1. History of written relationship disclosure
    1. States response to Federal Trade Commission survey - license regulation requires disclosure of licensee representation.
    2. 1990 MA Board of Registration of Real Estate Brokers and Salespersons created its first written agency form.
    3. 1993 MA Board of Registration of Real Estate Brokers and Salespersons revised agency disclosure form to recognize buyer agency.
    4. Current MA regulation requires real estate licensee to disclose form of relationship to prospective buyers and sellers of real estate at the first personal meeting to discuss a specific property. (See 2005 Massachusetts Mandatory Licensee-Consumer Relationship Disclosure).
    5. First personal meeting includes a specific meeting with a buyer and/or seller or a potential buyer or seller to discuss a specific property. A CMA (Competitive Market Analysis) meeting is a personal meeting.
    6. Open House provision (254 CMR 3.00(13)(a)(3)) - at an open house the Real Estate licensee must conspicuously post and/or provide with other written materials any pre-existing relationship so that the attendees can understand the relationship they may have with the licensee conducting the open house.
  2. General Definitions
    1. "Real estate broker" - Any person who for another and for a fee, commission or other valuable consideration, or with the intention or with the expectation of upon the promise of receiving or collecting a fee, commission or other valuable consideration, does any of the following: sell, exchange, purchases, rents or leases, or negotiates, or offers, attempts or agrees to negotiate the sale, exchange, purchase, rental or leasing of any real estate, or lists or offers, attempts or agrees to list any real estate, or buys or offers to buy, sells or offers to sell or otherwise deals in options on real estate, or advertises or holds himself out as engaged in the business of selling, exchanging, purchasing, renting or leasing real estate, or assists or directs in the procuring of prospects or the negotiation or completion of any agreement or transaction which results or is intended to result in the sale, exchange, purchase, leasing or renting of any real estate. (See M.G.L., Chapter 112, Sec. 87PP).
    2. "Real estate salesman"- an individual who performs any act or engages in any transaction included in the foregoing definition of a broker, except the completion of the negotiation of any agreement or transaction which results or is intended to result in the sale, exchange, purchase, renting or leasing of any real estate. (See M.G.L. Chapter 112, Sec. 87PP).
    3. "Agent" - one who is authorized to represent and act on behalf of a principal (the principal i.e. client or buyer/seller) i.e. the authorized real estate broker/salesperson.
    4. "Principal" - a main party to a transaction. Could be the seller/buyer or an entity. The licensee would be delegated certain responsibilities and must be aware of fiduciary duties that they may hold on behalf of the Principal.
    5. "Client" also known as a Principal - a person who empowers another to act as his or her representative/agent. Client relationship = fiduciary relationship.
    6. "Customer" - generally refers to person without representation involved in a transaction. All licensees are required and have a duty to treat customers honestly and fairly.
    7. Vicarious Liability-"liability created not because of a persons actions but because of the relationship between the libel person and other parties. For example, a real estate broker is vicariously libel for the act of his or hers salespeople while acting on behalf of the broker even if the broker did nothing to cause the liability" (The Language of Real Estate)
    8. Informed Consent - "Consent to a certain act that is given after a full and fair disclosure of all facts needed to make a conscientious choice." (The Language of Real Estate)
    9. Subagent - An agent of a person or entity who is already acting as agent for a principal (agent of an agent).
  3. Establishment of Consumer/Licensee Relationship when acting as a Facilitator
    1. There will not be an agency relationship
    2. In the event of an agreement, the parties must identify and agree on the Facilitator's duties to be performed
    3. Express written or oral contract where the licensee and customer agree to terms.
    4. Implied relationship by actions and/or words
    5. Compensation does not create an agency relationship

      Note: Compensation does not create an agency relationship.

