lou tulga transaction brokerage in nm real estate

Transaction Brokerage

4 Education CE Credit Hours

Presented by Lou Tulga CCIM CRB

www.loutulga.com

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Ockham’s Razor

“pluralitas non est ponenda sine necessitate”

(“Don’t make matters more complicated than is

necessary”)

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Background of Brokerage Choice

Caveat emptor

Seller Agency

Notion of “Fairness to All Parties”

Emergence of Public Policy Requirements

Emergence of Consumer TORT Cases

Common Law of Agency Applied to Real Estate Practice at MLS Level

Emergence of Consumer AGENCY Cases

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Key Questions

What Does Agency Look Like?

How Does Transaction Brokerage Look

Different? (Review)

Why Would Anyone Demand Agency?

Why Would Anyone Refuse Agency?

Why Would a Client Accept Facilitation?

How Are Conflicts of Interest Handled?

…CAPACITY…

Agency allows the granting of capacity to the agent

to speak and act on behalf of the principal by

“standing in the principal’s shoes” on matters

within the agent’s Scope of Authority

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States of “Choice”

In New Mexico the Parties make their own

choices!

Dual Transaction Brokerage Facilitation

Exclusive Agency

Dual Agency Facilitation

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Keep it Simple!Only 2 Roles and Only 2 Relationships

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ROLEExclusive ServiceImpartial Service

RELATIONSHIPTransaction Broker

Property ManagementNew Builder Exclusive

RepAbsentee

Client/CustomerSeller/Buyer BrokerageBuilding/Tenant Rep

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New Mexico Real Estate License

Law 61-29-10.1

A. Agency solely by written express agency

agreement—no type assumed, created orally or by

implication

B. Brokerage may have written agreements without

creating an agency relationship—and no agency duties

will be imposed

C. Brokerage may provide real estate services without a

written agreement—and no agency duties will be

imposed

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Service Standards: Broker Duties

1. Honesty & reasonable care

2. Performance of all written agreements

3. Providing understood assistance unless excluded by written service agreement with client/customer and disclosed in writing to any cooperating brokers

4. Acknowledgement of areas outside licensee’s expertise

5. Prompt accounting of monies or property

6. Timely provision of written copy of Broker Duties

7. Timely disclosure in writing of conflicts of interest of any kind

8. Timely disclosure of actually known adverse material facts about the property or transaction to clients and customers

9. Maintaining of confidential information from previous agency relationship

10.Unless authorized in writing maintaining of confidential information from one’s current client/customer except when disclosure is required by law

(NMREC Part #19)

Facilitator

Seller

“In the Middle”

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RELATIONSHIP

Potential Office Conversation

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“Once upon a Time-- there was

No Serpent in Paradise”

Prior to the late 1980s--Brokers did not know agency as a legal term or its legal consequence –and when told were in surprised!

Brokers never heard of “OLDCAR” and Forms did not use the word “agency” until the early 1990s

Brokers happily and needed no E&O Insurance

The “Garden” was Beautiful

Caveat Emptor---if the buyer does not ask

there is no duty to tell—just don’t lie!

Notion of “Fairness to ALL Parties”

The term, “Agent” was for used but was

not defined

The ONLY disclosure requirement was for

a broker to let the other party know that

the broker was “buying or selling for the

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An Issue that Never Goes Away

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NAR 2011 Legal Scan

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RepAbsentee

States of “No Choice”

Licensee is an “Agent” and Buyer or Seller

is an “Agency Principal” whether they want

it or not!

HUD Repo Listing Broker Contracts—even

in those states are “non-agency”---so

those states simply look the other way but

do not offer brokerage relationship choice

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New Mexico Real Estate License

Law 61-29-10.1

A. Agency solely by written express agency

agreement—no type assumed, created orally or by

implication

B. Brokerage may have written agreements without

creating an agency relationship—and no agency duties

will be imposed

C. Brokerage may provide real estate services without a

written agreement—and no agency duties will be

imposed

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Service Standards: Broker Duties

1. Honesty & reasonable care

2. Performance of all written agreements

3. Providing understood assistance unless excluded by written service agreement with client/customer and disclosed in writing to any cooperating brokers

4. Acknowledgement of areas outside licensee’s expertise

5. Prompt accounting of monies or property

6. Timely provision of written copy of Broker Duties

7. Timely disclosure in writing of conflicts of interest of any kind

8. Timely disclosure of actually known adverse material facts about the property or transaction to clients and customers

9. Maintaining of confidential information from previous agency relationship

10.Unless authorized in writing maintaining of confidential information from one’s current client/customer except when disclosure is required by law

(NMREC Part #19)

Potential Office Conversation

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“Once upon a Time-- there was

No Serpent in Paradise”

Prior to the late 1980s--Brokers did not know agency as a legal term or its legal consequence –and when told were in surprised!

Brokers never heard of “OLDCAR” and Forms did not use the word “agency” until the early 1990s

Brokers happily and needed no E&O Insurance

The “Garden” was Beautiful

Caveat Emptor---if the buyer does not ask

there is no duty to tell—just don’t lie!

Notion of “Fairness to ALL Parties”

The term, “Agent” was for used but was

not defined

The ONLY disclosure requirement was for

a broker to let the other party know that

the broker was “buying or selling for the

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An Issue that Never Goes Away

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NAR 2011 Legal Scan

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RepAbsentee

States of “No Choice”

Licensee is an “Agent” and Buyer or Seller

is an “Agency Principal” whether they want

it or not!

HUD Repo Listing Broker Contracts—even

in those states are “non-agency”---so

those states simply look the other way but

do not offer brokerage relationship choice

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States: Where Agency is the

Automatic Relationship Just by being licensed the licensee is in an

agency relationship with those who

receive the licensee’s services

This means anyone who “double-ends” a

transaction is some form of “dual agent”

This means there is special liability for

both the agent and the agency principal

Special remedies for “breach of fiduciary

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Common Misconceptions

That Transaction Broker is really

“Transactional Broker”

Transaction Brokers are really ONLY

Intermediaries

Finders

Facilitators

States Where Agency is Created ONLY

by Choice

Agency not created by common law

“implications, appearances, accident, etc.”

