Agency Law Update: "First substantial contact

By: Miriam J. Baer, Deputy Legal Counsel

Following implementation of the agency disclosure rule on July 1, the Commission has received numerous inquiries about its practical application. An important provision of the rule requires that when you are working directly with a buyer, but are representing the seller (either as a seller's agent or subagent) you must disclose to the buyer that you are the seller's agent. To make this disclosure, you must furnish the buyer with the Commission's Disclosure to Buyer from Seller's Agent or Subagent form at the "first substantial contact" with the buyer. But what does "first substantial contact" mean and when does it occur?

To understand when a substantial contact occurs, it is helpful to understand the purpose of the rule: to notify a prospective buyer that you represent the seller before the buyer reveals to you any personal information that he does not want the seller to know. Thus, when you are a seller's agent, you must give the Disclosure form to the buyer prior to showing any property to the buyer or even before you solicit information from the buyer regarding the buyer's housing needs and desires or the buyer's financial resources.

"First substantial contact" is a flexible standard. Typically, it will occur when you and a prospective buyer discuss in any detail the buyer's interest in purchasing property. It usually occurs no later than the first time you and the buyer meet in person to discuss his real estate needs. In this case, you may simply give the buyer the form for him to immediately sign.

What should you do if the "first substantial contact" occurs during a telephone conversation? If the first contact is by telephone, you should avoid soliciting any personal or confidential information from the buyer until you have had the opportunity to present the Disclosure form for the buyer's signature. You may deliver the Disclosure form to the buyer for his signature in person or by mail or fax, as long as both sides of the form are presented.

Even before you have a signed Disclosure form, you can give the buyer information about yourself, your firm, and available properties; for example, the services your firm offers, or a particular property's square footage, number of rooms, heating and cooling systems, and even its price.

Once you have disclosed that you represent the seller and the buyer has signed the form, you may obtain any information the buyer is willing to give. In fact, the buyer may want to divulge such information as his employment status, income and other financial resources in order to demonstrate that he is able to complete the transaction.

As a seller's agent or subagent, common sense and discretion are the keys when analyzing "first substantial contact." Provide the buyer the Disclosure form as early as possible-always before you obtain any confidential information.

[Note: 7he Real Estate Commission is considering amending its agency disclosure rule to allow oral disclosure when your "first substantial contact" with a prospective buyer is by telephone; you would then be required to immediately follow up the conversation by sending the Disclosure form to the buyer for his signature. (See page 8, no. 1.) A decision on the rule change is expected early next year.