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Real Estate Brokerage and Agency in Florida: A New Direction for State Laws? by H. Glenn Boggs |
H. Glenn Boggs gboggs@garnet.acns.fsu.edu is a professor in the Department of Risk Management/Insurance, Real Estate and Business Law, College of Business, Florida State University.
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If you ever bought a house, or ever wanted to buy one, you probably wondered how the real estate agent (or agents) involved in the transaction were going to be paid and who they really worked for. Enough studies have been conducted and articles written about this issue to demonstrate a chronic level of public confusion in the area. [Federal Trade Commission] Since real estate brokerage often facilitates the most financially significant purchase in a given individual’s lifetime, the agents’ agency role merits attention. In recent years (especially from 1994-1997) the Florida Legislature has paid considerable attention to this area and has passed, in three out of those four years, major bills addressing this area. One of those bills, 1995’s effort, was vetoed, but two others became law, including the most recent one, which became effective on October 1, 1997. [Laws of Florida]
The brokerage industry is politically active and well represented both at the state level by the Florida Association of Realtors (F.A.R.) and at the national level by the National Association of Realtors (N.A.R.). These trade associations have well staffed offices in Tallahassee and Washington, respectively, and fully participate in the legislative and policy making process. Accordingly, it should be expected that the industry viewpoint receives, at the minimum, a fair hearing, by policy makers.
Background
In order to understand the dynamics that shaped the current law and which will influence future ones, some appreciation of the past is in order. The entire history of real estate brokerage from its beginnings need not be retraced, but a description of how the industry routinely operated once the multiple listing service concept became established is appropriate.
Consider the traditional situation of a broker who obtained a listing from a seller. Legally, the normal result was that the broker became the seller’s agent and, as such, tried to obtain the best possible price and terms for the seller—consistent with general honesty and good business practice toward the buyer. Buyers encountered by the broker could be shown any of the broker’s listed properties. This was fine, as long as the broker had a listing in hand that the buyer liked. If not, must the buyer go from broker to broker to find out everything that was for sale in a community?
Here the simple genius of the multiple listing concept (MLS) came to the fore. It allowed all member brokers (and their salespersons) to share their listing information. Thus, if a buyer didn’t like a particular broker’s listings, the broker could show the buyer listings from all the other member brokers and improve the efficiency of the process many times over. However, notice the problem. When the broker in question (hereafter called the "selling broker") showed a buyer another broker’s listing, who did the "selling broker" represent as an agent?
The traditional legal result in most states was that the selling broker would usually end up representing the seller along with the listing broker. Often the "selling broker" would be categorized as a "sub-agent" of the listing broker, having the same legal obligation as the listing broker to obtain the best price and terms for the seller legally permitted. Naturally, this state of affairs was usually satisfactory to the seller, but frequently less so to buyers, if they understood the situation.
As buyer dissatisfaction and attendant litigation mounted, reforms of the prevailing system were initiated. Florida, like most states, started with simple disclosure requirements which brokers delivered to the parties telling them who they represented. Obviously this was not a solution to the buyer’s lack of representation, but it probably did increase buyer understanding of the situation. As more and more buyers gained insight, a demand for brokers representing the buyer worked its way into the marketplace, and as might be expected, greater regulation of the brokerage and agency relationship followed; not only in Florida, but throughout the country. In Florida legislative activity from 1994-1997 is good evidence of this point. The 1997 enactment represents the most recent definitive statement by the Florida Legislature in this area. Several key changes brought about by this new law are highlighted as follows:
Disclosed dual agency was revoked (naturally, undisclosed dual agency remains prohibited just as before).
Authorized brokerage representation formats include single agent for the seller, single agent for the buyer, and transaction broker. Definitions of each are provided.
Disclosure requirements for licensees in residential real estate transactions are established.
In its 1998 session, the Florida Legislature passed a new law which added several relatively minor "tune ups" to the 1997 legislation that is the subject of this article. These are scheduled to take effect on July 1, 1998. [1]
Specifics of the New Law
The Florida Legislature assigned the title, "Brokerage Relationship Disclosure Act" to the main part of this new law, and identified six points which apply broadly. The new statute also describes, in considerable detail, the types of disclosure licensees must give when engaged in residential transactions.
