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Real Estate Agency Disclosure and Election Highlights:
- What is Agency?
- Statutory Requirements
- How Agency is Created
- Agency Forms
- Termination of Agency
- Consent to Limited Representation
Agency is the heart of every real estate transaction because it defines the roles and responsibilities of the parties. For this reason, it is imperative to both Brokers and clients that the agency relationship in real estate transactions is clearly defined. At the end of the day, clients deserve to know who is representing them and acting in their best interests.
Brokers have different duties for different parties in the transaction and the Real Estate Agency Disclosure and Election (READE) helps Brokers be clear about who they represent in a transaction and what duties are owed to what parties. Agency relationships become extremely important if a dispute arises. The first question that a lawyer will ask a broker when a claim is received is, “who did you represent—the buyer or the seller?”
It is important to remember that the READE form is a tool to aid the real estate agent in explaining the agency relationship. Use of the form without adequate explanation does not meet the standard of care.
What is Agency?
Agency is a relationship in which one person is authorized to represent the interest of another in business dealings with third parties. Arizona courts have overwhelmingly held that a real estate broker is not only an agent but they are an agent with a fiduciary relationship to the principal.
Many states have enacted legislation to detail specific duties a broker owes to a client. Arizona however, has not enacted any such legislation. Instead, Arizona relies on the Arizona Department of Real Estate (ADRE) to address broker duties. These standards are detailed in R4-28-1101.
Duties a Broker MUST Perform R4-28-1101
A. A licensee owes a fiduciary duty to the client and shall protect and promote the client’s interests. The licensee shall also deal fairly with all other parties to a transaction.
B. A licensee participating in a real estate transaction shall disclose in writing to all other parties any information the licensee possesses that materially or adversely affects the consideration to be paid by any party to the transaction, including
- Any information that the seller or lessor is, or may be, unable to perform;
- Any information that the buyer or lessee is, or may be, unable to perform;
- Any material defect existing in the property being transferred;
- The existence of a lien or encumbrance on the property being transferred.
C. A licensee shall expeditiously perform all acts required by the holding of a license. A licensee shall not delay performance, either intentionally or through neglect.
D. The services that a salesperson or broker provides to a client or a customer shall conform to the standards of practice and competence, recognized in the professional community, for the specific real estate discipline in which the salesperson or broker engages. A salesperson or broker shall not undertake to provide professional services concerning a type of property or service that is outside the salesperson’s or broker’s field of competence, without engaging the assistance of a person who is competent to provide those services, unless the salesperson’s or broker’s lack of expertise is first disclosed to the client in writing and the client subsequently employs the salesperson or broker.
E. A salesperson or broker shall exercise reasonable care in ensuring that the salesperson or broker obtains information material to a client’s interests and relevant to the contemplated transaction and accurately communicates the information to the client. A salesperson or broker is not required to have expertise in subject areas other than those required to obtain the salesperson’s or broker’s license. A salesperson or broker shall take reasonable steps to assist a client in confirming the accuracy of information relevant to the transaction.
F. A salesperson or broker shall recommend to a client that the client seeks appropriate counsel from insurance, legal, tax, and accounting professionals regarding the risks of pre-possession or post-possession of a property.
Broker’s Duty Does Not Include Assisting In A Title Dispute Years After Close Of Escrow.
The brokerage represented the buyer of a property in 1996. As part of that transaction, the buyer obtained title insurance and the title company disclosed to the buyer that there was an easement for access to the property. Recently, however, the buyer was informed that the easement is allegedly invalid. The buyer and a neighboring property owner are litigating the dispute. The buyer has also sent several demand letters to the brokerage, in which the buyer claims that the brokerage has an ongoing obligation to assist her in resolving the dispute and potentially participating in the resolution.
ISSUE: Does the brokerage owe a duty to the buyer 18 years after the close of escrow to help resolve the dispute?
DISCUSSION: Because of the transaction closed approximately 18 years ago, no common law or statutory duties are owed by the brokerage to the buyer. It is generally recognized that, absent an agreement to the contrary, the fiduciary duties owed by a brokerage to its client end at the close of escrow. See Coldwell Banker Commercial Group, Inc. v. Camelback Office Park, 156 Ariz. 226, 231, 751 P.2d 542, 547 (1988) (recognizing that once an agreement between principal and agent is terminated or completed, “the fiduciary relationship is ended and the broker ‘is free to act for himself or the opposing party as long as he does not hinder, delay or interfere’ with a transaction which the agreement was intended to bring into being.”). Moreover, assisting in or negotiating a legal dispute is beyond the scope of services which a licensee can legally provide. Accordingly, at this point, the brokerage does not owe any ongoing duties to the buyer and the brokerage has no legal duty or obligation to assist the buyer in her current dispute with the neighboring property owner. (Source: AAR Legal Hotline)