrison said recently, "All the repeat players in a residential transaction are on one side" of the table. Many buyers misunderstand that, under the broker's so-called "agency" responsibilities to the home seller, the broker must seek to deliver the best possible deal to his client, according to Morrison and others. Any tactical, personal or financial information divulged by an unwitting prospective purchaser to an agent must be used on the seller's behalf, in other words, not to the buyer's advantage.
Widespread misunderstanding of the broker's role has led to a rising tide of lawsuits against realty firms and their agents. Under the law of agency, a buyer or seller can sue and obtain cancellation of an entire sale retroactively if a violation of the agent's contractual responsibilities can be demonstrated.
For example, if an agent disclosed to a potential buyer key tactical information about the financial needs of a seller he represented, either party could later sue for "rescission" of the entire sale.
A relatively common technical violation of agency duties occurs when an agent reveals to purchasers that a seller will accept a price considerably below the listed amount. If the seller did not authorize the agent to divulge that information, and did indeed prefer a higher price, the entire sale could later be challenged in court, even if the seller did not suffer economic harm.
The growing specter of such suits, plus pro-consumer moves within several state legislatures, convinced the Realtors to act "preemptively" on the issue, "rather than be run over by it," said one top official.
The new policy recommendations are included in a report to the association's directors. Robert Butters, associate counsel for the brokers' group, emphasized that the recommendations can be rejected or modified by state boards of Realtors.
Another official of the organization said the general expectation is that, "In most states we will seek and obtain legislation requiring disclosures by all agents and brokers -- whether Realtors or not -- in all sales transactions." Within a short period of time in many parts of the country, consumers will see a substantive change in the conduct of the traditional home-sales process. Consumer-oriented brokers already are applauding the changes. Peter Miller, an author and real estate broker from Maryland, said mandatory disclosure "will bring clarity to a system that sorely needs it."
It also should help spur a trend that Miller, author of "Buyer's Brokerage: A Practical Guide for Real Estate Buyers, Brokers and Investors," has sought to encourage -- the so-called "buyer's brokerage" concept. Buyer's brokers are hired and paid fees by purchasers, not by home sellers. Miller's book has been in heavy demand by realty professionals seeking to offer a broader range of services to consumers.