Agency responsibility: Now is the time

Earlier this year, MAR undertook a review of the requirements imposed by statutes and rules on
real estate licensees when providing services to buyers and sellers. This review was spurred by the recognition of the fact that the buying or selling of a home generally constitutes the largest financial transaction that a majority of the public will engage in during their lifetimes. The review was undertaken with the expectation that Michigan statutes and rules imposed basic requirements on real estate licensees that would provide certain minimum protections for home buyers and sellers. Unfortunately, MAR’s expectations with respect to existing requirements were not met.

A review of the Michigan statutes and rules disclosed that there are no basic requirements imposed on real estate licensees in assisting buyers and sellers, other than in the handling of earnest money deposits and requiring that the listing broker be ultimately responsible for the closing statement. It was determined that a real estate licensee need not even submit offers to a seller if the licensee never came in physical possession of the offer!

MAR’s Public Policy Committee and Board of Directors determined that it was appropriate to seek reform of Michigan’s existing agency law. After careful study, it was determined that MAR would seek legislation imposing certain limited requirements in limited situations.

MAR’s Agency Responsibility Act (ARA) is not designed to require buyers and sellers to purchase more than desired services when they are buying and selling a home or, alternatively, to prevent real estate licensees from using alternative business models when providing assistance to buyers and sellers. Instead, the ARA is designed to require certain basic services for buyers and sellers who have decided that they wish to contract for the full services of a real estate licensee. The ARA does not prevent the unbundling of services.

The ARA requires certain basic services only when a seller or buyer enters into an exclusive service provision agreement with a real estate licensee. A service provision agreement is defined in the ARA and in existing rules as an agreement between a broker and a client that establishes
an agency relationship through a listing agreement or a buyer agency agreement.

Under the ARA, if a buyer or seller enters into an exclusive listing or buyer agency agreement, the real estate licensee must provide certain basic services as part of the agency relationship. Very generally, in such an arrangement five basic requirements are imposed.

• First, if the real estate licensee is representing a seller or lessor, an exclusive listing agreement must contain a description of how the licensee will market the client’s property. It is not anticipated that REALTORS® will have any difficulty meeting this requirement. Most, if not all, existing forms of exclusive listing agreements contain the terms for marketing, i.e., submission to an MLS, advertising, and the placement of “For Sale” signs.
• Second, a real estate licensee will be required to accept delivery of and to present offers and counteroffers to their clients. This of course is a duty that REALTORS® and most members of the public already thought was imposed by law when a REALTOR® was exclusively listing a seller’s property or exclusively representing a buyer client.
• Third, a real estate licensee will be required to assist a client in negotiating and presenting offers and counteroffers until such time that a purchase agreement is executed by all parties, and all contingencies are satisfied or waived. In other words, a REALTOR® will provide the service most needed by buyers and sellers in the course of buying or selling real estate: the negotiation of the terms of the transaction. Most buyers and sellers have neither the training nor the experience to successfully negotiate the terms of a transaction.
• Fourth, once all parties execute the purchase agreement and all contingencies have been waived, a real estate licensee will be required to assist his or her client as necessary to complete the terms of the transaction as set forth in the purchase agreement. In other words, a REALTOR® will facilitate the completion of the transaction on behalf of either his seller or buyer client.
• Finally, a listing broker will still be responsible for the accuracy and completeness of the closing statement at closing.

MAR did not create the ARA out of whole cloth. Similar legislation was enacted in Illinois and appears to have been wellreceived both by Illinois REALTORS® and the public. The United States Department of Justice (DOJ) has opposed so-called minimum brokerage services legislation in several other states, including Oklahoma, Missouri, and Texas. DOJ contends that this type of legislation is anticompetitive and prevents REALTORS® from offering, and buyers and sellers from obtaining, limited or unbundled services. While MAR cannot address the impact of minimum brokerage services in other states, it can be stated that the ARA will not in any way prevent the offering of limited services or unbundled services to buyers and sellers in Michigan. A simple hypothetical will demonstrate the truth of this statement. Assume that Bob and Mary Doe wish to sell their property at 123 Elm Street. Mary is a labor consultant highly
skilled in the art of negotiation, and Bob is an accomplished salesperson of widgets. All Bob and Mary are looking for is some assistance in marketing. Bob and Mary Doe discover that Acme Realty offers a menu of services that includes a separate package for developing and implementing a marketing plan. Bob and Mary Doe enter into an agreement with Acme Realty under which Acme Realty agrees to design the advertising for their home, arrange for the placement of signs, train Bob to hold open houses, and place advertising in newspapers and on the internet. Acme Realty will provide this service for a flat fee. Is Acme Realty required under the ARA to provide the minimum requirements specified in the ARA? Absolutely not, as Acme Realty has not entered into an exclusive listing agreement for the sale of Bob and Mary Doe’s home at 123 Elm Street.