Agency only by an express written agency

agreement

Those special liabilities and remedies for

both the licensee and client do not exist

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Another---Cartoon!

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Exclusive

Exclusive Transaction Broker: “In

Your Corner”

Out of

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Exclusive

Exclusive Transaction Broker: “In

Your Corner” –and has Buyer as Well

Custome

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Exclusive

Exclusive Agency: In Your Corner

and In Your Shoes

Out of

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Seller’s Agent obtains Seller’s written permission for Dual Agencyprior to an offer being presented and makes it clear that Agent will represent both parties as impartial facilitator

Buyer’s Agent obtains Buyer’s written permission for Dual Agency prior to an offer being written and

makes it clear that Agentwill represent both parties

as impartial facilitator

What Can Two Clients Expect with

One Agent in Dual Agency?

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Transaction Broker Facilitation

This Broker is not in any Corner and not in any

party’s shoes—but rather stands in the middle

as an impartial facilitator

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The Essence of Agency is

Capacity Authorization to speak or act on behalf of

the agency principal for the agency

principal’s benefit

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Take a Good Look!

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Transaction Broker Listing

Agreement

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Listing Agreement: Agency Addendum

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Dual Agency Facilitation Role

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Transaction Broker Facilitation Role*

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Purchase Agreement

Cover Page II Disclosures: #1

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Purchase Agreement

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Purchase Agreement

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Purchase Agreement

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Purchase Agreement

II. Sources

2011 NAR Legal Scan: Trend Discussion

NM Real Estate License Law

NM Real Estate Commission RULES

Definitions

Part 19

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III. Standards of Conduct

Agency: OLDCAR

Parahoo v. Mancini: “You be the Judge”

Lombardo v. Albu: “You be the Judge”

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Meaning of Professionalism

__________________________________

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Say What You Mean--- But

Don’t Over-Promise Represent

Protect

Loyalty

Advocate

Advise/Advice

Services

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III. Transaction Brokerage

Not Agency

Can Be by Written Contract

Can Be Exclusive-- but to Only One Party

at a Time

Can Be Impartial to both Parties

Simultaneously

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Listing Agreement

Item 20: Example

“In the event that listing broker directly

obtains a buyer for this property—seller

and brokerage agree to modify this

exclusive listing contract to provide for

assistance for both seller and buyer by

impartial facilitation”

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IV. Uncertainty of Agency

Courts Fiduciary Duty and Federal Law

Breach of Fiduciary Duty—Sources

Breach of Fiduciary Duty—Another Listing

Breach of Fiduciary Duty—Leasing

Breach of Fiduciary Duty—Listing Broker

Transaction Broker---Agency Remedies

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V. Agency: Useful and Serious

Agency Can Be an Essential Relationship

Scope of Authority: Taking it Seriously

Importance of OLDCAR

Significance of “Respondeat Superior”

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Your Agency Perceptions

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Agency EQUALS Superior Service Compared to Other Relationships

Agency EQUALS Protection of Client’s Interests as Foremost Concern

Agency EQUALS Authorization from Client to Make Promises to Others

Agency EQUALS Protection of Client’s Interests as Primary Concern

Agency EQUALS Professionalism of the Highest Order

Agency EQUALS Client’s Potential Liability for Agent’s Words/Deeds

Agency EQUALS Exceptional Remedies to Client for Agent’s Breach

Agency EQUALS… __________________________________________

Transaction Broker—Services and

Assistance without Authorization to

Speak and Commit

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“Not in Customer/Client’s Shoes” because

they are in their Own Shoes”

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Facilitator

Seller

“In the Middle”

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Don’t Be Careless—with “Agent”

National Association of Realtors® is to blame—

they tend to think everyone is an agent

Slogan: “Not all Agents are Realtors®”

NMREC Website: “Our function is to license real

estate sales agents and brokers, and enforce

the New Mexico Real Estate License Law and

Commission Rules and Regulations. ”

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Real Estate Commission Agency

Disclosures Required First NMREC Disclosure Requirements—1992

Subagency

Single Agency

Changes of Requirements over Time

“First Substantive Contact”

“Licensee Duties”

“Agency solely by Written Agency Agreement

“Broker Duties”

“Transaction Broker Terminology

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Real Estate Commission Agency

Terminology/Requirements

First NMREC Disclosure Requirements—1992

Subagency, Buyer’s Agency, Dual Agency, Licensee

Licensee Duties

First Substantive Contact

Changes of Requirements over Time

“Licensee Duties”—”Broker Duties”

“Common Law of Agency Abrogated”

“Transaction Broker Terminology”

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A Billion Dollar Question

1,000,000 Real Estate Licensees

$100.OO per year Spent in “Agency Education”= 1

Hundred Million

20 Years = 20 Hundred Million Dollars Seeking to

Understand all of This

Equals = $2,000,000,000 Spent on the “Fix”

I. Introduction

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NMREC Rules Definitions

A. Agency: the fiduciary relationship created

solely by the express written agency agreement

between a person and a brokerage, authorizing

the brokerage to act as agent for the person

according to the scope of authority granted in

that express written agreement for real estate

services subject to the jurisdiction of the

commission.

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NMREC Rules Definitions

B. Agent: the brokerage authorized to act as a

fiduciary for a person and to provide real estate

services solely by means of an express written

agreement.

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NMREC Rules Definition

TT. Transaction Broker: the non-fiduciary

relationship created by 61-29-2 A 14

NMSA 1978, wherein a broker or

brokerage provides real estate services

without entering into an agency

relationship.

