Friday, January 12, 2007

Dual Agency, Practical or Impractical & What The Heck Is It, Anyway?

Dual Agency, Practical or Impractical
&
What The Heck Is It, Anyway?

A lot has been written and debated about the subject of Dual Agency. So, what the heck is the big deal?

Let's break it down. The assumption is that most people are aware that a real estate broker or salesperson ("Broker") is an agent with fiduciary duties to the party that the Broker represents. The reality and the problem is that most people do not know this. Now... most real estate agents should know this but unfortunately, many do not. You see,
an "agency relationship" is most often created by express agreement, I.E. a listing agreement and/or a buyer broker agreement. Normally, both documents clearly outline the fiduciary relationship and duties of the real estate agent. However, an agency relationship can be legally implied by the parties' "agent's" actions. Regardless of whether the agency relationship is express or implied, the agency relationship imposes on a Broker the fiduciary duties of loyalty, obedience, disclosure, confidentiality, and accounting.


In King County, Washington State, in Busk v. Hoard, 396 P.2d 171 (1964 Wash. 1964)., the King County Supreme Court held that: "...The concept of agency is one of law. Its existence depends upon factual elements that enable a
determination, as to whether an agency relationship existed, to be made from all the peculiar circumstances of the particular case. No one fact, seized from its setting, should be regarded as conclusive or controlling under any
and all circumstances..."


So, what is "fiduciary duty"? First let's define what the Realtor's Code of Ethics says of Fiduciary Duty.


Standard of Practice 11-2

The obligations of the Code of Ethics in respect of real estate disciplines other than appraisal shall be interpreted and applied in accordance with the standards of competence and practice which clients and the public reasonably require to protect their rights and interests considering the complexity of the transaction, the availability of expert assistance, and, where the REALTOR® is an agent or subagent, the obligations of a fiduciary. (Adopted 1/95)

Ok... so what the heck does that all mean? For me, perhaps the best definition of "fiduciary" was found on the Internet at www.websiteupgrades.ca/glossary/free/F.shtml:

Here Fiduciary is defined as:

"A person charged by law and equity with a higher duty of care for another person. A person who, as a result of a relationship with another person, is required by law to place the other person's interests equal to or ahead of his own in all dealings involving that other person. The relationship is often created when the other person approaches the fiduciary to use the fiduciary's special skills and knowledge, for a fee, to benefit the other person."


I think this definition best describes what we do as Realtors and/or real estate agents. We either represent the best interests of a client, buyer or seller or we take some subservient roll. By subservient roll, I do not mean to imply that our services are any less valuable, only that our services take on a different face.

Consider the agent acting as an advocate/fiduciary for a buyer or seller. For our example, we'll assume that our real estate agent is involved with a buyer who wishes to purchase a particular piece of real estate listed by the agent's brokerage, we'll call them Dual Agency Inc. The agent will, first discuss with the seller, that the potential for an offer from a buyer who has been working with the agent in search of a piece of real estate to purchase. Not until the seller agrees to the potential of limited disclosed dual agency, should the agent present the offer to the seller and not until the buyer has agreed to the potential of limited disclosed dual agency, should the agent prepare the offer for the buyer.

It is also extremely important to remember that, here in Arizona, we are blessed... or cursed... with the privilege and responsibility of being able to write contract language to a transaction. Arizona is the ONLY state in the US that empowers licensed real estate agents with this component within the real estate transaction. This right is entrusted under Article 26 of the Arizona Constitution wherein Article 26 reads:

"1. Powers of real estate broker or salesman

Section 1. Any person holding a valid license as a real estate broker or a real estate salesman regularly issued by the Arizona State Real Estate Department when acting in such capacity as broker or salesman for the parties, or agent for one of the parties to a sale, exchange, or trade, or the renting and leasing of property, shall have the right to draft or fill out and complete, without charge, any and all instruments incident thereto including, but not limited to, preliminary purchase agreements and earnest money receipts, deeds, mortgages, leases, assignments, releases, contracts for sale of realty, and bills of sale."

Ok, so why is this important? Because Article 26 sets the foundation for how real estate agents engage the public.
We have an inherent duty to understand our craft. If we engage a consumer in a transaction, we have an obligation to lay out all of the nuances of the transaction, all of the nuances and peculiarities of each document that becomes an integrated part of the transaction. Our duty is not only to help negotiate the transaction, but more importantly, our
duty is to help the consumer fully understand their duties to the transaction.