Assume that Bob and Mary Doe, with the assistance of Acme Realty, successfully market the sale of 123 Elm Street. Now, Bob and Mary Doe receive three offers to purchase 123 Elm Street. While Mary is a skilled negotiator, she is uncertain of what needs to be in the purchase
agreement to make certain that the transaction moves forward smoothly. She discovers that Ajax Realty also offers unbundled services, including a package that provides for assistance in negotiating purchase agreements. Bob and Mary Doe enter into an agreement with Ajax Realty to provide them with advice and counseling in their negotiations with the three potential buyers. Is Ajax Realty subject to the minimum requirements of the ARA? Absolutely not.

Again, Bob and Mary Doe did not enter into an exclusive agency agreement with Ajax Realty to list 123 Elm Street. Ajax Realty, instead, is simply providing counseling and advice regarding the negotiation of a purchase agreement. Finally, with a fully executed purchase agreement in
hand, Bob and Mary Doe become concerned that neither Mary’s negotiating skills nor Bob’s marketing skills provided them with the knowledge and expertise to successfully close the transaction. They discover that Ace Realty also offers unbundled services, and provides a service for facilitation of the closing of transactions for unrepresented sellers.

Bob and Mary Doe enter into an agreement with Ace Realty to provide them with counseling and advice and to attend the closing with them. Obviously, Ace Realty is not required to provide the minimum service requirements under the ARA, as it has not entered into an agreement to exclusively represent Bob and Mary Doe in the listing and sale of 123 Elm Street. Instead, Ace Realty is simply providing closing services.

The question has been asked several times over the past few months as to whether the ARA will prevent REALTORS® from providing services to buyers and sellers in a non-agency relationship. The answer is clearly “no.” The ARA will only apply when a REALTOR® enters into an agreement with a seller or buyer that creates an exclusive agency relationship. Obviously, if a REALTOR® enters into a non-agency relationship with a buyer or seller, the minimum
requirements under the ARA do not apply. In order to obtain the full benefit of the ARA, MAR is
also seeking legislation that would amend the agency disclosure law. The new agency disclosure form would inform a buyer and seller of the minimum requirements that they can expect if they enter into an exclusive listing or buyer agency agreement.

The ARA provides at least two key protections to buyers and sellers and REALTORS®. First, when buyers and sellers enter into exclusive agency listing and buyer agency agreements,
they can be assured that they will receive the minimum services necessary to successfully complete their real estate transaction. Second, the ARA will require truth in advertising and care in preparation of agreements. If sellers enter into an agreement with a real estate licensee
only for the advertisement of their home, the agreement will contain the terms for the advertisement of the home and will not be passed off as an “exclusive listing agreement.”

Similarly, if the sellers wish only to be assisted in the closing of the sale of their home, then they will enter into an agreement expressly providing for such assistance. They will not enter into an agreement passed off as an “exclusive listing agreement.”

As a final note, the ARA, as presently drafted, contains a provision specifically stating that real estate licensees may enter into any type of agreement with buyers and sellers that is otherwise permissible under Michigan law. This provision has been included in the ARA to make certain
that all REALTORS® who wish to provide unbundled services or operate under alternative business models are able to do so without complying with the minimum requirements imposed under the ARA so long as they otherwise comply with Michigan law. The ARA establishes by statute certain basic duties REALTORS® had always assumed were in place when entering
into exclusive listing or buyer agency agreements. The ARA simply assures that services will be provided as advertised, and buyers and sellers will receive those services upon which they rely in undertaking what may be the largest financial transaction of their lives.