I sent a question to the traditional real estate industry’s Massachusetts Legal Hot Line about the recently revised agency disclosure form that read, “Hi, I’m concerned about the revised disclosure. It appears the structure didn’t change, just word changes. It is very obvious now that a consumer can have a direct relationship with the brokerage, including all other affiliated agents, or directly with an individual salesperson or broker employed by the brokerage. It would appear to me that in the event I end up a designated agent for either a buyer or a seller that I may in fact be increasing my personal legal and financial liability in a case where I’m sued by the person I’m providing fiduciary duties to for a breach of those duties. It appears that legal liability has in fact been shifted from the brokerage to me individually in such a case. If that is the case, then there is a big incentive for brokerages to have an office policy of designated agency, partly to handle an in-house sale, but also to shift legal liability to individual licensees. If in fact my legal liability has increased by this should I consider getting individual E & O insurance as the brokerage’s E & O insurance might not cover me when I’m in fact a designated agent and the relationship is directly between me and a consumer and not between the consumer and the brokerage. Thank you, Tom Wemett, MA Lic. Broker”
The response i got from their attorney read, “I apologize for the delayed response. With regards to the form, please note that the no statute, regulation, or board policy has changed. The new form merely attempts to clarify agency relationships for buyers and sellers. I’m happy to discuss this with you if you would like to call me at the number below.”
So I responded, “Thanks for responding. I understand that no statute, etc changed but merely the words in an attempt to “clarify” existing regulations. However, that clarification now makes it very, very clear that a consumer supposedly has two options, a relationship with the brokerage where anyone affiliated with the brokerage also represent them or a relationship just with one agent and not with the brokerage. So I guess my question should have come up years ago, but with the “clarification” it just becomes more obvious to me. The consumer in the first case has a relationship with the brokerage and thus any violation of fiduciary duties would be on a brokerage level. Whereas in the second case the consumer has a relationship solely with the designated agent and thus any violation of fiduciary duties would be on an individual agent level. My question therefore has to do with the apparent shifting of legal liability off the brokerage and onto individual agents. Am I wrong in that observation?”
To which the attorney responded in a phone conversation, “The affiliated licensees are under the direct control and supervision of the broker (brokerage) and thus any liability is with the brokerage and not the individual licensee. Section 87RR states that no salesman may act except as the representative of a real estate broker who shall be responsible for the salesman and who must approve the negotiation and completion by the salesman of any transaction or agreement. Although the later is rarely if ever actually done it points out that the legislature wanted to emphasis that control and supervision that the broker has on the salesperson. So thus, the disclosure doesn’t increase the individual’s legal liability.”
To which I replied via email, “Hi again. I’ve given our conversation some thought and checked out Section 87RR that relates to real estate brokerage. I understand your reasoning that because the salesperson is under the direct supervision of the broker that they really aren’t on their own. 87RR really makes that clear, “No salesman may conduct or operate his own real estate business nor act except as the representative of a real estate broker…” However, that brings up a disturbing thought. If the salesperson “may not conduct or operate his own real estate business” than why does the Massachusetts Mandatory Real Estate Licensee-Consumer Relationship Disclosure form clearly imply that they can? “Only the licensee named herein represents the: Seller or Buyer box checked.” That clearly implies that the designated agent is in essence operating on their own.
Also, with regard to the part of 87RR that states, “..nor act except as the representative of a real estate broker…”, seems to be in conflict with what the Disclosure form says, “In this situation any other agents affiliated with the firm or business listed below do not represent you and may represent another party in your real estate transaction.” If the designated agent “represents” a seller or a buyer and as per 87RR is doing so “as the representative of a real estate broker”, then the broker also represents the seller or the buyer and all the licensees under that broker also must represent the seller or the buyer. I don’t see where the separation occurs or is allowed.Another issue is that the broker or salesperson doing the designating is considered a dual agent. If I understand Section 87RR correctly, if the broker or a representative of the broker is a dual agent so are all the licensees under the broker due to all licensees being, “the representative of a real estate broker”. I don’t see where Section 87RR allows for an individual licensee under a broker to provide full fiduciary duties, especially undivided loyalty, for the in-house transaction, whether designated or not. Can you point me to a MA statute or case law that supports the legal basis for a “designated” agent to provide full fiduciary duties, including undivided loyalty for an in-house transaction?
It appears to me that designated agency for an in-house transaction is in fact, legally based, dual agency and thus the so-designated agent is a dual agent and unable to provide full fiduciary duties, including undivided loyalty. Most disturbing is that if designated agency really and legally is a dual agency and isn’t disclosed as such, isn’t that undisclosed dual agency, an act of fraud?