We haven’t done one of these in a while. We get a lot of really good questions, but, for most of them, the answer is the same: “You need to talk to a really good real estate attorney in your jurisdiction.”
This one is different, with a couple of interesting problems:
I signed a contract on a home in Virginia. We just found out 3 weeks later after the home inspection the sellers agent is the brother in law to the seller. He never told us. My agent took a cut in his commission to make the sale go though and he was not told. Can this break a contract?
These are the two issues I’m seeing — your mileage may vary:
- “the sellers agent is the brother in law to the seller” — and this was not disclosed
- “Can this break a contract?”
There may be a specific answer to the first issue in Virginia statute law. In Arizona, my advice to agents would be to disclose only first degree relationships — blood, adoptive or legal: Mother, father, brother, sister, spouse, son or daughter.
Arguably, an agent could disclose any prior knowledge of the principal, guarding that person’s confidentiality, but I don’t see failing to disclose a brother-in-law as being a grievous injury. Am I wrong?
I’m thinking maybe the second issue — “Can this break a contract?” — is the real objection.
My answer: Almost certainly not. I can’t say for sure without reading the contract language, but I would be amazed if it included a contingency for undisclosed second-degree relationships.
In other words, if the failure to disclose the brother-in-law really is an actionable issue in Virginia, the action would be taken against the agent at the state licensing authority or the local board of Realtors.
Unless the agent is a party to the purchase contract, I can’t see how any misfeasance on his part could be considered a breach of that contract — which governs the performance of only the principal parties.
Others reading here may differ, which disagreement is invited.
And if you want to explore your full recourse under the law: “You need to talk to a really good real estate attorney in your jurisdiction.”
I’m thinking there is nothing amiss here, nor anything actionable. But, if it turns out I’m wrong, it won’t be the first time — not even the first time today!
Technorati Tags: real estate, real estate marketing
John Kalinowski says:
In Ohio, the only time you have to disclose these relationships is in a dual agency situation. Beyond that, it’s not required, and is honestly none of the buyer’s business. I see many listings in our MLS where the listing agent will state that “listing agent is related to seller”. It’s just silly to do so, and not required under Ohio law.
As Greg mentioned, if the listing agent is a party to the purchase that may be a different story, but as far as representing the seller goes, you don’t have to disclose it at any time that I know of (at least in Ohio).
April 5, 2008 — 3:25 pm
Rob Lawrence says:
Don’t forget about the other third parties on the transaction. I’ve had deals blow up because of appraisers, title reps, even the home inspector divuldging something off the cuff which is confidential. It’s not always the broker or the realtor’s fault. Anyway, that’s just my 2 cents.
Warm Regards,
Rob Lawrence
http://www.battlecall.com
April 5, 2008 — 3:50 pm
Gretchen - LifeStyle Denver says:
Greg’s advice would apply in Colorado as well. We must disclose first degree relationships, per the Colorado Real Estate Commission’s rules. Some agents go a little further in disclosing second-degree (where is the sister in this, by the way? Married to the Broker or the seller? Maybe it actually is first-degree.)
Anyway, perhaps the buyer’s agent was doing a yeoman’s job of keeping a tough deal together, and the buyer wants to extricate for other reasons and is looking for an angle.
April 5, 2008 — 5:10 pm
Louis Cammarosano says:
My guess would be that there would have to be some evidence that the transaction was not conducted at arms length BECAUSE of the relationship in order for it to be voidable(absent a specific law or Realtor rule)
April 5, 2008 — 5:53 pm
Sue says:
I do not believe disclosure is required in NJ because I have been in several situations where I found out about first degree relationships mid way or even after the fact. I personally feel first degree relationships should be disclosed upfront, it’ll probably come out at some point anyway and it might seem like you were trying to hide something or deceive in some way.
April 5, 2008 — 9:33 pm
Sean Purcell says:
Greg,
Interesting question. The purpose of disclosure, IMHO, is to obviate any risk of a decision being made without knowledge of a material issue. I see from the comments that various states have various rules on what level of relationship should be disclosed, but I do not see any explanation of why said relationship is material.
Absent any financial interest by the agent (which obviously has to be disclosed), why is it anyone’s business how well the agent knows their client or for how long?
April 6, 2008 — 11:25 am
Gretchen - LifeStyle Denver says:
Sean- The Colorado Real Estate Commission has more of an interest in correct agency relationships, which is why we would disclose such a relationship here. We don’t have dual agency, we do have either Agency (like a team coach) or Transaction Broker (like the referee). In the instance where a principal is a relative, we would be required to be an agent and prohibited from being a TB. We disclose this to the other party so they know they need their own representation. A real estate broker who is related to one party could not act as a TB in the transaction.
GF
April 6, 2008 — 5:47 pm
Lem Marshall, counsel to the Virginia Association of Realtors says:
No such disclosure is required in Virginia, unless the agent is a party to the transaction. However, to the point that the improper actions of the agent cannot serve as grounds for breach by the principal, well, this is not correct. Under the law of agency, the acts of the agent undertaken within the scope of the agency relationship are generally binding on the principal. Thus the agent’s receipt of a notice or ratified contract is generally as effective as if the principal had been the recipient directly. Similarly, a misrepresentation by the agent can be grounds for civil action for rescission or breach. Agents can’t assume that their wrongful acts are not attributable to the principal.