  4. Common law duties That May Be Required of licensees commonly referred to by the acronym OLD CAR when acting as an agent.
    • Obedience - the duty to carry out all lawful instructions of the Client
    • Loyalty - the duty to act in the best interest of the Client
    • Disclosure - the duty to disclose all information relevant to the Client
    • Confidentiality - the duty to keep the Client's confidential information, confidential
    • Accountability - the duty to protect, isolate and account for all money, documents, or other personal property provided to the agent. (Requirement of all licensees regardless of licensee/consumer relationship)
    • Reasonable Care and Due Diligence - the duty to act competently and being capable of performing the duties undertaken
  5. Types of Licensee/Consumer Relationships
    1. Seller Agency - Real estate agent represents seller on client basis and treats buyer as customer.
    2. Subagency - Where a seller or buyer client expressly or implicitly authorizes his or her broker/salesperson agent to use other agents from other firms. The seller or buyer must provide written informed consent that indicates the following: Massachusetts law permits the broker to cooperate with other licensed brokers who will act as subagents of the seller or buyer only with the written consent of the seller or buyer and the disclosure to the seller or buyer for the potential for vicarious liability. Vicarious liability is the potential for a seller or buyer to be held liable for an act or omission of the subagent
    3. Buyer Agency - Real estate agent represents buyer client in real estate transaction.
    4. Single Agency - "The practice of representing either the buyer or the seller but never both in the same transaction." ( The Language of Real Estate)
    5. Dual Agency - a real estate agent who represents both the seller and buyer in the transaction is a disclosed dual agent with written informed consent of both the buyer and the seller. A Dual Agent has a duty of confidentiality and accounting to both parties. Undisclosed dual agency is illegal. Reasonable Care and Skill will apply in the real estate transaction.
    6. Facilitator- also known as a Non-Agent or Transaction Broker/Salesperson. The Facilitator works to complete the transaction. Although bound by license law and MGL Ch. 93A, they do not have a fiduciary relationship with the seller or the buyer. They do not represent either party in the transaction. The Facilitator must disclose all known material defects that exist. Failure to do so could result in a Chapter 93A violation. Their duties consist of accounting and any other Facilitator duties undertaken.
      1. Switching type of agency representation - A facilitator relationship may only change when the parties with whom they are working receive appropriate disclosure notification or consent. The relationship may change to Buyer Agent, Seller Agent or Dual Agent.
    7. Designated Agency - a real estate licensee who has been specifically appointed or designated by the broker with whom they are affiliated to individually represent a specific client (either a buyer or seller) when selling or buying real estate. The designated agent has full duties of agency to the client. Duties = OLDCAR
  6. Facilitator Obligation to Customer is (A) Accounting
    1. Obedience - If there is an agreement of representations then there may be a "duty" of expectation that a court may acknowledge. Otherwise there is no duty to carry out all lawful instructions of the consumer except as required by law.
    2. Loyalty - Unless otherwise agreed, not bound to act in best interest of customer
    3. Disclosure - Unless otherwise agreed, not required to disclosure any information other than material defects.
    4. Confidentiality - Unless otherwise agreed, no duty to keep confidential any information or discussions. Not applicable to legally required disclosures such as known physical hazardous conditions of property.
    5. Accountability - Must protect and account for all money, documents, or other personal property given to the licensee by the customer.
    6. Reasonable Care & Due Diligence - while the licensee has no duty of Reasonable Care & Due Diligence they can be held responsible under Chapter 93A, Massachusetts Licensing Law, and incompetence.
  7. Activities that may be conducted by a Facilitator as opposed to an Agent
    1. Disclose your relationship via mandatory form (first personal meeting)
    2. Show properties for sale to a buyer.
    3. Instruct the buyers/sellers to obtain expert advice.
    4. Disclose all known material defects in accordance with M.G.L. 93A.
    5. Present all offers in a timely manner.
    6. Account for money and property.
    7. Provide an unbiased opinion of value.
    8. Conduct an open house with written permission from the seller.
    9. Obtain an entry only listing.
    10. Acting as a Facilitator for both Buyer and Seller in the same transaction

      Role-play the scenarios above; look for implied agency.

      Discuss obligations expected and provided.

