The nonprofit Consumer Federation of America has once again come down hard on real estate disclosure laws. This time, the group is calling on states to rewrite disclosure laws so they are more understandable, and to give them to buyers and sellers upon their first contact with realty agents.
In its latest report, the CFA said many buyers do not comprehend the written disclosure statements they receive from their agents – if they receive one at all, or bother to read it.
For one thing, said CFA Senior Fellow (and former executive director) Stephen Brobeck, not knowing whether the agent represents your interests or those of the seller can be costly, because he or she could pass on information you disclosed that would diminish your bargaining power. And for another, an agent, in the interest of making a quick sale, may not show you houses that may be better choices.
“An agent working for the other party could, and may be legally required to, pass on compromising information such as the purchase price you’re prepared to sell for or spend,” he said. “And this agent would have no obligation to find the right buyer or the right house at the right price.”
New Hampshire a Model
This isn’t the first time Brobeck and the CFA have taken on the real estate sector. Back in the 1990s, they challenged the use of subagency, in which all other agents were the subagent of the listing agent. That meant that the agent who drove prospects around from house to house was legally bound to pass along information that was disclosed to him, sometimes without telling the buyer.
The use of subagency was subsequently abandoned, and every state set about writing its own disclosure laws. Some were written by lawyers, some by real estate professionals, but rarely did any include consumer input, said Brobeck.
Nowadays, disclosures are required in all 50 states. But many forms are so long, so full of legalese and so poorly presented that consumers will not read them. Beyond that, terminology differs wildly: The CFA found that, collectively, states use more than 50 different terms to identify the roles agents can play in a transaction.
Nowadays, disclosures are required in all 50 states. But many forms are so long, so full of legalese and so poorly presented that consumers will not read them
For example, a dual agent – one who works for both the buyer and the seller, but has no fiduciary duty to either – might be known as a “limited consensual dual agent,” “dual representative,” “limited dual agent without assigned agency,” “standard dual representative,” “standard dual agent,” “dual-agency broker representing seller and buyer,” “broker representing both seller and buyer” or “multiple representative.” It all depends where the agent practices the always-questionable art of working both sides of the fence.
“Very rarely do two states have the same agent roles and the same terms to identify those roles,” reads the CFA’s 27-page report said, calling the mishmash of terms “especially challenging.”
Brobeck singled out Washington’s disclosure form/pamphlet as the least consumer-friendly. But he added that many other states’ disclosures are so long, legal, poorly formatted and in such small type that they are unlikely to be read. On the flip side, he credited Vermont, New Hampshire and South Dakota with doing “a good job” with their disclosure laws.
What Other States Must Do
Stressing that “no state is perfect,” the nonprofit advises them all to go back to the drawing board. Otherwise, consumers are left to rely on the guidance of agents who don’t owe them any allegiance.
According to the report, 14 states fail to clearly identify whom the agent represents. In eight of those, the disclosure forms were written by the state; the other six use industry-written forms.
The timing of agency disclosures also leaves much to be desired. Now that many buyers are combing the internet and calling listing agents directly when they see a house they like, timing has become more relevant than ever, Brobeck said during a telephone press conference. “Many people don’t fully understand that the agent [they speak with initially] may not represent them.”
Yet, only 16 states require agents to reveal whom they represent upon first contact. Several others mandate disclosure upon the first meeting, which isn’t soon enough to satisfy Brobeck. Some states allow agents to wait until a service agreement of some kind is signed, and eight allow them to hold off until just before a contract is inked – which, as the report said, is “much too late in the process.”
With the amount of money involved in today’s typical real estate transaction, Brobeck said both buyers and sellers “really need an agent who represents their interests and their interests alone.”
Toward that end, the CFA is urging every state to rethink its disclosure laws and require they be in writing; in short, concise language; in a user-friendly format; and written by the state, not the industry. Furthermore, the disclosure should include the agent’s name, contact information and date.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at firstname.lastname@example.org.