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RE: AN ACT CLARIFYING THE DUTIES OF REAL ESTATE BROKERS

In response to similar legislative attempts in 1997, Attorney Frederick G. Barry provided the evaluation below. Fred Barry is a practicing attorney in Milton and Cape Cod, an educator of real estate agents, and an Adjunct Professor of Law at the Massachusetts School of Law.

RE: AN ACT CLARIFYING THE DUTIES OF REAL ESTATE BROKERS

1) On December 4, 1996, the General Court of the Commonwealth of Massachusetts was asked to lend its authority to the enactment of a lengthy amendment to Section 87PP of Chapter 112 of the Massachusetts General Laws. The title of this act implies that its purpose is merely to clarify the duties of real estate brokers. To the uninitiated, this legislation appears at worst innocuous, and at best both harmless and helpful.

2) Who could quarrel in principle with the "clarification of duties" of real estate brokers, given the ever-increasing complexity of their business and the likelihood of liability for the brokers and their companies when duties are breached?

3) Such important legislation however, which affects virtually all consumers of real estate services cannot and should not be enacted by the uninitiated. It is of great importance that the wise and honorable members of our General Court understand the anti consumer nature of this proposed legislation, and the unspoken agendas of its proponents.

4) The ancient and once honorable principle of caveat emptor warned consumers in earlier times to approach each transaction warily. Before science and technology left most of us behind, accumulated wisdom and experience along with careful observation were sufficient to weigh the value of the deal. Consumers and merchants "played" on a level field,

5). The law of agency, which this act would abrogate, has been evolving for several hundred years and has become particularly important in the 20th century. Professional "agents" provide and typically sell their services to amateur "clients" who are consumers of complicated products or services. Our laws place the agents in positions of trust with carefully defined "fiduciary" duties. In carrying out these duties it is said that the agent "represents" the client. In this context "representing" is not a lay term, but a legal term. When an agent accepts the trust of a client he is promising to focus exclusively on the beat interests of the client. He must put those interests even before his own. It may be helpful to visualize the attorney/client relationship to fully understand agency.

6) It should not be surprising to our legislators that attorneys and judges find the notion of dual agency incomprehensible, perhaps even laughable. And yet, dual agency in one form or other is precisely what this act promotes. By abrogating common law and redefining agency large real estate companies could entice both buying and selling consumers of real estate with promises of full service agency. Buyers seeking the lowest possible price on favorable terms would be promised loyalty by a company, which simultaneously promised loyalty to sellers who were seeking the highest possible price on favorable terms.

7) Consider the dilemma of the consumer of real estate services. He is attracted by the image, stature and general high profile of a large real estate company. Assuming quite logically that success breeds success he is confident that this company can serve him best whether he wishes to buy or sell or both. He is assured in solemn terms that he will receive the most professional "representation" available. It will be easy to conclude that he has come to the right place. If he is a buyer he will be assured of the company's large market share of listed properties. If he is a seller he will be assured that the company has a history of attracting the most qualified buyers. A few astute consumers may at this point begin to wonder how both buyers and sellers can be fully "represented" by one company. Most however will move blissfully through the purchase and sale process, being carefully directed to in house listings or in house buyers. Should a match be made there will likely be in house financing and in house counsel available. With luck, all shopping will be in "the company store".

8) All's well that ends well ... or is it? Did the sellers really understand that the process would favor the company's own buyers? Did the buyers understand that regardless of their needs, an incentive laden structure would push them toward in house listings? Did either party understand that when they signed that "consent to dual agency" form, they lost the company's loyalty? Did they know that they were no longer "represented" by a fiduciary? Did they realize that without such an agent there would be no professional guidance?

9) The professional guidance, which was expected by both parties when they chose the company, has been legally extracted from the process. The company is now not only permitted, but required by contract to omit further professional guidance and advice. The parties now float freely and at times blindly, through the purchase and sale process agents and the company, with no further obligation to provide professional guidance and advice, are immune from liability should either party stumble into a bad deal.

10) This proposed legislation is openly and blatantly anti-consumer. Why then would the National Association of Realtors or the Massachusetts Association of Realtors promote such a law? Most simply, these are trade organizations. They exist for the benefit of their members, not for the benefit of consumers. This proposed law is wholly self serving. It is intended to protect their members from liability by drastically reducing their obligations to the consumers who rely on thou.

11) The proponents of this proposed legislation suggest that it is common to override common law ... and they are right. The process of replacing common law with statutory law has been going on for about 200 years. We no longer rely on common law definitions for traditional felonies like murder and rape. Modern statutory law gives us new definitions and new penalties. The problem with this proposal is that it seeks to change the common law definition of agency only as it relates to real estate agents. All other agents would remain full fiduciaries. If the state and national real estate trade associations wish to reduce the legal responsibilities of real estate agents they should re label them as real estate clerks. People who agree contractually to pay for professional advice, counsel, and service should not later be asked to waive that right for the convenience of a company which wishes to be compensated by both sides of the deal.

12) It has been pointed out that lawyers can represent both sides of a legal controversy. This is true, but it can be done only when both parties give their fully informed consent to this dual representation. Attorneys are very reluctant to engage in such a practice because they know that to represent both is to represent neither properly. They know that to proceed would involve great personal risk. They realize that many of the possible consequences of proceeding with dual agency are not practically foreseeable at the moment of consent. They also know that judges may be disinclined to enforce any consent given without full knowledge of its consequences. As a result, dual agency goes virtually unpracticed by attorneys.

13) Another section of this proposed law would allow the principals, or owners, of real estate companies to appoint full fiduciary opponents from within the company's ranks, one agent for the buyer and one agent for the seller, while at the same time removing themselves from potential liability for negligence. What a wonderful world for owners. "If you have a problem, sue my agents. Even though I own the clients I'm not responsible for their fair treatment."

14) It may be useful to focus on the critical issue which prompts this legislative effort i.e. the preservation of the in house sale. First, we must recognize that the in house sale is one of the "support columns" of the real estate industry. Accordingly, it must be protected and it can be protected without sacrificing consumer protection. The solution is not complicated. This proposal should be withdrawn, and future legislative and educational energy should be focused upon the training and education of brokers, which would enable them to provide full fiduciary services to those who need them. They must understand client loyalty and all of the implications of full fiduciary services. They should also understand that many buyers can and will prefer to fend for themselves. These buyers with personal knowledge of the market and the process are quite content to forego undivided client loyalty and remain well-informed "customers". These buyers prefer to be unencumbered by agency contracts. They prefer to be free to deal with multiple listing companies in the hopes of finding pre MLS listings.

15) With many buyers content to remain customers, the companies, which wish to do in house sales, must train their agents to give these buyers the quality of informational services which will earn their patronage. And so, there will be peace in the valley. Sellers will get real undiluted agency representation by the listing companies. Buyers who wish the protective services of a full service agent will seek the assistance of buyer agent specialists, and independent buyers who are content with customer status will work with traditional companies or directly with "FSBO" sellers.

          Frederick G. Barry Jr. Esq.
          Adjunct Professor of Law, 617 698-3770