Analysis

Topic: Realtors
Sponsor: Representative Richner
Date Enrolled: June 7, 2000
Date of Analysis: June 12, 2000

Position: The Department of Consumer and Industry Services supports the bill.

Background: Public Act 93 of 1993 required real estate licensees to make a disclosure to a potential buyer or seller regarding real estate agency relationships. In addition to indicating on the disclosure form the licensee's duties relating to being a seller's agent, buyer's agent, or a dual agent, the licensee would check the capacity in which he or she was serving the client. Dual agency exists when the client of a buyer's agent buys the house of a client of a seller's agent working for the same agency. In this situation, the agents may no longer disclose information to either the buyer or seller and both the seller and the buyer must consent to the dual agency relationship in writing. Although necessary to give consumers widest range of choices, dual agency has serious consequences for the consumer in that a client's agent cannot continue to represent him or her to the fullest extent. This can create practical problems for the agency also, particularly in a multi-office firm where there are hundreds of agents in different offices. Although current law assumes that knowledge of one agent is also known by all other agents, this is not a reasonable assumption in a large firm. In large firms it is possible that the two agents may not even know each other.

Other states have recently begun to address these problems. One solution is known as a designated agency law and has been adopted in 18 states.

Bill Content: The bill amends the Occupational Code to allow the creation of a designated agency relationship between a broker and a client in which a real estate broker may designate different agents to work for opposite sides in a transaction. Two designated agents from the same firm may represent the buyer and the seller and would not be considered dual agents. A designated agent is prohibited from disclosing confidential information regarding a client to another licensee, except in a case where information is disclosed to a supervisory broker for purposes of seeking advice or assistance benefitting the client. A designated agent's knowledge of confidential information is not imputed to other affiliated licensees who do not have an agency relationship with the client. Dual agency is maintained in that the broker and supervisory brokers will automatically be considered disclosed and consented. Written client consent to this dual agency is not required, nor would the dual agency relationship have to be disclosed. However, designated agents who are affiliated licensees representing different parties in the same transaction are required to notify their clients that their broker represents both buyer and seller before an offer to purchase is made or presented.

Arguments For: Existing law makes it extremely awkward for licensees and firms when a buyer wants to buy a house owned by a seller represented by another agent from the same firm. The current legal requirement that a dual agency relationship exists in that situation essentially means that neither the buyer's or seller's agent may continue to represent the client to the best of his or her ability. Current law does not reflect the realities of the real estate profession where large multi-office companies may employ hundreds of agents. It is unlikely in such situations that one agent would know confidential information concerning another agent's client. Indeed, most of these agents may not know each other. Imputing knowledge of confidential information in such instances harms the consumer by withholding the represention to which they are entitled and by limiting their options.

Arguments Against: The bill would exacerbate conflict of interest situations in real estate transactions. A firm cannot adequately represent both the buyer and seller, because the interests of buyers and sellers are completely different. The seller wants to sell the house at the highest possible price and the buyer wants to buy it at the lowest possible price. Designated agency may solve the imputed knowledge problem in current law, but it does not address the actual knowledge problem. It is possible for instance that a buyer's agent in a designated agency may actually know the seller's bottom line price, because the seller's agent, who works for the same firm, has shared that confidential information. Designated agency creates an ethical dilemma for agents and firms.

Positions: The Michigan Association of Realtors supports the bill. The Real Estate Agency Law Defenders opposes the bill. Michigan Buyers Realty, an East Lansing real estate firm, also opposed the bill.

Fiscal Information: The bill will not increase costs related to this section of the Occupational Code.

Administrative Rules Impact: It is possible that administrative rules will have to be revised to reflect the new designated agency relationship.