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Transaction Brokerage Obligations

NMREC Broker Duties

Contract Performance

Subject to Breach of Contract

Subject to TORT Violations

Subject to Requirements of “Professional Duty”

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Agency Relationship Obligations

NMREC Broker Duties

Contract Performance

Subject to Breach of Contract

Subject to TORT Violations

Subject to Requirements of “Professional Duty”

Subject to Breach of “Fiduciary Duty” within

Scope of Authority—subject to interpretation!

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Agency and the National Association of

Realtors® Code of Ethics

Article 1: “…When representing a buyer,

seller, landlord, tenant, or other client as

an agent, REALTORS® pledge themselves

to protect and promote the interests of

their client. This obligation to the client is

primary…”

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How Can this Be Interpreted when a

Client is Unhappy?

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Summary

By statute, all exclusive contracts for real estate services must be in writing and say so

By statute, all agency relationships for real estate

services must be in writing and say so

By statute, real estate services may be provided by a transaction broker either with or without a written

contract

By statute, all clients and customers are entitled to Broker Duties when receiving real estate services

II. RANM Forms Language

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Listing Agreement: Agency

Addendum

III. Contract Obligations

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Listing Agreement Contract Duties

2. Duties of Broker. Broker will use diligence in effecting the sale of the Property, and will provide the following services:

(a) assisting Seller to locate qualified buyers; (b) if requested, assisting potential buyers to locate financing and prepare offers; (c) assisting Seller in negotiating the terms of a sale; (d) assistingSeller in monitoring pre-closing and closing procedures.

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Buyer Agreement Contract Duties

2. Duties of Broker. During the term of this Agreement Broker will:

(a) Become familiar with Buyer's property requirements; (b) assist Buyer to locate suitable properties; (c) assist Buyer to locate financing; (d) assist Buyer to prepare offers (including providing information concerning comparable properties) (e) assist Buyer in negotiating acquisition terms; (f) assist Buyer in monitoring pre-closing and closing procedures; (g) act solely for Buyer in any transaction;

Listing Agreement Potential Item

#20 “Other”

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Brokerage appoints listing broker as

Designated Broker to provide Seller

exclusive services. Brokerage reserves the

right to appoint additional Designated

Brokers when Brokerage deems it

necessary and Seller will be informed. In an

“in-house” transaction Brokerage will

appoint a Designated Broker to work

exclusively with Buyer

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Listing Agreement Item #20 “Other”

“In the event that listing broker obtains a buyer

for this property-- seller and brokerage agree to

modify this exclusive agreement to provide for

impartial facilitation between seller and buyer”

IV. Task-Role-Relationship

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Lou’s Relationship “Wheel”

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Task Varieties

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Role Choices

Exclusive Services

Facilitation

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Relationship Selection

Agency

V. A Second Look

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Transaction Broker

Provides assistance and services to client or

customer

Does NOT have right to make decisions that

bind client or customer

Does NOT have scope of authority to commit

without written ratification of client or

customer

Discussion

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Transaction Broker should not make decision-

recommendations to clients or customers –

except to obtain more information prior to client

or customer making their own decision

“I provide—you decided”—Realtor® Mantra

Discussion

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Exclusive Agent—acts as a fiduciary precisely

because agency carries with it the essential

understanding of potential capacity to make

decisions and bind a client—in keeping with

implied or express scope of authority

Therefore, as a fiduciary who acts, an agent is

held to a higher standard and may be

accountable for damages, rescission, and loss

of compensation

Discussion

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Facilitation is:

Impartial toward both parties

Both parties receive Basic Duties

Both parties receive pre-set limited recommendations for further information

Both parties understand that neither will receive decision-making recommendations

Both parties understand that confidentiality is preserved for both parties

Discussion

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Exclusive Services of any kind means that

the exclusive broker is promoting the

interests of the client

Exclusive Agency means that the

Exclusive Agent is not only promoting but

also protecting the client’s interest in a

fiduciary capacity with special penalties for

“breach” of that duty

Corner and Shoes

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Seller Client assisted by

Exclusive Listing Broker

Buyer Customer assisted by

Exclusive Listing Broker

What Can Client and Customer

Expect?

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Seller Client assisted byExclusive Listing Broker

Buyer Client assisted by Exclusive Buyer

Broker who is ALSO the Exclusive Listing Broker

What Can the Two Clients Expect?

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Qualifying Broker appoints

Listing Broker as Designated

Broker and Seller Client continues

to receive Exclusive Services

Buyer Broker as Designated

Broker and Buyer Client

Continues to receive

Exclusive Services

What Can Two Clients Expect with

Designated Broker Dual Representation?

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Qualifying Broker appoints Listing Broker as DesignatedAgent and Seller Client continuesto receive Exclusive Services

Buyer Broker as DesignatedAgent and Buyer

Client Continues to receive Exclusive Services

What Can Two Clients Expect Two

Agents with Dual Agency?

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Impartial toward both parties

Both parties receive Basic Duties

Both parties receive pre-set limited

recommendations for further information

Both parties understand that neither will

receive decision-making

recommendations

Both parties understand that confidentiality

is preserved for both parties

What Is Facilitation?

