The New Brokerage Legislation: the Demise of Agency by Surprise
| Publication year | 1993 |
| Pages | 1919 |
| Citation | Vol. 22 No. 9 Pg. 1919 |
1993, September, Pg. 1919. The New Brokerage Legislation: The Demise of Agency by Surprise
One survey has revealed that more than 70 percent of the purchasing public believe that the real estate agent with whom they are working ("selling agent") is in fact "their agent," with all the accompanying fiduciary duties, such as loyalty and confidentiality.(fn1) However, as most brokers, salespeople and attorneys have known since the 1987 Colorado Supreme Court decisions in Stortroen v. Beneficial Finance Co. and Rohauer v. Little,(fn2) there is instead, at least in the residential Multiple Listing Service ("MLS") setting, a legal presumption that real estate agents are exclusively agents of the seller unless a written agreement exists to the contrary.(fn3) Unfortunately, this bright line legal presumption has continued to be inconsistent with the consuming public's perceptions.
Thus, a compelling consideration in the development of S.B. 93-223 was the removal of the legal presumption of seller agency in the MLS setting, thereby eliminating the confusion between case law and consumer expectations on this issue. The legislation also was prompted by other factors. The National Association of Realtors® recently changed its policy to make subagency an optional component of the MLS. In Colorado, the Real Estate Commission's Agency Task Force, which had been studying current brokerage practices and dilemmas created by agency issues, had developed recommendations for agency legislation with the assistance of input from the industry as well as the Colorado Bar Association.
Further, there was a consensus among industry as well as legal experts and commentators that definitive legislation was needed to clarify the confusion between case law and consumer expectations. Bewildered consumers continued to find themselves vicariously liable for the negligent acts of subagents they were unaware were working for them or discovered too late that "their agent" really worked for the other party.
The new legislation defines the various alternative relationships for sellers, buyers, landlords and tenants engaging brokers and sales people to deal with their real estate transactions. Its disclosure provisions seek to enable consumers to make more enlightened decisions as to the advantages and disadvantages of the various real estate agency relationships. Finally, the legislation impliedly recognizes that subagency---long the indispensable raison d'etre of the MLS---will decline in significance in future years as a result of, among other things, increased consumer awareness of the vicarious liability issues attendant to subagency.
CRS §§ 12-61-802 through 807 set forth the functions of, as well as the obligations and responsibilities owed to principals by: (1) single agents engaged by the seller or landlord; (2) single agents engaged by the buyer or tenant; (3) dual agents; and (4) the newly defined "transaction-broker." Attorneys who wish to become familiar with the legislation's explanation of brokers' new functions and obligations must study the statutory definitions closely.
The following are a few brief observations about the differences between the historical role and function of real estate
brokers and their new roles within the framework of the legislation.
Under the new legislation, the duties of the seller's agent, to a large extent, retain the traditional common law obligations of listing agents:
1) to exercise reasonable skill and care on behalf of the seller;
2) to promote the seller's interests with the utmost good faith, loyalty and fidelity;
3) to disclose to the seller "known" adverse material facts;
4) to counsel the seller as to those benefits and risks of the transaction "actually known by the broker";
5) to advise the seller to seek expert assistance where needed;
6) to account in a timely manner for money and property; and
7) noteworthy among the new requirements, to inform the seller of the exposure for vicarious liability for the acts and omissions of the agents and subagents operating on the seller's behalf in the chain of subagency.(fn4)
This latter disclosure of vicarious liability recognizes that a principal can be held liable for the acts of a listing agent as well as a subagent and makes Colorado law consistent with the National Association of Realtors® Code of Ethics provisions enacted nationwide on January 1, 1993.
Notably absent from the list of the seller's agent's fiduciary duties is confidentiality. Drafters of S.B. 93-223 intentionally omitted this to avoid any perception of a "broker-client" privilege similar to the "attorney-client" privilege. Nevertheless, the...
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