The six points of the new law which apply broadly seem to capture the overall concept of this legislation by specifying: (1) Licensees must operate as either single agents or transaction brokers; (2) A single agent may not serve both parties in a transaction, (3) Disclosed dual agency is expressly revoked; (4) Transaction brokers engage in ". . . a limited form of nonfiduciary representation to a buyer, a seller, or both . . ."; [2] (5) in residential transactions, a notice of nonrepresentation must be given to customers "upon first contact"; and (6) Statutory forms are provided for giving the notice of nonrepresentation and brokerage relationship disclosures in residential transactions. [Florida Stat., sect. 475.272]
Since the disclosure requirements in the statute are directly linked to residential sales transactions, it becomes a significant matter to distinguish residential sales where these disclosure requirements apply from other transactions where they do not. The statute addresses this by stating that the term "residential sales" means, ". . . the sale of improved residential property of four units or fewer, the sale of unimproved residential property intended for use of four units or less, or the sale of agricultural property of 10 acres or less." [Florida Stat., sect. 475.276 (1)] In addition, the next section of the statute also includes ". . . an option to purchase all or a portion of the property improved with four or less residential units . . ." within the range of transactions to which the residential sales disclosure requirements apply. [Florida Stat., sect. 475.276 (3)]
Disclosure Situations
It is important to note that if a licensee undertakes a "residential sales" transaction, then there are two separate disclosure situations where different rules apply. The first is the Notice of Nonrepresentation disclosure, and the second is the Authorized Brokerage Relationship disclosure. With respect to the first situation, it might be said that this disclosure is designed to "clear the air" between potential real estate consumers and licensees. It applies to buyers and sellers and the graviman of the disclosure from the licensee to the receiving party is to say: I don’t represent you now. I may later if we enter into an authorized brokerage relationship, but in the meantime don’t tell me anything you want kept confidential.
This disclosure is to be given "at first contact." [Florida Stat., sect. 475.276 (1)] According to the statute, the disclosure is to be given then,
. . . except in situations where a licensee knows that the potential seller or buyer is represented by a single agent or a transaction broker. If first contact between a licensee and a customer occurs during the course of a telephone conversation or any other communication in which the licensee is unable to provide the required notice of nonrepresentation, the licensee shall provide an oral notice and thereafter provide the required notice of nonrepresentation at the time of the first face-to-face contact, execution of a brokerage relationship agreement, or execution of a contractual agreement for purchase and sale, whichever occurs first. [Florida Stat., sect. 475.276 (2)]
The effect of this disclosure should be to let consumers know just where they stand vis a vie the licensee they are dealing with. Also it should minimize the occasions when an unintended, unauthorized, and undisclosed dual agency arises because of the behavior of the parties.
The statutory form for this notice is reproduced as follows: [Florida Stat., sect. 275.276 (3)]
NOTICE OF NONREPRESENTATION
FLORIDA LAW REQUIRES THAT REAL ESTATE LICENSEES PROVIDE THIS NOTICE AT FIRST CONTACT TO ALL POTENTIAL SELLERS AND BUYERS OF REAL ESTATE.
You are hereby notified that . . . . . . . . . . . . . . . . . (insert name of brokerage firm) and I do not represent you in any capacity. You should not assume that any real estate broker or salesperson represents you unless you agree to engage a real estate licensee in an authorized brokerage relationship, either as a single agent or as a transaction broker. You are advised not to disclose any information you want to be held in confidence until you make a decision on representation. Your signature below acknowledges receipt of this form and does not establish a brokerage relationship.
__________________________________
Date (Signature Optional)
__________________________________
(Signature Optional)
After a consumer receives the notice of non-representation, several choices are presented. If it is mutually agreeable, the licensee and the consumer may enter into an authorized brokerage relationship, which under the statute, must fit into one of three possibilities. Each of these also contains an appropriate disclosure requirement. They are:
1) Single agent for the seller,
2) Single agent for the buyer, and
3) Transaction broker.
Clearly the most likely scenario in which a single agency for the seller will develop is when a licensee secures a listing contract. Such a result is well within the comfort zone of most licensees, because listing brokers have traditionally been single agents for their sellers in most instances anyway.
It should be noted that a listing broker does have latitude under the statute to form a transaction brokerage relationship with the seller instead of a single agency if that is mutually agreeable to the parties. Further, the new law also provides that the licensee may begin as a single agent for the seller and then at a later point, with the agreement and consent of the parties change to a transaction brokerage relationship. Of course appropriate disclosure is required. [Florida Stat., sect. 475.278 (1)]
Single agency for the buyer is a newer concept in brokerage representation than single agency for the seller, but it has grown rapidly in popularity. Most markets include brokers who advertise their willingness to provide this service, and some brokers proclaim that they will provide only this service, working exclusively as buyers’ brokers.
In any event, if a licensee acts as a single agent for either the seller or the buyer, the statute requires the following disclosure to be made.
FLORIDA LAW REQUIRES THAT REAL ESTATE LICENSEES OPERATING AS SINGLE AGENTS DISCLOSE TO BUYERS AND SELLERS THEIR DUTIES.