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Benefits

Some Benefits Minimizing Complexity

Minimizing Uncertainty

Avoiding Appearance of Authority to Commit Client

Say “Goodbye” to Dual Agency

Responsible for “Recognized/Measurable” Standards

Providing an Agency Alternative to Client’s Benefit

Fits the other than “Substantial Services” Agreements

A Better Fit for the world of “CBA’s,” and “AfBA’s,”

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Why All This Matters

Expanding Expectations of Service

Increased Awareness of Legal

Implications

Knowledge of Points of Vulnerability

Need to for Licensees to Self-Monitor

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Potential Downsides

Transaction Broker Is Acting like an “Agent”

Forgetting that “agency is capacity”

Taking on “agency specific tasks”

Misleading others to believe transaction broker is in fact acting as “agent” of client

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The “Duck-Theory” and

Task-Specific Agency

Duck Theory…”You are not an agent UNLESS you act like an agent…”

Task-Specific Agency Services Trustee

“Acting as Though”

Accepting Delivery and Notice

Making Objections, etc. on Behalf of Client

Accepting Power of Attorney

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Summary

The “Wheel”

TASK and ROLE suggest RELATIONSHIP

Agency

Transaction Broker

Determine which is best to perform obligations of seller

or buyer agreements

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ROLEExclusive Representative

Facilitator

RELATIONSHIPTransaction Brokerage

Agency

RepAbsentee

Client/CustomerSeller/Buyer Brokerage

Building/Tenant Rep

Making Rational Choices

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exclusive services. Brokerage reserves

the right to appoint additional Designated

necessary and Seller will be informed. In

an “in-house” transaction Brokerage will

exclusively with Buyer

Listing Agreement Item #20

Possibilities

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exclusive services. Brokerage reserves

the right to appoint additional Designated

necessary and Seller will be informed. In

an “in-house” transaction Brokerage will

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Awareness and Involvement

“Known and Unknown”

Potential Litigation Sources

Valid and Exclusive Agreements

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In the event listing broker obtains a buyer

for this listed property Seller and

Brokerage agree to modify this exclusive

agreement to provide for impartial

facilitation between Seller and Buyer

Listing Agreement Item #20

Possibilities

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Under the common law of agency “breach

of fiduciary duty” carries special

“accountability”

Not only “damages” as compensation to the

agency client, but also

Potential for “rescission” of any already closed

transaction

Potential that the agent has forfeited claim to

the commission

Corner and Shoes

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The real consequence of a broker being

found to be an “agent” under the common

law is exposure to remedies—a

transaction broker is responsible under the

common law of Tort for damages due to

misrepresentation (intentional or

otherwise) and negligence—but not loss of

compensation or rescission of the

transaction

Corner and Shoes

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Both Seller and Buyer Clients can expect

full disclosure and modification of contract

for exclusive services to either:

Maintain Exclusive Services to Seller and

NOT to Buyer

Maintain Exclusive Services to Buyer and

NOT to Seller

Modify BOTH Exclusive Service Agreements

to provide, in writing, for Impartial Facilitation

What Can the Two Clients Expect?

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Transaction Broker Rationale (1)

It is the parties' intention to minimize the

likelihood that Seller will be held liable for

the acts and omissions of the Broker and

to eliminate the possibility that Broker is

held liable to Seller under agency law.

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Transaction Broker Rationale (2)

LIABILITY. Seller acknowledges that as a

result of the agency relationship Seller can

be held liable for acts or omissions of

Broker that are within the scope of the

Broker's authority

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A House of Cards

Built on Complex

Disclosures

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RepAbsentee

Building/Tenant Rep

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Classroom Input

Listing broker advertises a property as "being near public

transportation" and as a result of the advertisement finds a buyer

prospect who states up front that she must live close to public

transportation because does not drive or own a vehicle. The listing

broker writes the offer with the perception that the property is close

to public transportation, but without making the close-by-

availability –of- public- transportation a contingency in the offer

to purchase. The offer is accepted along with $5,000 as earnest

money. Two days after the date of acceptance, the listing broker

sees a notice in the local newspaper of record that the only bus line

serving that neighborhood would be permanently discontinued in

one month.

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NAR Code of Ethics—Written Service

Agreements

“For the protection of all parties, shall

assure whenever possible that all

agreements related to real estate

transactions, including, but not limited to,

listing and representation agreements…”

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Agency Authorization

“For all regulated real estate transactions first executed on or after January 1, 2000, no agency relationship between a buyer, seller, landlord or tenant and a brokerage shall exist unless the buyer, seller, landlord or tenant and the brokerage agree, in writing, to the agency relationship. No type of agency relationship may be assumed by a buyer, seller, landlord, tenant or licensee, or created orally or by implication.” (NMSA 1978)

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Prologue: The “Iron Age” of Agency

Reality

Disclaimers

Disclosures

Choosing Sides—taking “agency” seriously

Complexities

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I. INTRODUCTION

Background of Non-Agency in Real Estate

Undefined and Unregulated and not Role Specific

Background of Agency in Real Estate

Defined by Common Law and One-Sided

Agency Embraced by NAR

Listings and All MLS Cooperation Based on Agency Only

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Written Service Agreements

without Agency

“A brokerage may provide real estate

services to a client pursuant to an express

written agreement that does not create an

agency relationship and no agency duties

will be imposed on the brokerage” (NMSA 1978)

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The “Wheel”

•TASK

•ROLE

•RELATIONSHIP

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II. Brokerage Relationships in New Mexico

Transaction Broker Client—Services Differential?

Customer—Services Differential?

Exclusive Agency Client Only and Only with Express Agency

Agency--Designated Agency--Subagency

Facilitation Dual Transaction Broker or Dual Agent

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Broker Assignment

Scope of Authority: The client’s authorization--

within the scope of authority-- for agent to

speak and/or act on client’s behalf and to

commit client without client’s further approval

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Broker Assignment

Transaction Broker

Scope of Engagement: those tasks brokerage

has accepted to do on behalf of the client or

customer

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Value of Written Service Agreements

Required to establish a contract for real estate services

Written instructions and acceptance

Makes brokerage relationships clear

Written permission of your principal is necessary to get

paid by the other party to the transaction

Necessary for standing under Article 16 protection

Necessary for contract protection under common law

Creates a “commitment” in writing from client

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Written Listing Agreement Benefits

1. _______________________________

2. _______________________________

3. _______________________________

4. _______________________________

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Written Buyer Agreement Benefits

1. ______________________________

2. ______________________________

3. _______________________________

4. _______________________________

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Transaction Broker Listing

Agreement

EXCLUSIVE SERVICES. The undersigned

("Seller") grants to the undersigned Broker firm

the exclusive right to sell the real property

described in Paragraph 3. Broker will act as

Seller's Transaction Broker in this transaction

without creating an agency relationship. Broker

and Seller will owe each other loyalty.