  8. Termination of Licensee/Consumer Relationship
    1. Expiration of agreement, if one existed.
    2. Mutual agreement to terminate or rescission. Rescission does not necessarily rescind obligation of payment on the part of the consumer.
    3. Completion of performance under agreement
    4. Death or mental incapacity of Facilitator or Principal
    5. Impossibility of performance (i.e. destruction of property)
    6. Bankruptcy of either party
    7. Repudiation - the court may deem this a breach of obligation and breaching party may be held liable for damages.
  9. Compensation
    1. Compensation Methods
      1. Customer pays fee - contingent fee, non-contingent fee, consulting fee, retainer credited against commission offered by listing broker.
      2. Offer of compensation by listing broker through Multiple Listing Service or otherwise agreed.
    2. Compensation Calculation Models
      1. Hourly
      2. Flat Fee
      3. Entry Only
      4. % Percentage fee of purchase price
  10. Other Legal Issues
    1. State and Federal Lead Paint Laws requires that any property where a child under six years old resides must be lead safe as defined by the statute.deleaded The property owner is responsible for compliance, however. Real estate licensees are required to notify all prospective purchasers and lessors about the dangers of lead paint and must inform prospective buyers about buyer's 10 day right to a lead paint inspection. Federally approved state lead paint disclosure forms may be obtained from the Massachusetts Department of Public Health or local REALTOR¨ Boards. The three forms available are entitled the Property Transfer Lead Paint Notification Certification form, the Tenant Lead Law Notification form, and the Tenant Lead Law Certification form. For more information about the lead paint laws, consult Massachusetts General Law Chapter 111. - Real Estate Licensees are also required to tell prospective purchasers that under the State Lead Law, a new owner of a home built before 1978 in which a child will live or continue to live must have it either deleaded of brought under interim control within 90 days of taking title to the property.
    2. Home Inspector Law - In effect as of May 1, 2001 - "At the time of the signing of the first written contract to purchase, real estate brokers and salesmen, or the seller if no broker or salesperson is involved in the sale, shall distribute a brochure, published by the Office of Consumer Affairs and Business Regulations, educating consumers about the home inspection process. Real estate brokers and salesmen shall not directly recommend a specific home inspection company or home inspector but may, upon request, provide a complete list of licensed home inspectors prepared by the board. This prohibition shall not apply if there is a written contractual agreement or a written agency disclosure between the buyer and the real estate broker specifying that the real estate broker is acting exclusively for the buyer as a buyer's broker." (MGL Ch. 112 section 87YY) Facilitators do not represent the interests of the buyer and therefore may not make a referral of any home inspector or inspections companies.
    3. Psychologically Stigmatized Property - i.e. felonies, murders, suicides and ghosts
      1. There is no duty for a facilitator to either investigate, disclose murders or inquire about suicides, allegations of ghosts or other potential stigmas unless the licensee has undertaken such duty and provided that no misrepresentation or false statement is made. (See MGL Chapter 93 section 108)
      2. HIV Status - State law - questions regarding HIV status of any former or current occupant of residence should not be answered by a real estate licensee.
    4. Mass. General Law - Chapter 93A - Consumer Protection Statute
      1. Requires the licensee to disclose known material defects on the property to potential buyers. ["actual knowledge" standard]
      2. Chapter 93A does not apply to persons who are "not in the business of selling". Residential sellers, not in the business of selling homes, have no affirmative disclosure requirement with the exception that they must inform potential buyers about lead paint on the property.
      3. Due Diligence: A Facilitator does not have a duty to ask questions on behalf of his or her customer.
      4. Affirmative Disclosure Under Attorney General's Regulations SITE REGS
        1. Not required to disclose any non-material facts that may influence a prospective purchaser
        2. Must disclose Physical defects in the property
        3. Must disclose Title defects and encumbrances if known.
        4. No duty to investigate
    5. Sex Offender Registry - According to statute, persons over age of 18 may request information from the sex offender registry for their own protection or the protection of a child or person under their care or custody. The statute imposes criminal penalties for misuse of information provided to the individual making the inquiry. Customers and clients should be urged to contact the local police department to find out this information firsthand. (M.G.L. Chapter 6, Section 178DÉ).
  11. Client Counseling, Company Policy & Record Keeping
    1. Explain to buyer his or her responsibilities as a customer and determine search criteria for the property. - ex. Contact listing office to see a property.
    2. Explain company policies regarding cooperation and compensation and any potential for facilitator to change the relationship with agreement.
      1. Advantages of written company policy versus verbal
      2. Clearly defined duties of agent and facilitator.
    3. A licensee affiliated with a broker and acting as a facilitator does not create an agency relationship between the customer and the Broker. (Any relationship, except for designated agency, carries to the brokerage firm)
    4. Massachusetts Mandatory Licensee Consumer Relationship Disclosure form is not a Facilitator Contract
    5. Record Keeping
      1. Massachusetts Mandatory Licensee Consumer Relationship Disclosure Forms - 254 CMR 3.00 (13) regulation requires retaining forms for 3 years
      2. Contracts - contract law statute of limitations is 6 years; recommend keeping records of contracts for 7 years.
      3. All business records - state regulations do not specify time frame.
      4. Escrow check copies - state regulation requires retaining copies for 3 years.

REQUIRED HANDOUTS

  1. Massachusetts Mandatory Consumer Licensee Relationship Disclosure
  2. Mass. General Law - Chapter 93 section 108
  3. Mass. General Law - Chapter 112, Section 87YY
  4. Mass. General Law - Chapter 112, Section 87AAA3/4
  5. 254 CMR
  6. AG Regulations sited

Suggested References:

  • Agency Relationships in Real Estate, 2 nd ed., by John Reilly
  • The Language of Real Estate, 6 th ed., by John Reilly