Too many folks, real estate agents and the public, place way too much emphasis on the negotiations of a transaction rather than the complexities of the transaction. Any monkey on a chain can fill in a contract form, it's not rocket science. And, while we, as an industry are heralded as learned negotiators, we are all too often dismissed for our knowledge of the intricacies of keeping a transaction together. It is this Realtor's opinion that we are not paid the big
bucks for our slight of tongue or negotiating strategy; we are, or should be, paid the big bucks for making sure that the transaction makes it to the finish line. We are entrusted with an overwhelming responsibility to fully understand and explain the meaning of the contract, the meaning of each form to the contract, the ins-and-outs of surveys, disclosure of waste water treatment requirements, the ability to dissect the potential pot-holes in a transaction and how to navigate around or through them and to explain the particular responsibility of each party to the transaction. We have an obligation to the parties to help them complete the transaction with as little inconvenience as possible. The particulars of who "gets the best deal", buyer or seller, is an arguable point if the transaction never closes!


In no way is Dual Agency an obstacle to these duties! Just because one party or the other loses the edge of gaining
an advantage of 'covert knowledge gained' about the other side, has little bearing on the real estate agent's responsibility to deal fairly and honestly with both the buyer and seller in a Dual Agency transaction or any
transaction!


Article 26 of the Arizona Constitution places Arizona Real Estate Professionals on a playing field that is far more
different than any real estate agent in any other part of the United States. Moreover an excerpt from the AAR-On-Line publication March 2006 written by Michelle Lind, General Council to the Arizona Association of Realtors read:


How Article 26 Affects a Licensee's Legal Obligations

Few court cases have interpreted the provisions of Article 26. However, in Morely v. J. Pagel Realty & Insurance,
27 Ariz. App. 62, 550 P.2d 1104 (1976), the Court of Appeals states:

Having achieved, by virtue of [Article 26 Section 1 of the Arizona Constitution], the right to prepare any and all instruments incident to the sale of real property, including promissory notes, real estate brokers and salesmen also bear the responsibility and duty of explaining to the persons involved the implications of these documents. Failure to do so may constitute real estate malpractice.

Id. at 66. In a subsequent case, Olson v. Neale, 116 Ariz. 522, 570 P.2d 209 (App. 1977), the court states:

[A]rticle 26 § 1 of the Arizona constitution . . . authorizes brokers and salesmen to engage in limited law practice involving real property transactions. If a broker can practice law in the area of real property
sales, it is reasonable to hold him to a full understanding of the implications and ramifications
of the Statute of Frauds.

Id. at 525.
These cases, and subsequent clarifications by the Arizona courts, indicate that Article 26 imposes a duty upon brokers and salespersons to give competent advice to their clients and to understand the legal implications of the documents they prepare.

So, where does this all lead with respect to Dual Agency? In this Realtor's opinion, simply stated, as an industry we have an obligation to be fair and honest with the public, the consumers of our services. We have a duty to be honest and upfront about how Agency Relationship works and what it means. There are numerous instances of case law, in Arizona and around the US that tell of tales of dubious dealings by agents, knowingly and unknowingly, mismanaging the public's expectations of these relationships. This is not a bi-product of Dual Agency, this is a bi-product of inexperience and incompetence by real estate practitioners who do not take the necessary steps to fully explain the fine distinction between advocacy and fiduciary VS fair and honest dealings with the public.

If we, as an industry, take a more responsible roll in explaining Dual Agency Representation VS Single Agency
Representation, we will find that there will be many fewer complaints filed with the Arizona Department of Real Estate over this subject.

Yes, there are advantages for a buyer or seller to be represented by an exclusive agency relationship. For example,
the ability to take advantage of misguided disclosure of the motivations by one side or the other can be valuable during the initial negotiations and throughout the transaction. But... if the buyer or seller has been properly schooled by his/her real estate agent, there is little chance of either side ever coming across such, foolishly disclosed, information.



Lori Klindera and "G-II" Varrato II are Realtors with Coldwell Banker Residential Brokerage, 3050 W. Agua Fria Freeway, Suite 110, Phoenix, AZ. 85027. We can be reached at cell phones 602-574-5674 for Lori, 602-796-5674
for G-II or by eMail at any number of eMail addresses, such as Lori.and.G-II@RealEstateInPhoenix.net or
Lori.G-II@AirForceHomeSeller.com.

Bye till next time. Lori and I truly wish you and your family a Happy, Healthy, Safe, and Prosperous 2007!