As a single agent, . . . . . . . . . . . . . . . . . . . (insert name of Real Estate Entity and its Associates) owe to you the following duties:
1. Dealing honestly and fairly;
2. Loyalty;
3. Confidentiality;
4. Obedience;
5. Full disclosure;
6. Accounting for all funds;
7. Skill, care, and diligence in the transaction; and
8. Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing.
__________________ ___________________________
Date Signature [Florida Stat., sect. 475.278 (3)]
If, after a single agency is established, the licensee wants to change to a transaction brokerage, the statute contains another disclosure form to accomplish this task as follows:
FLORIDA LAW ALLOWS REAL ESTATE LICENSEES WHO REPRESENT A BUYER OR SELLER AS A SINGLE AGENT TO CHANGE FROM A SINGLE AGENT RELATIONSHIP TO A TRANSACTION BROKERAGE RELATIONSHIP IN ORDER FOR THE LICENSEE TO ASSIST BOTH PARTIES IN A REAL ESTATE TRANSACTION BY PROVIDING A LIMITED FORM OF REPRESENTATION TO BOTH THE BUYER AND THE SELLER. THIS CHANGE IN RELATIONSHIP CANNOT OCCUR WITHOUT YOUR PRIOR WRITTEN CONSENT.
. . . . . . . . . I agree that my agent may assume the role and duties of a transaction broker. (must be initialed or signed) [Florida Stat., sect. 475.278 (3)]
Naturally, the disclosure form for the transaction brokerage relationship itself must also be used, whether the licensee is switching from a single agency to a transaction brokerage or simply engaging in a transaction brokerage relationship initially without having first been a single agent.
To create the transaction brokerage relationship, the statute provides the following disclosure form for use by licensees:
FLORIDA LAW REQUIRES THAT REAL ESTATE LICENSEES OPERATING AS TRANSACTION BROKERS DISCLOSE TO BUYERS AND SELLERS THEIR ROLE AND DUTIES IN PROVIDING A LIMITED FORM OF REPRESENTATION.
As a transaction broker, . . . . . . . . . . . . . . . . . . . (insert name of Real Estate Firm and its Associates), provides to you a limited form of representation that includes the following duties:
1. Dealing honestly and fairly;
2. Accounting for all funds;
3. Using skill, care, and diligence in the transaction;
4. Disclosing all known facts that materially affect the value of real property and are not readily observable to the buyer;
5. Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing;
6. Limited confidentiality, unless waived in writing by a party. This limited confidentiality will prevent disclosure that the seller will accept a price less than the asking or listed price, that the buyer will pay a price greater than the price submitted in a written offer, of the motivation of any party for selling or buying property, that a seller or buyer will agree to financing terms other than those offered, or of any other information requested by a party to remain confidential; and
7. Any additional duties that are entered into by this or by separate written agreement.
Limited representation means that a buyer or seller is not responsible for the acts of the licensee. Additionally, parties are giving up their rights to the undivided loyalty of the licensee. This aspect of limited representation allows a licensee to facilitate a real estate transaction by assisting both the buyer and the seller, but a licensee will not work to represent one party to the detriment of the other party.
_____________________
Date Signature
____________________
Signature [Florida Stat., sect. 475.278 (2)]
According to the statute, this disclosure must be given to the parties ". . . before, or at the time of, entering into a listing agreement or an agreement for representation." [Florida Stat., sect. 475.278 (2)] Licensees can form a transaction brokerage relationship with either the buyer or the seller, or both of them in a given transaction. If so, the licensee has the duties specified in the disclosure form (reproduced above), but is specifically defined in the new statute to ". . . not represent either in a fiduciary capacity or as a single agent." [Florida Stat., sect. 475.278 (2)]
Agency for All Brokerage Transactions—Residential or Not
The new statute makes it very clear that the two permitted brokerage relationships which may now be legally used in Florida, are (1) single agency, or (2) transaction brokerage. This requirement applies to all brokerage relationship transactions—whether residential or not. The statute gives definitions of both single agency and transaction brokerage, but the definitions need not be repeated here since a glance back at the disclosure forms (used in residential sales and already reproduced herein) for each type covers the essential points by tracking the statutory definition.
No Brokerage Relationship
The statute also makes provision for the duties of licensees when they do not have a brokerage relationship with a customer.[Florida Stat., sect. 475.278 (4)] Obviously persons in this category would include parties on the opposite side of a transaction from the principal when the licensee is a single agent or the other party when the licensee serves as a transaction broker for only one of the parties.
The statute provides,
(4) NO BROKERAGE RELATIONSHIP—DUTIES. A real estate licensee owes to a customer with whom the licensee has no brokerage relationship the following duties:
(a) Dealing honestly and fairly;
(b) Disclosing all known facts that materially affect the value of the property which are not readily observable to the buyer; and
(c) Accounting for all funds entrusted to the licensee.
In addition, the Fall 1997/Winter 1998 issue of the Florida Real Estate Commission’s "News & Report" stated,
. . .
