This post was taken from the New York Real Estate Institutes January 2011 News Letter~ MY friend and fellow Blogger Ron Gitter has been practicing law in Manhattan for over thirty years and has handled hundreds of co-op and condo transactions throughout the greater New York metropolitan area. His blog, coopandcondo.com, is a resource for all facets of co-op and condo transactions and apartment ownership. Articles from the blog have been cited or featured online in Huffington Post, curbed, brickunderground, NYTimes online, serviceyoucantrust, theapplepeeled, habitatmag and a variety of other web and print publications. He is also a contributor on residential real estate matters for NY1, a regional television news station in New York City.
Thank you Ron!!!!!
Think Real Estate.
The Skinny on the Revised Agency Disclosure Law
A New Year, a New Law
Effective January 1, 2011, an amendment to Section 443 of the New York State Real Property Law has significantly changed the way brokers selling co-ops and condos in New York disclose their agency relationships with their clients. Although the law of agency, which governs the relationship between brokers and their principals has not changed, there is now an obligation to disclose the agency relationship in writing and to obtain written consent of both seller and buyer when dual agency exists. Since co-ops and condos were previously excluded from written disclosure requirements, many brokers are dealing with these concepts for the first time.
It’s More Than Additional Paperwork
It is essential for brokers to understand that there are two prongs to the disclosure obligation. Yes, there is an obligation to obtain the written consent of the principal (that is, the broker’s client or customer), but more importantly, before any paperwork gets signed, the principal must understand the nature of the agency relationship that the principal is entering into with the agent. As required by the statute, it is the broker’s responsibility to insure that the principal has “informed consent.” The same is true with the disclosure obligation to other parties. It’s all well and good to announce that you’re the seller’s agent, unless the party you’re announcing to doesn’t really know what you’re talking about.
What Can the Broker do to Insure that the Principal has Informed Consent?
Brokers should use the statutory disclosure form as well as their Virtual Office Websites to disclose and discuss the broker’s agency obligations. In addition, a cover letter can accompany the delivery of the form for execution that explains the broker’s relationship to the principal in greater detail. Further, a broker who is uncomfortable explaining the complexities of the revised law, should advise the prospective client or customer to have the form reviewed by his or her attorney prior to signing.
The Rubik’s Cube of Dual Agency
More than anything else, the broker’s obligation to obtain written consent to dual agency is causing anxiety levels to rise over whether such a relationship exists. There is nothing more desirable than a direct buyer, but when a buyer has no representation, the seller’s broker often has the role of dual agent, whether the broker wants that status or not. Particularly with co-ops and condos, where the seller’s broker assists the direct buyer with the Board Package, dual agency should be deemed to exist and the broker should obtain the consent of both parties to the dual agency relationship. So, here’s a Rule of Thumb to consider in those situations:
When in doubt as to whether you are acting as a dual agent, disclose, discuss and obtain written consent of both parties to act as dual agent.
Residential Reality: It’s a Slippery Slope
Although these disclosure obligations have been around for a considerable period of time, the requirement to obtain written consent and the logistics of when to obtain such consent, has the industry confused and concerned. Eventually, the specifics of a broker’s disclosure requirements will shake out and likely litigation will refine those obligations over time. In short, the wiggle room that may have existed in the past, as to whether a broker represented the seller, the buyer or both parties in a real estate transaction, is over.
Yes, this topic is complicated. For a discussion of these issues in greater depth, including how to approach “advance consent” to dual agency, see my post on Huffington: "Broker Talk New York: Understanding Dual Agency".