April 7, 2008 — 6:59 am
Greg Swann says:
> No such disclosure is required in Virginia
Ah, bless you. Thank you.
> Agents can’t assume that their wrongful acts are not attributable to the principal.
Yes, of course. My mistake.
Thanks for stopping by. The VAR has it all over the other state associations.
April 7, 2008 — 7:22 am
Sean Purcell says:
Gretchen,
Great explanation. Thank you. Sounds like CO is ahead of many other states when it comes to the ethics and fiduciary responsibility of agency. I am curious what the typical commissions are in CO and does it differ between an Agency and a TB transaction?
Are there any other states out there that specifically prohibit dual agency?
April 7, 2008 — 7:47 am
Gretchen - LifeStyle Denver says:
Hey Sean,
The commission does not vary. We co-op the same to Buyers’ Agents and to Transaction Brokers. Can’t really tell you what the commission is – since that’s subject to negotiation. Let’s just say it’s in the normal range;)
Colorado really was the pioneer for Buyer Agency, and it works extremely well here. When a Seller Agent ends up working both sides of a deal, the agent must default to a Transaction Brokerage relationship – and they must have secured permission from the parties prior to entering into the Agency Agreement that they may do so where appropriate.
GF
April 7, 2008 — 9:33 am
Sean Purcell says:
Gretchen,
Sounds like you have formalized what many do when they act as a dual agent: the TB lets both sides know that he/she is no longer an advocate for one side, can not negotiate price for one side and is there to facilitate the transaction. Is that close?
When you say you the listing agent coops to the TB, they are, in fact, the TB themselves. In some states the listing agent lets the seller know up front that if they represent both sides they will not take full commission from both sides, but rather some discounted amount. This is negotiable, however, and not all agents do so. Is it similar in CO or is any part of this mandated?
April 7, 2008 — 9:44 am
Gretchen - LifeStyle Denver says:
Sean,
Your first paragraph: correct!
Second paragraph: Actually, a broker can work as a TB in any scenario. They can represent the buyer as a TB, the Seller as a TB and both sides as a TB. So there are instances where an Agent for the seller is co-operating with a TB working with a buyer. I always represent my clients as an Agent, and I encourage the brokers in our office to do the same. I think some brokers in Colorado have the perception that they somehow mitigate their own liability and exposure by acting as a TB and not as an agent. Way to think about the clients!
BTW – glad to see you blogging again!
April 7, 2008 — 9:59 am
Sean Purcell says:
Gretchen,
Again, thank you for a very good explanation. And it is good to be back… thanks!
April 7, 2008 — 11:09 am
Tom says:
Also this is the code in Virginia. I called the Board and was told to review this code. Tell me what you think?
18VAC135-20-210. Disclosure of interest.
If a licensee knows or should have known that he, any member of his family, his firm, any member of his firm, or any entity in which he has an ownership interest, is acquiring or attempting to acquire or is selling or leasing real property through purchase, sale or lease and the licensee is a party to the transaction, the licensee must disclose that information to the owner, purchaser or lessee in writing in the offer to purchase, the application, the offer to lease or lease. This disclosure shall be made to the purchaser, seller or lessee upon having substantive discussions about specific real property.
Statutory Authority
Well i found these under the national realitor ethics i think. Standard of Practice 3-7
When seeking information from another Realtor® concerning property under a management or listing agreement, Realtors® shall disclose their Realtor® status and whether their interest is personal or on behalf of a client and, if on behalf of a client, their representational status. (Amended 1/95)
Article 4
Realtors® shall not acquire an interest in or buy or present offers from themselves, any member of their immediate families, their firms or any member thereof, or any entities in which they have any ownership interest, any real property without making their true position known to the owner or the owner’s agent or broker. In selling property they own, or in which they have any interest, Realtors® shall reveal their ownership or interest in writing to the purchaser or the purchaser’s representative. (Amended 1/00)
. Standard of Practice 4-1
For the protection of all parties, the disclosures required by Article 4 shall be in writing and provided by Realtors® prior to the signing of any contract. (Adopted 2/86)
This would have been the same for me if you had been family. . Standard of Practice 16-10
Realtors®, acting as buyer or tenant representatives or brokers, shall disclose that relationship to the seller/landlord’s representative or broker at first contact and shall provide written confirmation of that disclosure to the seller/landlord’s representative or broker not later than execution of a purchase agreement or lease. (Amended 1/04)
. Standard of Practice 16-12
Realtors®, acting as representatives or brokers of sellers/ landlords or as subagents of listing brokers, shall disclose that relationship to buyers/tenants as soon as practicable and shall provide written confirmation of such disclosure to buyers/tenants not later than execution of any purchase or lease agreement. (Amended 1/04)
Article 12
Realtors® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations. Realtors® shall ensure that their status as real estate professionals is readily apparent in their advertising, marketing, and other representations, and that the recipients of all real estate communications are, or have been, notified that those communications are from a real estate professional. (Amended 1/08)
April 7, 2008 — 1:36 pm
Sean Purcell says:
Tom,
These are interesting, but IMHO they are all touching on the same two points:
-if you have a financial interest you had better disclose it
-if you are a REALTOR you had better disclose it
I don’t see where it requires you to disclose family relationship at all… which, witin a standard agency relationship, seems ethically correct to me.
April 7, 2008 — 2:14 pm
DB says:
North Carolina = must disclose.
April 8, 2008 — 10:18 pm