Real estate brokerage and agency: Florida contemplates change.

• Author: Boggs, H. Glenn
• Position: Florida

In recent years there have been few, if any, subjects in the area of real estate brokerage that have been as controversial as agency relationships between brokers, their clients, and the public. Consider the following facts that have occurred in Florida:

* In 1994 (after many years of relative tranquillity in the area) the Florida Legislature enacted substantial and substantive changes in the area of brokerage and agency;

* On February 20, 1995, Administrative Rules implementing these changes were promulgated by the Florida Real state Commission;

* In its spring 1995 session, the legislature passed a new bill which made sweeping changes to the law it enacted the previous year, 1994. This bill, however, was vetoed by the Governor;

* In 1996, companion bills were introduced in both the Florida House and Senate that contemplated still further changes to agency and brokerage, but both died without passage on the last day of the session (one in the Senate Ways and Means Committee, and the other on the House calendar);

* During the summer of 1996, an "Agency Work Group" comprised of representatives of the Florida Department of Business and Professional Regulation, the Florida Association of Realtors, and the Florida Real Estate Commission conducted a series of meetings and produced a new "agency" bill for possible introduction in the 1997 session of the legislature.

Florida is not alone in the brokerage/ agency furor--many other states have recently made changes or are considering changes.(1) Accordingly, attorneys who represent brokers, conduct real estate closings, issue title insurance, counsel either buyers or sellers, or are otherwise engaged in either real estate or general practice are well advised to become familiar with these issues.

Background

The logical place to begin an examination of these matters is to recall the general state of affairs in brokerage and agency as it quietly existed in Florida for many years prior to 1994. During those simpler times, a typical real estate transaction would begin when an owner (after deciding to sell) contacted a broker who in turn signed the seller to a listing agreement. The normal legal consequence of this agreement was to make the broker an agent of the seller. The seller was then the broker's principal and consequently was owed a fiduciary duty by the broker (and all the salespersons in the broker's office). In normal circumstances, if the broker (or his or her salesperson) produced a buyer for the property, the buyer was not the principal and was not owed a fiduciary duty. Under Florida case law, however, the buyer was owed a duty of candor, honesty, and fairness.(2)

The situation became slightly more complex, but not unduly so, if the listing broker participated in a multiple listing service. In this situation, the likely result was that another, different broker would produce the buyer for the transaction. If so, how did this new broker (for clarity, called the "selling broker") fit into the agency relationship?

The usual and typical result was that the "selling broker" was deemed to be a "subagent" of the listing broker and also had the seller for a principal. This meant that the selling broker (and the salespersons in his or her office) also owed a fiduciary duty to the seller and a duty of candor, honesty, and fairness to the buyer. Obviously this situation was usually quite satisfactory for sellers, but contained the ingredients to produce problems for buyers.

There was often a considerable amount of confusion in the public mind about who each broker represented in a typical transaction.(3) Also, several lawsuits received considerable publicity in which dissatisfied parties sued brokers alleging that the broker had allowed an "undisclosed dual agency" to arise, creating a fiduciary duty to both buyer and seller.(4) Some courts added new duties benefiting buyers to the existing duties of seller's brokers, creating new potential liability where none had existed before.(5)

Perhaps as a consequence of all this, in the early 1990s, the influential National Association of Realtors (NAR) weighed in with two nationwide study task force reports on agency. The first one, released in 1992 was the Presidential Advisory Group Report on Agency. The second, which came out in 1993, was the Report of the Presidential Advisory Group (PAG) on the Facilitator/Non-Agency Concept.

According to the language of the first report, it was formed to "conduct an in-depth study of alternate agency relationships, identify any impediments and recommend structural and policy changes to remove these impediments where appropriate." The study group developed six recommendations, which are reproduced in the notes.(6)

The second NAR report (on facilitator/nonagency) was released the following year, 1993. It did not endorse the facilitator (middleman or intermediary) concept. Its first recommendation stated, "N.A.R. should not further develop or promote the pure non-agency facilitator concept. It is not the intent of N.A.R. to characterize the facilitator concept as unprofessional." Nevertheless, the report did develop proposals for state-by-state legislative action. This proposed legislative framework contained nine elements as suggestions for the states.(7) A...