Commission approves recommendations of Agency 2000 Advisory Committee

By Phillip T. Fisher, Executive Director

    The Real Estate Commission recently revisited the issue of agency by forming an advisory committee to study various agency-related topics. The committee was composed of real estate professionals from across the state, including persons engaged in commercial real estate brokerage and buyer agency.

    Commission member Marsha Jordan served on the committee ex officio, and Executive Director Fisher facilitated the discussion. Special Deputy Attorney General Thomas R. Miller, Director of Education and Licensing Larry A. Outlaw, and Assistant Director of Legal Services Miriam J. Baer were advisors to the committee.

    At its first meeting, the committee identified the most immediate problem with agency agreements and disclosure from the perspective of the practitioner; namely, the reluctance of prospective buyers to sign the Disclosure to Buyer from Seller's Agent or Subagent form during their initial meeting with the broker or to execute and enter into a written agency agreement (especially an exclusive buyer agency agreement) before a rapport and good will have been established with the agent. According to the committee members, many agents continue to work with and expend time and effort on behalf of prospective purchasers without a written agency agreement, which not only subjects them to disciplinary action by the Commission but also may prevent them from receiving any compensation [Commission Rule A. 0104(a)]. The committee members were concerned that the Disclosure to Buyer from Seller's Agent or Subagent form was "legalistic" and intimidating to some buyers.

    In its search for solutions to this problem, the committee considered "non-agency relationships" ("transaction broker," "intermediary," "facilitator," etc.). At the request of the committee, the Commission staff reviewed and reported on agency laws in other states, focusing primarily on states that permit some form of non-agency.

    Mr. Miller advised the committee that courts are reluctant to relieve real estate practitioners of the common law duties imposed upon agents, and the committee acknowledged the similarity which currently exists between non-agency relationships and dual agency as practiced under dual agency agreements and addenda executed on North Carolina Association of REALTORS® standard forms. The committee recognized that statutory changes would be necessary to provide for "non-agency relationships" or "presumption of buyer agency," which was also discussed. Concerned about further confusing agents and consumers, the committee made no recommendations to the Commission for legislative solutions at this time.

    To address the dilemma encountered by agents dealing with prospective buyers who are reluctant to sign a written agency agreement at "first substantial contact," the committee explored replacing the current rigid and formidable "first substantial contact" approach with a more flexible disclosure system. It considered a concept whereby agents would, upon their first substantial contact with buyers, provide and review with buyers a brochure describing the various agency relationships.

    If the buyer elects not to enter into a written agency agreement at that time, the agent and buyer could enter into an unwritten (oral) agreement where the agent would act as the buyer's "non-exclusive agent." The agent could then work with the buyer (including showing properties), but if the buyer ultimately wishes to make an offer on property using the agent's assistance, the agent would be required to have the buyer sign a written agency contract.

    In the event a buyer refuses to enter into a written agency agreement at the time of making an offer to purchase, the "non-exclusive" agent would no longer be able to represent the buyer. Although during the oral agreement period buyers would be able to work with other firms and agents, it would at least afford the originating agent an opportunity to establish a rapport with the buyer that might eventually ripen into a written, exclusive agency relationship. The committee agreed in concept with this approach.

    Regarding the use of the current Disclosure to Buyer from Seller's Agent or Subagent form to alert buyers when the agent with whom they are working is an agent (or subagent) of the seller, the committee endeavored to create in its place a brochure containing general information for buyers and sellers concerning agency relationships which would be given to all prospective buyers and sellers at "first substantial contact" with them. In doing so, it would then not be necessary to include the Description of Agent Duties and Relationships statement in listing agreements, buyer agency agreements or other agreements for real estate brokerage services as currently required. After examining a similar brochure mandated by the South Carolina Real Estate Commission and a brochure developed by the North Carolina Association of REALTORS® "Evolving Agency Task Force," the Real Estate Commission staff and committee members developed several draft brochures, the last version of which was edited by a professional writer to better assure that its contents could be easily understood by real estate consumers. To encourage its use, the committee determined that the Commission should produce and make available to real estate firms and others for copying purposes 8 ½" x 14" camera-ready copies containing graphic enhancements which would be easily reproducible and contain space for real estate firms to identify themselves.

    At the conclusion of its meetings, the committee recommended that the Real Estate Commission adopt/amend its rules and undertake other measures as necessary to eliminate the current requirement that real estate brokers obtain written agency agreements from buyers before they can act as their agents, and instead permit real estate agents to represent buyers under unwritten, non-exclusive agency agreements as follows:

1. The agent must at the point of "first substantial contact" with the buyer furnish and review with the buyer a Commission-approved brochure containing general information concerning agency relationships, or if the contact is by means other than an "in person" meeting, at the earliest practicable time;

2. The agent and buyer must at the "first substantial contact" agree on the agent's agency relationship with the buyer;

3. The agent may proceed to work with the buyer as a buyer's agent (or dual agent) under an unwritten (oral) agency agreement if the buyer elects not to enter into a written buyer agency agreement and will, during any period when there is only an unwritten agency agreement, owe the buyer all agency duties;

4. The agent, during any period when there is only an unwritten agency agreement, must at the initial contact at least orally identify himself to sellers and sellers' agents as an agent of the buyer and must make such disclosure in writing not later than the time of the written offer to purchase, but the agent is not required to identify himself as a "non-exclusive agent" or that he is working under an unwritten agency agreement;

5. The agent and buyer during any period when there is only an unwritten agency agreement may terminate the agreement at will; and

6. The agent must obtain from the buyer a written buyer (or dual) agency agreement if (a) the agent seeks to restrict the buyer's right to work with (or without) other agents, or (b) the buyer wishes to make a written offer to purchase property with the agent's assistance (without such written agreement, the agent would be prevented from continuing to represent or assist the buyer in the transaction).

   The committee further recommended that:

7. Agents be required at the point of "first substantial contact" with sellers to furnish and review with them the brochure approved by the Commission;

8. Written agency agreements, when signed, should continue to contain a definite termination date and fair housing statement;

9. Agents should continue to be required to disclose to buyers in writing at the point of "first substantial contact" if the agent is acting as an agent (or subagent) of the seller whether generally or with regard to specific properties listed by the agent or his firm, but no particular form would be required and the disclosure may be included in the Commission-approved brochure; and

10. "Designated agency" as a form of dual agency practice should continue to be permitted in its same form.

    The Real Estate Commission approved the committee's recommendations and initiated rulemaking to consider the adoption or amendment of rules necessary to accomplish the changes (See "Commission proposes to amend rules" in this Bulletin).

    The Commission expresses its appreciation to the Agency 2000 Advisory Committee members: George R. Bell (Winston-Salem), George W. Bright, III (Elizabeth City), Stanley R. Domnick (Wilmington), J. Lamar Kellar, Jr. (Gastonia), Alice L. Mosteller (Waynesville), Nancy L. Nelson (Greensboro), Bailey W. Patrick (Charlotte), Gary C. Saleeby (Raleigh), and North Carolina Association of REALTORS® General Counsel Will Martin (ex officio).