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Listing Broker Service Agreement

Broker will use diligence in effecting the sale of the Property, and will provide the following services: (a) assisting Seller to locate qualified buyers; (b) if requested, assisting potential buyers to locate financing and prepare offers; (c) assisting Seller in negotiating the terms of a sale; (d) assisting Seller in monitoring preclosing and closing procedures--RANM

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NAR CODE OF ETHICS—

Clients and Customers

A Distinction in Terms

Client—Written Agreement for Service

Relationship Protected by Article 16

Customer—Without a written agreement with

relationship NOT protected under Article 16

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NAR Code of Ethics--Brokerage

Relationships

Agency

Treat client’s interests as primary and all

parties with honesty

Nonagency

Treat all parties with honesty

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Agency Scope of Authority

“The authority to act on behalf of or in

place of a principal with specific

parameters governing the brokerage’s

authority to act” (NMREC Part #1)

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Agency Fiduciary Duties

Obedience

Loyalty

Disclosure

Confidentiality

Accounting

Reasonable Care and Diligence

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Listing Broker Agency Agreement

Broker will serve as Seller's agent in this

transaction. In addition to the basic licensee

duties, Broker will owe to Seller fiduciary

duties.

Seller acknowledges that as a result of the

agency relationship Seller can be held liable

for acts or omissions of Broker that are within

the scope of the Broker's authority.

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Loyalty by Written Service

Agreement

Pledge of “Loyalty”

Agency Contract

Transaction Broker Contract

Meaning of “Loyalty”

Agency Relationship?

Transaction Broker—Client and Customer?

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Buyer Broker Service Agreement

Broker will: (a) Become familiar with Buyer's property requirements; (b) assist Buyer to locate suitable properties; (c) assist Buyer to locate financing; (d) assist Buyer to prepare offers (including providing information concerning comparable properties); (e) assist Buyer in negotiating acquisition terms; (f) assist Buyer in monitoring pre-closing and closing procedures; (g) act solely for Buyer in any transaction … unless otherwise specifically and expressly agreed to by Buyer in writing;--RANM

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Buyer Agreement Psychology

RANM Compensation Provisions

Buyer “guarantees” broker’s compensation

Buyer gives broker permission to get

compensation from “other side”

Buyer will pay the difference after consulting

Broker does not have to find or show when

compensation is not enough

Buyer will pay broker if buyer causes default

or if buyer cuts broker out after term is expired

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Buyer Agreement Psychology

Lou’s Provisions

Buyer owes loyalty to broker

Buyer owes no compensation to broker

Broker is given permission to get paid by “other

side”

Broker owes broad range of professional duty

Agreement can be cancelled by either side with

simple written notice

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Dual Agency Agreement

BROKER'S DUAL AGENCY ROLE: Brokerage is representing both Buyer and Seller as clients by means of a written agency agreement with each of them. Buyer and Seller consent to Brokerage acting as a Dual Agent.

Buyer and Seller agree to modify the fiduciary duties of the brokerage. As a Dual Agent, Brokerage shall act as a facilitator between Buyer and Seller,

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Dual Transaction Broker

Agreement

Dual Transaction Facilitation: The parties agree that this Agreement supersedes and modifies the separate Exclusive Buyer and Listing Agreements between Broker and Buyer and Seller.

Broker’s Transaction Facilitation Role: Buyer and Seller consent to Broker not acting as exclusive representative for either party in order to facilitate this transaction

Rights Reserved

A SAMPLE Transaction

Facilitation Statement.

Broker will assist in the evaluation process and continue to offer such services as specified in any previously entered into written agreement with the Seller or Buyer—EXCEPT

Broker but will not takes sides or represent either party.

Broker will NOT disclose any pertinent information obtained during the term of an Exclusive Agreement unless by permission or required by law

Broker, will offer information and services to Seller and Buyer but will not takes sides or represent either party.

Rights Reserved

Buyer Broker Agency Agreement

Broker will serve as Buyer's agent. In

addition to the basic licensee duties,

Broker will owe to Buyer fiduciary duties.

Buyer acknowledges that as a result of

the agency relationship Buyer can be

held liable for acts or omissions of Broker

that are within the scope of the Broker's

authority

Rights Reserved

Dual Agency Duties--RANM

Buyer and Seller agree to modify the fiduciary duties of the brokerage. As a Dual Agent, Brokerage shall act as a facilitator between Buyer and Seller, shall not disclose confidential information of one party to the other without the affected party's consent, will provide information on an equal basis to assist Buyer and Seller to negotiate on their own behalf, but will not advocate for either Buyer or Seller.

Rights Reserved

NAR CODE OF ETHICS--

Confidentiality

Preserved except by permission, disclosure is

required by law, or for Realtor® to be able to

defend himself when accused

Identical provisions for Realtors® as agents

and nonagents

Rights Reserved

NAR Code of Ethics—Disclosure Issues

Same duties for all Realtors® regardless of

brokerage relationship

Discovery

Concealment

Misrepresentation

Rights Reserved

NAR Code of Ethics--Competence

“The services which Realtors® provide to their clients and customer shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage” (Article 11)

Rights Reserved

NAR Code of Ethics—

Conflict of Interest

“Realtors® shall not undertake to provide

professional services concerning property

or its value where they have a present or

contemplated interest unless such interest

is specifically disclosed to all parties” (Article 5)

