Disclosures Protect Washington, DC Area Homebuyers

Noncompliance with real estate disclosure laws has been a persistent problem, but it seems to be getting worse rather than better. Since Maryland discarded the common law of agency in the late nineties, the whole arena of disclosure has devolved into a morass of confusing disclosure statements, and improper implementation.  And those who suffer the consequences are consumers.

Real estate licensees themselves often do not understand the rules of disclosure.  So how does the consumer stand a chance? In Maryland enforcement of state agency disclosure requirements is lax to non-existent. According to a Maryland Real Estate Commission spokesperson, unless an agency is being examined for other violations, compliance with agency disclosure is not examined. Nebraska is one of the very few states that use regular audits of brokerage files to ensure that every transaction includes a written disclosure signed by the client. This is a policy that would benefit both the consumer and industry if implemented in Maryland.

Why is disclosure so important?  It’s important because in some relationships, the real estate licensee may have fiduciary duties to his or her client of undivided loyalty, obedience, confidentiality, accounting, and reasonable care. Unfortunately, most consumers believe that if they are looking to buy a home, and they call the licensee whose name is listed on the “For Sale” sign in front of the house, they become the client of that licensee!  Nothing could be further from the truth.  In most cases, that licensee has all of those fiduciary duties to the seller of the home, not the buyer.

Since buyers and sellers obviously have divergent goals and adverse interests, the buyer calling the listing agent or attending an open house is not truly represented as a client at all—but merely “sold to” as a customer.  In fact, the licensee listing the home has a responsibility to disclose to the seller anything they can learn about the buyer that will help the seller get a better price.

The Maryland Real Estate Brokers Act is deeply flawed and contains conflicting provisions. The most grievous conflict becomes evident when the consumer unwittingly becomes involved in a dual agency transaction. Maryland does require disclosure of a “dual agency” relationship – where one intra-company agent represents the seller, a separate intra-company agent represents the buyer and the broker purports to represent both sides in the transaction as the dual agent. Here is where the conflict in Maryland’s statutory agency law exists between §17-530 (d) (1) (v), which give the intra-company agents the ability to provide services to the consumer, i.e. “those provided by exclusive seller or buyer agents” that the broker cannot provide, and the provisions of §17-321 and §17-528 (e) of the Act.

Section 17-321 allows the agent to “provide real estate brokerage services on behalf of the broker of the firm.” Section 17-528 established the relationship between the broker and the client. If, by common and everyday meaning required by §17-530 (f) (2) (i) of the act, the broker cannot provide the same services of an exclusive seller or buyer agent, how can the agent who is limited to providing real estate brokerage service on behalf of the broker perform those acts?

The biggest problems are these:

• The current law contains conflicting and misleading language;

• There are categories of agency that have common and everyday meaning that are not included in the current law or disclosed to the consumer in the current agency disclosure form;

• Maryland’s law is clear as to the “when” and “how” disclosure is made to consumers but agents non-compliance has rendered it useless since the consumer will have already disclosed confidential information to the licensee before the consumer is informed of whom the licensee represents;

• Compliance by real estate licensees with the disclosure law has been abysmal and known since 1983with no concerted effort to improve it by the Realtor® dominated State Real Estate Commission or industry;

• There is no effort to enforce compliance with agency disclosure.

Amendment to the current Maryland Real Estate Brokers Act must include:

• Elimination of §17-530 (d) (1) (v) which creates the conflict;

• Inclusion of all agency options in the statute and in the mandated Agency Disclosure Statement;

• Requirement to obtain the consumer’s written confirmation that they have received and understand the information;

• Enforcement with specific audits for compliance and penalties for non-compliance.

Three studies by National Association of Realtors® (NAR) since 2002 show that only about 30 to 35% of home buyers actually receive agency disclosure statements at the first meeting with a licensee.[1] This is a level that is virtually unchanged since it was first revealed by the Federal Trade Commission in 1983.[2] In a fourth study earlier this year, 73.33% of the Realtor® respondents ranked agency disclosure among their top three concerns citing it as an area marred by sloppy practices.[3]

In many instances, the failure to comply with the state disclosure law (and the failure of the state regulatory body to enforce compliance) constitutes a deceptive trade practice which is harmful to consumers.  The level of noncompliance is not acceptable and must be addressed with revisions to the Maryland Real Estate Brokers Act.

Mr. Sullivan is Vice President and Associate Broker at Buyer’s Edge Co.,  Inc.

[1] Legal Scan:  Legal Issues Facing Real Estate Professional. 2009. National Association of Realtors®

[2] Federal Trade Commission.  The Residential Real Estate Brokerage Industry. (Washington:  Government Printing Office, Volume 1, December 1983), 69.

[3] 2011 Legal Scan: Legal Issues Facing Real-Estate Professionals, National Association of Realtors®