The Act does not require a customer to enter into an authorized brokerage relationship with any real estate licensee. This is no change from the old agency law. . . . [It should be noted that these are the duties which a single agent owes to a party other than the agent’s principal, and these are the duties which a transaction broker owes to a party which has not engaged the transaction broker to provide a limited form of representation. A real estate licensee who attempts to operate with no brokerage relationship with any party in a transaction is advised to be extremely careful to avoid giving the appearance, impression, or effect to the public that the licensee is providing representation or a limited form of representation to any party in a transaction.] ["Brokerage Relationship...", 3]
Context and Perspective
Since Florida’s new real estate brokerage relationship law has only been effective since October 1, 1997, not enough time has elapsed for the appellate courts to give judicial interpretation to any of its provisions that may be tested in litigation. Nevertheless, because the draft language of the law was hammered out before its introduction as a legislative bill, it represents a compromise and consensus position. According to the Florida Real Estate Commission’s "News and Report:"
The new law was the product of a joint effort by the Florida Real Estate Commission (FREC), the Florida Department of Business and Professional Regulation (DBPR), and the Florida Association of Realtors (FAR), a private trade association. ["Brokerage Relationship...", 3]
Representatives of these three groups met during a series of meetings between the 1996 and 1997 sessions of the Florida Legislature to develop the proposed language. As a result, the statutory language presumably reflects the viewpoints of both the state regulators and the regulated parties in the real estate brokerage industry. If so, it should prove to be a workable and practical regulatory framework.
What About the Public Interest?
Consumers appear to benefit from the new law in several ways. First, the awkward, unwieldy, and largely unworkable concept of disclosed dual agency has been dispensed with and eliminated. Since undisclosed dual agency was already prohibited, Florida real estate buyers and sellers should no longer have to contend with dual agency in any of its forms.
Second, the notice and disclosure requirements placed on licensees have been refined and generally seem clear and specific. They are confined to residential transactions where policy makers were apparently convinced that notice and disclosure provisions were most needed. Commercial real estate users were apparently thought to be generally more sophisticated and less in need of these protections than their residential counterparts.
Third, the types of brokerage relationships allowed, namely single agency or transaction brokerage are clearly defined. Unlike the notice and disclosure requirements, these apply across the board in all brokerage transactions, not just in residential deals. Since licensees will relate to customers only as a single agent or as a transaction broker (or perhaps with no relationship at all), the public should develop a clearer understanding of the role licensees play in real estate transactions.
Conclusion
Only the passage of time will finally tell how workable this new brokerage relationship regulatory framework in Florida actually is. In the meantime, however, it seems to be a sensible and balanced approach to regulation in the brokerage industry. The interests of regulators, licensees, and the public appear to have been addressed. Policy makers in other states may find the Florida model a useful one to examine and possibly implement.
Footnotes
1. Highlights of these changes include:
1. Creation of a new "designated salesperson" who can operate in "...other than residential sale...where the buyer and seller have assets of $1 million or more, the broker at the request of the customers may designate salespersons to act as single agents for different customers in the same transaction".
2. An exception to the requirement to give a Notice of Nonrepresentation was added in certain situations where, "An owner is selling new residential units built by the owner..."
3. Amendments to both the list of duties and the disclosure forms for single agents and transaction brokers to include the obligation for "Disclosing all known facts that materially affect the value of residential real property and are not readily observable...." This requirement was also added to the duties owed when there is no brokerage relationship.
2. This is a significant change in the Florida law because the former disclosed dual agency (now revoked) required the licensee to render a fiduciary duty (with certain modifications) to the parties, but a transaction broker only has a "limited form of nonfiduciary representation."
References
"The Brokerage Relationship Disclosure Act," Florida Real Estate Commission News & Report, Vol. XLVII (Fall 1997/Winter 1998).
Federal Trade Commission Staff Rep., The Residential Real Estate Brokerage Industry, 1983. (This two-volume report is the result of a cooperative effort coordinated by the Los Angeles Regional Office, the Seattle Regional Office, and the Bureau of Economics under the joint sponsorship of the Bureau of Competition and Consumer Protection and Ball & Norse, Testing the Conventional Representation, Model for Residential Real Estate Brokerage, 3. J. Real Estate Res. 119, 1988.)
Florida Stat., sect 475.272, 1997.
Florida Stat., sect. 475.276 (1), 1997.
Florida Stat., sect. 475.276 (2), 1997.
Florida Stat., sect. 475.276 (3), 1997.
Florida Stat., sect. 475.278 (1), 1997.
Florida Stat., sect. 475.278 (2), 1997.
Florida Stat., sect. 475.278 (3), 1997.
Florida Stat., sect. 475.278 (4), 1997.