Rights Reserved

NAR Code of Ethics—Respect for Exclusive Agreements of

Others

“…Realtors® shall not knowingly provide substantive services…to prospects who are parties to exclusive representation agreements, except with the consent of the prospects exclusive representative or at the direction of prospects” (SOP 16-13)

Rights Reserved

Consumer Protection and the Common Law of Tort

Active

Passive

Negligent Misrepresentation

Negligence

Rights Reserved

Key New Mexico Tort Cases

Neff v Bud Lewis (1976)

Amato v Rathbun (1982)

Gouveia v Citicorp (1984)

Rights Reserved

Common Law Uncertainties

Case Specific

Case Law Precedence

Risk Management Responses

Rights Reserved

Some “Reality Checks”

Broker Service Check List

Comparisons

Duty Intensifiers

Service Expanders

Greater Obedience

Rights Reserved

Selected Law Cases

“Common Law duties are difficult to ascertain

even with in-depth legal research” .... Laurie Janik,

NAR General Counsel 1999

“[Agency] Common Law is a hit-and-miss proposition. It sets forth fiduciary duties in very broad terms and leaves a lot to uncertainty…”--Laurie Janik, NAR General Counsel 1999

Rights Reserved

A. Priority of Duties

Department of Real Estate Regulations

Common Law of Agency Fiduciary Duty

Contract Law Covenants

Rights Reserved

Priority of Duties

Common Law of Agency Fiduciary Duty

Federal Fair Housing Act

Rights Reserved

C. Breach of Fiduciary Duty

Misrepresentation

Lack of Further Inquiry

Dependence on “Unreliable Date Source”

Rights Reserved

Fiduciary Duty and Disclosure

Listing Agent’s Non-Disclosure to Buyer

Seller’s Obligations to Buyer

Third Party Providers’ Obligation to Buyer

Rights Reserved

Breach of Fiduciary Duty

Failure to Disclose to Seller Relationship

to Buyer

Transaction Closed and Funded

Seller Refused to Pay Compensation

Rights Reserved

F. “Breach of TB Duty”

Transaction Broker for Seller Did Not

Perform all of the Transaction Broker

Duties

Transaction Closed and Funded

Seller Refused to Pay Compensation

Rights Reserved

Benefits

Some Benefits Minimizing Complexity

Minimizing Uncertainty

Avoiding Appearance of Authority to Commit Client

Say “Goodbye” to Dual Agency

Responsible for “Recognized/Measurable” Standards

Providing an Agency Alternative to Client’s Benefit

Fits the other than “Substantial Services” Agreements

A Better Fit for the world of “CBA’s,” and “AfBA’s,”

Rights Reserved

Implications

Rights Reserved

Potential Downsides

Transaction Broker Is Acting like an “Agent”

Forgetting that “agency is capacity”

Taking on “agency specific tasks”

Misleading others to believe transaction broker is in fact acting as “agent” of client

Rights Reserved

The “Duck-Theory” and

Task-Specific Agency

Duck Theory…”You are not an agency UNLESS you act like an agent…”

Task-Specific Agency Services Trustee

“Acting as Though”

Accepting Delivery and Notice

Making Objections, etc. on Behalf of Client

Accepting Power of Attorney

Rights Reserved

Summary

The “Wheel”

TASK and ROLE suggest RELATIONSHIP

Agency

Transaction Broker

Determine which is best to perform obligations of seller

or buyer agreements

Rights Reserved

ROLEExclusive Representative

Facilitator

RELATIONSHIPTransaction Brokerage

Agency

RepAbsentee

Building/Tenant Rep

Rights Reserved

When it Matters

gravitas sola quanda gravis

(Old Roman Proverb)

Rights Reserved

RELATIONSHIP

Rights Reserved

XII. Break-Out Discussions

Class Problem #1—Public Transportation

Class Problem #2—Meth Lab Issue

Class Problem #3—Sex Offender Issue

Class Problem #4—Financing Clause

Rights Reserved

XI. Break-Out Discussions

Class Problem #1—Public Transportation

Class Problem #2—Meth Lab Issue

Class Problem #3—Sex Offender Issue

Class Problem #4—Financing Clause

Rights Reserved

“Designated Broker” Possible Replacement

“Designated Broker: A Qualifying Broker or Broker who is designated in writing by a Qualifying Broker to serve as Exclusive Transaction Broker or Exclusive Agent for a seller, landlord, buyer, or tenant in a real estate transaction. A Designated Broker may work with a seller or landlord in one transaction and work with a buyer or tenant in another transaction.” Lou Tulga

Rights Reserved

“Facilitator” Possible Replacement

“Facilitator: The role of a Broker in either a

Dual Agency or Transaction Brokerage

relationship in which the exclusive

relationships between a seller or landlord

client or buyer or tenant client are modified

so that the Broker impartially facilitates the

Transaction.” Lou Tulga

Rights Reserved

Listing Broker Duties--RANM

Broker will: (a) Become familiar with Buyer's property requirements; (b) assist Buyer to locate suitable properties; (c) assist Buyer to locate financing; (d) assist Buyer to prepare offers (including providing information concerning comparable properties); (e) assist Buyer in negotiating acquisition terms; (f) assist Buyer in monitoring pre-closing and closing procedures; (g) act solely for Buyer in any transaction … unless otherwise specifically and expressly agreed to by Buyer in writing;

Rights Reserved

Dual Agency—What’s Missing?

