Our proposal: Mandate use of the Agency Law Disclosure on all property transactions, including the sale of properties with five or more residential units.
Why: In 1988, the California legislature enacted the agency disclosure law to address misconceptions long held by licensees and the public about the duties real estate licensees owe to members of the public, including:
- the general dutiesowed by each broker and their agents to all owners and users in the transaction, requiring them to be honest and avoid deceitful and misleading conduct with those who are not their clients; and
- the special or primary agency dutiesowed by a broker and their agents to their client, known as fiduciary duties.
Real estate agents are now required to provide the Agency Law Disclosure to all participants when listing, selling, buying or leasing for a term greater than one year:
- property containing one-to-four residential units;
- mobilehomes; and
- commercial property. [Calif. Civil Code §§2079.13(j), 2079.14]
The Agency Law Disclosure form restates pre-existing codes and case law on agency relationships of licensees acting on behalf of another person in real estate transactions. [See RPI Form 305]
Further, the disclosure defines and explains the universal words and phrases used in nearly every transaction in the real estate industry to express:
- the agency relationships of brokers to the owner and user in the transaction;
- broker-to-broker relationships; and
- the employment relationship between brokers and their agents.
The real estate agency disclosure law previously applied only to one-to-four unit residential sales and leases. It was expanded to include commercial real estate sales and lease transactions effective January 1, 2015.
However, multi-family apartment sales of five or more units remain outside the agency disclosure law. Yet, agency is an integral component of these transactions and necessitates the same disclosures as residential and commercial sales.
The expansion of agency law disclosures to sales transactions involving multi-family apartments adds a new layer of protection for participants in these excluded transactions.
Use of the Agency Law Disclosure form for all property types ensures a participant in a transaction knows whether the individual agent handling the transaction is a dual agent, their agent exclusively, or the owner’s exclusive agent with no duty to advise or act on the participant’s behalf.
Further, including the Agency Law Disclosure in transactions for all property types – apartments included – works in the best interests of clients and their agents. Written disclosures eliminate later disputes over agency that may arise. More importantly, written disclosures have a far greater effect on agent conduct to better inform clients on other issues.
What you can do: While the Agency Law Disclosure is not required for the sale of multi-family apartments, consider voluntarily providing the disclosure to participants in these transactions to ensure greater transparency. Use of the form will not only keep your clients informed about the agency relationships in their transactions, but will also help eliminate later disputes over agency duties.
Further, ensure you meet your legal duty to provide the Agency Law Disclosure in all covered transactions, including the sale of one-to-four unit residential and commercial properties.
Be aware that failure to provide the Agency Law Disclosure form prior to entering into the listing agreement for the sale or lease of a covered property is a violation of real estate law. As a consequence, your broker stands to lose their fee on a sale or lease when challenged by a client prior to closing, and faces disciplinary action by the California Department of Real Estate (DRE).
Remain compliant with agency disclosure laws through use of RPI (Realty Publications, Inc.) Form 305 – Agency Law Disclosure. To cover the distinctions in terminology between sales and leasing transactions, RPI publishes two different versions of the Agency Law Disclosure form to enhance comprehension.
Each version contains language engineered to best identify the participants involved in the two sets of transactions:
- the sale or exchangeof any real estate [See RPI Form 305]; or
- the lease for a period exceeding one year[See RPI Form 305-1 and 550-2]
Editor’s note —Two identical versions of the Agency Law Disclosure exist for leasing to place the form in both the “disclosure” and “property management” series of RPI forms. Either may be used when negotiating a listing, offer/letter of intent (LOI) or agreement for the lease of real estate for a period greater than one year. [See RPI Form 305-1 and 550-2]