New disclosure law: client or customer?

New disclosure law: client or customer? – New York State disclosure law requires residential brokers to inform buyers and sellers of relationship between all parties involved in sale

Therese Fitzgerald

New York State’s new disclosure law for residential brokers, simply asks, according to Maureen Glasheen, counsel to the Department of State: Who is your client and who is your customer?

It seems, however, New York brokers are not finding the law so easy to digest.

A brokers seminar, with Glasheen as featured speaker, was held recently by the law firm of Gurfein & Graubard to clear up some of the confusion and give frustrated brokers an opportunity to air their grievances.

“There is some hostility, said Robert Graubard, partner, Gurfein & Graubard. “I think, slowly but surely, people are realizing their going to have to modify their practices.”

Effective Jan. 1 of this year, the law requires residential brokers, in buildings of up to four units, to inform buyers and sellers, in writing who they work for – the buyer or the seller. Under the new law, they must ask buyers and sellers to sign a form acknowledging the relationship. The law applies only to agents or fiduciaries.

Consumer Protection

Glasheen said the rule is a consumer protection law, and suggested it would make more sense if brokers put themselves in the consumer’s shoes.

“The point of the statute is to inform the consumer at the very beginning if he is going to have an arms-length relationship [customer] or a relationship of trust and confidence [client], she said.

“It just tells consumers they should expect more from the person representing them,” she said.

While the law is reserved for buildings of up to four units, Glasheen said, it would be a benefit to all consumers.

“It does not mean you can’t give the form of buildings that have more than four units,” she said. “It’s not forbidden. It’s just not required.

The form should be issued to the customer, she said, at the “first substantive contact” and to the client you represent “before you enter into an employment agreement.”

What is first substantive contact? When in doubt, she said, “disclose as early as possible.”

Glasheen said this was intended to be an “educational process” and that the state will give brokers some time before they start enforcing the law.

“The form police are not coming for you tomorrow,” she said. “So, why don’t we think of it as a whole new era.”

The form, Glasheen admitted, is not easy reading and is designed to raise questions. She hopes brokers will be willing and able to explain their duties.

The version of the law, however, Glasheen stressed, was established by the legislature in a statute. Brokers, she said, should not make major deletions or additions to the forms, and they should know failure to comply puts brokers at great risk.

“Any violation of this law is a misdemeanor,” she said. “It’s a crime. They never took this out. The way the law is written it’s a crime.”

“If you put yourself in a position where status is clear, I think you’ll survive,” she said.

According to Glasheen brokers will not be held liable if the form is not signed. The broker’s job is simply to furnish the form. If the buyer or seller declines, the broker need only file an affidavit that the form was not signed.

|Not Right for New York’

Many of the brokers at the seminar seemed to believe that the law “missed the boat” for New york where the brokers mainly represent the sellers, but often deal directly with the buyer. Or they are show buyer’s apartments where they are not the seller’s agent, but, as an outside broker, they will receive a commission from the seller’s agent or the seller if the sale is made.

Glasheen said brokers who are sellers’ agents may work directly with the buyer as long as the form is furnished.

“The buyer – if he is merely your customer – he knows you’re not representing them,” said.

One broker said that those who oppose the law are not in favor of dishonesty. They believe, however, that the law takes away the mediating role – to bring about an agreement that is satisfactory to both the buyer and seller.

Another broker said the buyer’s and the seller’s interests are protected by their lawyers.

Glasheen said brokers can act as a finder – a non-fiduciary – and then decide whether to become a buyer’s broker or a seller’s broker. Once his decision is made he must then distribute the disclosure forms. This may present a conflict of interest, however, if the buyer has already revealed to him confidential information that would bear on negotiations or vice versa.

“It gives outside brokers flexibility to be a buyer’s broker. To be a finder. Don’t lock yourself into being a seller broker.”

But, she warned, “Do not induce someone to rely on you to betray them.”

The brokers also disagreed with Glasheen that neither the buyer or the seller is not served by a dual agency. A number of firms, the brokers said, represent both the buyer and the seller. The Department of State has a longstanding opposition to dual agency, Glasheen said. And, while legal as long as there is full understanding, she can’t understand why someone would enter such an agreement.

“You may not represent adverse interests in the same transactions,” she said.”… They can’t both get individual attention from the same person.”

While some of the brokers said most buyers know they are not being represented by the seller’s broker, Glasheen disagreed adamantly. An FTC survey in 1983, she said, found that 75 percent of the buyers and 73 percent of the sellers thought they dad their own broker.

Glasheen also reminded that the bill was sponsored by The New York Association of Realtors. And, the case law it was based on, she said, is 300 years old.

Brochures on the law – one for the buyer’s agent and one for the seller’s agent — re available from the Department of State, Division of Licensing Services, 162 Washington Avenue, albany, New York 12231-0001.

“I think what the brokerage community is going to have to deal with is some sort of representation for the buyer,” said Glasheen.

COPYRIGHT 1992 Hagedorn Publication

COPYRIGHT 2004 Gale Group