There is no mention of modifications of “services provided”

There is no mention of “scope of authority” changes

There is no clarification of “modification of fiduciary duties”

Rights Reserved

V. Written Service Agreements

Seven Good Reasons for Written Agreements

RANM Form #1106 Listing Agreement

RANM Form #1206 Buyer Broker Agreement

RANM Form #1301 Agency—Dual Agreement

Discussion Items--Transaction Broker Dual Facilitation, Designated Representation, and Cover Page II Expansion to provide for Transaction Broker Facilitation

Rights Reserved

Some Good Reasons… For Transaction Brokerage with Written Agreement

It is a “trust/commitment” document Service Contract Loyalty

It expressly indicates the agreement Basic Licensee Duties

Mandatory for “exclusive relationships”47-1-45 NMSA

Code of “requires” written agreements Article Nine

Rights Reserved

Some Good Reasons…

Code Protection only for Exclusive Written Agreements Article 16 SOP 16-9 & 16-13

Contract Law Protection for Written Agreements

License law requires it for compensation from other party 61-299-12 A 3

Contract contains “mediation clause”

Rights Reserved

“ For the Future” (now done in Colorado)—”Designated

Representative” for In-House Transaction Brokerage

Representation—Not RANM Approved!

Designated Representative. “If Qualifying Broker chooses Designated Representation, Broker Firm designates to represent the Client exclusively. The designated representative will provide the Client services as transaction broker without an agency relationship…

Rights Reserved

“Broker Firm reserves the right to name additional designated representatives when at its discretion it is necessary. If additional designated representatives are named, Client will be informed. Only the persons designated as Client's designated representatives will be assigned to the Client…

Rights Reserved

“In an in-house transaction Qualifying Broker will designate another licensee to represent the Other Client exclusively. Client’s designated representative and Other Client’s designated representative will work for the same Qualifying Broker, who supervises all, transactions and maintains impartiality and safeguards confidentiality for both parties.”

Rights Reserved

“ For the Future” (Selection #C is NOT currently in Item #4 of

Cover Page II of the RANM Form # 2103 Purchase Agreement)

4. DUAL REPRESENTATION/DUAL AGENCY/TRANSACTION BROKER FACILITATION

DISCLOSURE AND CONSENT (if applicable)

[ ] A. Brokerage is representing both Buyer and Seller as clients by means of a

written agreement with each of them without creating dual agency, and Buyer

and Seller hereby consent to this representation.

[ ] B. If Dual Agency exists, prior to writing or presenting offer, obtain written authority from

buyer client and seller client on RANM Form 1301, Agency Agreement - Dual.

[ ]C. If Transaction Broker Dual Facilitation is to be

entered, prior to writing or presenting offer, obtain

written authority from buyer client and seller client

modifying the existing Exclusive Agreements with

consent for Transaction Broker Dual Facilitation.

Rights Reserved

Brokerage Service Check List(attached worksheet)

Check the “A Box” if You, as Exclusive Agent,

Would Provide this Service

Check the “B Box” if You, as Exclusive

Transaction Broker Would Provide this Service

Leave Both Boxes Blank, if Service Is NOT

Provided Regardless of Brokerage Relationship

Rights Reserved

RELATIONSHIP

Rights Reserved

#4 Issue of Extent of Fiduciary Duty

Does it Extend to the Client beyond

Obligations of the Listing?

Does it Extend to Seller Client’s Other

Properties that Are Not Listed?

Rights Reserved

#5 Issue Do Disclosure

Responsibilities Differ?

Disclosure Responsibilities of Seller

Disclosure Responsibilities of Title Company

Disclosure Responsibility of Listing Agent

Disclosure Responsibility of Buyer’s Agent

Rights Reserved

#6 Issue of Loyalty

Competing with Former Agency Client

Effect of Contract “Hold-Over” Clause

What Constitutes a “de novo”

Transaction?

Loss of Right to Get Paid

Rights Reserved

#7 Issue of Loyalty

Failure to Disclose

Self-Dealing

Rights Reserved

RELATIONSHIP

Rights Reserved

Remember….

Professional Services are Required Regardless of Role or Relationship

Scope of Authority—Authorizations with potential Capacity to Commit Client

Scope of Engagement—Provision of Services Only

Rights Reserved

VI. Task-Role-Relationship Model

Determine the TASK

Suggest the Role Suitable for TASK

Suggest the Relationship that Best Fits the

Task and Role

Rights Reserved

RELATIONSHIP

Rights Reserved

Implications

Rights Reserved

Forms Discussion

Listing Agreement and Addendum

Dual Agency Agreement

Transaction Broker Facilitation Agreement

Purchase Agreement Cover Page II

Rights Reserved

IX. Making it Work

Class Problem #1: Public Transportation

Class Problem #2: Decline of Inspections

Rights Reserved

1. EXCLUSIVE SERVICES. The undersigned("Seller") grants to the undersigned Broker firm the exclusive right to sell the real property described in Paragraph 3. Broker will act as Seller's Transaction Broker in this transaction without creating an agency relationship. Broker and Seller will owe each other loyalty. "Sale" includes the voluntary sale, lease, exchange or other transfer of the Property or the voluntary creation of the right to acquire any interest in the Property (including a contract or lease). It is the parties' intention to minimize the likelihood that Seller will be held liable for the acts and omissions of the Broker and to eliminate the possibility that Broker is held liable to Seller under agency law.

Rights Reserved

What Do These Terms Mean in

Real Estate Practice?

“Assistance”

“Facilitation”

“Representation”

“Advocacy”

Rights Reserved

I. Introduction

#1 Caveat Emptor and Vendor Agency

#2 Trade Associations with Ethical Standards

#3 Real Estate License Law & Commissions

#4 Courts & Consumer Protection

Rights Reserved

I. Introduction

New Mexico Cases

Neff v Bud Lewis (1976)

Amato v Rathbun (1982)

Gouveia v Citicorp (1984)

Easton v Strassburg (CA 1984)

Rights Reserved

I. Introduction

#5 Agency Understood & Effect on Buyers

#6 Buyer Agency & Dual Agency

#7 Courts & Failure to Disclose

#8 Nonagency and Transaction Brokerage

Rights Reserved

I. Introduction

“How We Do It”-- Licensee

Responsibilities

Differences with “OLDCAR” Fiduciary Duties

Differences in Potential for Liability

Rights Reserved

IV. Transaction Broker Duties and

Professional Standards

NAR Code of Ethics and Brokerage

Relationships

Article 1-- Priority and Honesty

Article 2-- Confidentiality

Article 11--Competency

Article 16--Exclusive Relationships

Rights Reserved

II. Some Important Terms

Agency

Business Relationship

Facilitator

Fiduciary Duty

Rights Reserved

Nonfiduciary Duty

Principal

Professional Duty

Standard of Care

Rights Reserved

Reasonable Care

“That degree of care which a person of ordinary

prudence would exercise in the same or similar

circumstances. Due care under all the

circumstances. Failure to exercise such care is

ordinary negligence”

Rights Reserved

Reasonable Care

Rights Reserved

Reasonable Care

Rights Reserved

Utmost Care

“The standard is relative, not absolute, and

sometimes regarded as no more than

reasonable care measured by

circumstances.”