This article has been written by
"G-II". All rights reserved

Thursday, January 04, 2007

Builder Contracts, Be AWARE Of What You're Signing!


Builder Contracts, Be AWARE Of What You're Signing!


By "G-II" Varrato II,
Realtor®, Retired USAF Red Horse 820th CES
ePRO 500, ABR, RECS, Mentor
Coldwell Banker Residential Brokerage


Builder contracts come in all sizes, shapes and versions. There is little opportunity for the alteration of any of the terms of a Builder’s Contract. However, that said, it is imperative that you fully understand what you are signing. Even if you have made several purchases of residential real estate in the past, unless you are specifically trained in the art of understanding contract language, this is not a swamp you should venture into without a seasoned real estate professional by your side to guide you through the murky maze of contract terms, phrases and conditions.

Confucius Say:
“Man who starts out on journey alone and without a guide is soon lost and bewildered and he who continues on his excursion alone has a fool for a guide.”

Arizona is one of the few states that engage a little understood protocol known as “The Threshold Rule”. “The Threshold Rule”, simply stated, means if a consumer literally crosses the threshold of a builder’s showroom office entrance, the consumer gives up his/her right to FREE transaction representation. That is to say, the overwhelming majority of builders in Arizona have an agreement with real estate brokers to pay a licensed real estate broker to represent the interests of a buyer at no additional cost to the buyer. However, the caveat to this seemingly altruistic gesture is that the buyer MUST bring his/her licensed real estate agent with him/her on their first visit to the builder’s showroom. Failure to do so automatically will forfeit the buyer’s right to have the builder pay for the buyer’s transaction representation.

Now, that is not to say that the buyer is not entitled to engage the services of a buyer representative, however, if the
buyer does choose to do so, the buyer will be responsible for paying the broker for that service.

Many consumers unwittingly believe if they do not engage the services of a licensed real estate agent, to assist them with the purchase of their new construction home, the builder will cut them a better deal because the builder will not have to pay the real estate broker. This could not be further from accurate. The money the builder has budgeted into the transaction to pay the buyer broker, if not spent on that mission, is not refunded to the buyer in any form. The builder simply puts those funds back into his profit portfolio and the buyer is left to tramp through the swamp of contract language, all alone.

Here are some passages from a few builder contracts. For professional reasons, the builders have not been named but these excerpts are quoted directly from builder contracts. If you would like more information about any specific language below, please eMail Lori.and.G-II@RealEstateInPhoenix.net or call us at 602-796-5674.

Builder “W” Contract: “…Buyer’s obligations under this Contract are not contingent upon Buyer obtaining any specific interest rate on the loan or other loan terms…”

Builder “X” Contract: “…FINANCING, Buyer understands and agrees that obtaining financing is not a contingency or condition precedent to Buyer’s obligations under this Agreement…”

Builder “Y” Contract: “…Any delay in the Closing by Buyer… …shall constitute a material default hereunder by Buyer… …It is expressly agreed that the House… …may be subject to certain “punch list” items for additional work… the existence of such punch list items will not give Buyer cause to delay the closing or cancel this Contract. Punch list items may include failure of operation of appliances, electric outlets, plugs or fixtures…”

Builder “Z” Contract:
“…AGENCY DISCLOSURE: …Our sales agents at the project where the Home is located solely represent us…”

So, what could the penalties be if the buyer is late to close on the property.

Builder “W” Contract: “…a late Closing fee equal to $300.00 per day for each day from and including the original Closing Date scheduled by Seller to and excluding the actual day of Closing…”

Builder “X” Contract: “…a late closing fee equal to $75.00 per day for each day from and including the scheduled closing date and including the actual day of closing…”

Builder “Y” Contract: “…a late closing fee equal to $50.00 per day for each day and including the Closing Date, to and excluding the actual day of Closing…”

Builder “Z” Contract:
“…You agree to pay us a $100 per day extension fee for each day Closing is extended…”

This message covers ONLY the tip of the iceberg of Buyer Representation for buyers who wish to purchase New Construction from builders in Arizona.

If you would like to know more about how to take advantage of Buyer Representation, paid for by the builder, please contact us. We can be reached at cell phones 602-574-5674 for Lori, 602-796-5674 for G-II or by eMail at any number of eMail addresses, such as Lori.and.G-II@RealEstateInPhoenix.net or Lori.G-II@AirForceHomeSeller.com.

Bye till next time. Lori and I truly wish you and your family a Happy, Healthy, Safe, and Prosperous 2007!

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This article has been written by
"G-II". All rights reserved
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