Rights Reserved

Transaction Broker in Other States

Colorado

Florida

Missouri

Oklahoma

Tennessee

Rights Reserved

#1 Issue of Priority

Common Law or Rules & Regs?

Non-Fiduciary Duty

Covenant of Good Faith and Fair Dealing

Rights Reserved

#2 Issue of Priority

Common Law or Fair Housing Law?

Rights Reserved

#3 Issue of Reliable Source

Substantial Misrepresentation

Source “Deemed Reliable”

Responsibility for “Red Flags”

Rights Reserved

#4 Issue of Extent of Fiduciary Duty

Does it Extend to the Client beyond

Obligations of the Listing?

Does it Extend to Seller Client’s Other

Properties that Are Not Listed?

Rights Reserved

#5 Issue Do Disclosure

Responsibilities Differ?

Disclosure Responsibilities of Seller

Disclosure Responsibilities of Title Company

Disclosure Responsibility of Listing Agent

Disclosure Responsibility of Buyer’s Agent

Rights Reserved

#6 Issue of Loyalty

Competing with Former Agency Client

Effect of Contract “Hold-Over” Clause

What Constitutes a “de novo”

Transaction?

Rights Reserved

#7 Issue of Loyalty

Failure to Disclose

Self-Dealing

Rights Reserved

Real Estate License Law & Regulations

Misrepresentations

Other conduct such as negligence, impropriety and incompetence

Basic Licensee Duties of NMREC Part 19

Rights Reserved

Necessity for Written Contracts or

Memorandums

47-1-45 NMSA 1978 Written Contracts

61-29-12 A (3) written permission required

from one’s principal to receive compensation

from other party to the transaction

Rights Reserved

Customer ServiceTransaction Broker

Obligations of Real Estate Law and NMREC

Basic Licensee Duties

Obligation to perform all oral and written

agreements with honesty and reasonable care

Liability for money damages from

misrepresentation and negligence

Rights Reserved

Client ServiceExclusive Transaction Broker

All Customer Service Obligations and Liabilities Basic Licensee Duties

Performance of Promises Made

Liability for Misrepresentation & Negligence

PLUS—Undivided Loyalty entered solely by

Exclusive Brokerage Agreement

Rights Reserved

Client ServiceExclusive Agency

Fiduciary duty obligations of utmost care

Liability for breach of fiduciary duties including potential for not getting paid

Implied authority to commit client by word or deed

Client liability for word or deed of agent under the scope of authority granted

Rights Reserved

Brokerage Service Check List

Check the “A Box” if You, as Exclusive Agent,

Would Provide this Service

Check the “B Box” if You, as Exclusive

Transaction Broker Would Provide this Service

Leave Both Boxes Blank, if Service Is NOT

Provided Regardless of Brokerage Relationship

Rights Reserved

Transaction Brokerage Duties and

Real Estate License Law

NMREC Rules & Regulations

National Association of Realtors® Code of

Ethics

Rights Reserved

Transaction Brokerage Disclosure

Requirements

“Trigger Event”

When Presenting Consumer with a Written Document

that when Filled Out Could become an Express

Written Agreement

Written Disclosures

Existence of Your Own Listing Contracts

Licensee’s Material Interests or Relationships

Rights Reserved

RANM “Cover Page II”

Transaction Broker Listing Agreement

Transaction Broker Buyer Agreement

Purchase Agreement—Residential Resale

Rights Reserved

RANM “Cover Page II”

Transaction Broker Listing Agreement

Transaction Broker Buyer Agreement

Purchase Agreement—Residential Resale

Rights Reserved

Transaction Broker Services

Agreement

Exclusive Right to Sell Listing Agreement

“Designated Representative”

Rights Reserved

Facilitation—Agency or Transaction

Brokerage?

“Dual Agency” Form (RANM)

Modified Fiduciary Duties

“Transaction Brokerage Facilitation”

No Fiduciary Duties

Rights Reserved

Chart of Obligations (attached as handout)

Real Estate License Law

NMREC Rules and Regulations

Reference to Common Law

Reference to NAR Code of Ethics

Rights Reserved

Ockham’s Razor

“pluralitas non est ponenda sine necessitate”

(“Don’t make matters more complicated than is

necessary”)

Rights Reserved

Ambiguities: Use of Terms

Assistance

Representation

Advocacy

Loyalty

Fiduciary

Advise

Facilitation

Rights Reserved

An Ancient Proverb

“When you are in a hole and cannot get out

you have several options”

Rights Reserved

RELATIONSHIP

Lou Tulga’s “Wheel”

Rights Reserved

Brokerage Relationship Comparison

Chart: Agency

Loyalty is agreement to promote and protect

client’s interests as foremost

Acceptance of CAPACITY by word or deed to

commit client without further ratification under

scope of authority—trustee

Acceptance of LIABILITY for breach of

fiduciary duty—which includes, payment of

damages, rescission of transaction and/or

forfeiture of right to compensation

lou tulga transaction brokerage in nm real estate

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