new real estate agency law disclosures coming to Manhattan in 2011

REBNY announcement of A Major Change is a little weird
Manhattan Loft Guy is going into the weeds of New York agency law and disclosure a bit, but before I force you to that I will give you the bottom line:

as of January 1, the written disclosure about agency must be given in all real estate transactions, which I take to mean that all buyers in Manhattan (sellers too, but the real change impacts buyers more) will be told in writing whether the agent they are talking to represents them, represents the seller, or (might) represent both of them.

This is a huge change for the (few??) people who will care, and I look at it as essentially closing a loophole through which agency disclosures in Manhattan did not have to be in writing and any oral "disclosures" were … err … confusing for consumers. My (fascinating?) between-the-lines read of the REBNY announcement is that (among other things) REBNY claims credit for this change that will "increase transparency of the real estate process and offer increased protections for consumers and real estate brokers", while neatly avoiding how we got the loophole to begin with.

The full REBNY announcement is below; the official memo from the State Assembly about the bill is excerpted below, and can be found with the full text of the bill and the new disclosure forms here. As I will explain below, it is difficult to explain the difference between the way that REBNY summarizes the bill and the way the Assembly has. But for civilians, the more important stuff is what the new law does, so let’s start there.

the disclosure
I went on (and on, and on) about agency law and real estate agent disclosure in my September 1, 2009 post, (bad) quote of the day / lawyer stumbles in NYT real estate Q&A, so I am not going to repeat that extended analysis here. See that post for the actual disclosure form language and extended (very extended) commentary about how it "works" in Manhattan and elsewhere. One very important element of the whole regulatory framework is the requirement that certain things be carefully explained.

Under current New York State law, every real estate agent working with a buyer and every agent working with a seller had to provide a written disclosure to any seller or buyer they came in contact with about who they really worked for … except in the five boroughs of New York City for coop or condo units in buildings with 4 or more units. Keep that exception in mind.

Under current NYS law, every agent in New York City working with a buyer and every agent working with a seller had disclose to (i.e., have a conversation with) any seller or buyer they came in contact with about who they really worked for. Keep that required conversation in mind.

If the same individual agent wanted to "represent" both a buyer and a seller in the same transaction, a special "dual agency" disclosure was required and (outside the City) a specific written disclosure and consent was required. If different agents at the same firm wanted to "represent" both a buyer and a seller in the same transaction, a special "dual agent with designated agency" disclosure was required and (outside the City) a specific written disclosure and consent was required. It is this Dual Agency and Designated Agency stuff that has always been required to be carefully explained, whether it was explained in writing or not.

I will note again that these requirements of "disclosure" have always been state-wide but the requirement of a specific form was different in the five boroughs (not required for a coop or condo in a 4+ unit building).

what is new?
There are two main changes to the law: one is housekeeping (a change in the written form that permits consent to Dual Agency in advance); the other (the big one) makes it a uniform state-wide requirement that the disclosures that have always been required now be confirmed in writing (i.e., ending the exception for NYC coops and condos with 4 or more units).

Here is how the Assembly officially describes the new law, in a pretty straightforward manner:

Even REBNY seems to think that there has been some … err … "confusion" about who represents whom in the current world in which buyers and sellers were not entitled to written disclosures as a matter of law (my bold for emphasis):

so what?
Life for Manhattan real estate agents is going to get more complicated. A lot more complicated if they have not been used to making these agency disclosures at all; less complicated if they’ve already been having these conversations; much less complicated if they have also been using the disclosure form. (Agents in other boroughs are much more likely to have done business involving single family to 3-unit buildings, so the changes should be much less radical for them.)

Life for buyers (especially) and sellers in Manhattan (especially) is also going to get more complicated. Sellers will probably just get used to signing a different form (with advanced consent for Dual Agency with Designated Agents), but buyers should begin to notice that they have more paperwork to deal with than they had before.

Recall that there was always supposed to be a careful explanation of certain things. Now there will be the additional requirement that the paperwork be completed in NYC that has always been required in NYS.

making sausage in Albany
I can’t help but suspect that the reason the new law makes two principal changes is that one is a trade-off for the other, and that the heavy hand of REBNY insisted on that trade. Call me cynical, or paranoid, but note the oh-so-pregnant conjunction "but" in this REBNY description of the two things the new law accomplishes:

That pregnant conjunction implies that there is (at a minimum) some tension between the Transparency goal and the Realistic For Brokers goal, no?

Why would that be? Well, it may be that REBNY ("work[ing] closely with the state legislature and NYSAR") was concerned about how "realistic" it would be to "implement" a requirement that (essentially) only changed the form of disclosure in Manhattan from oral to writing, so insisted that the careful explanation of Dual Agency and Designated Agents could at least be begun in advance, and signed off in advance. It seems that REBNY, in the interest of "offer[ing] increased protections for consumers and real estate brokers" (my bold) was concerned that brokers would not be so well protected if the only change in the law was to require a uniform written agency disclosure across the State.

future tension
I have been candid in the past about the difficulties in really giving a careful explanation to a buyer or a seller of what Dual Agency and Designated Agents means (I will quote one section of that September 1, 2009 post below). Obviously, there is training required, as REBNY promises us members, on the "nuances" of the new disclosures. I very much hope that the nuances include the fact that the sign-in-advance form not be the only careful explanation that a buyer or a seller gets about Dual Agency and Designated Agents.

Here is how I described the typical scenario for a potential conflict of interest in Manhattan in that September 1, 2009 post:

a bit of a swamp
As the disclosure form says, this is another opportunity for a "careful" explanation. I have seen precious little practical guidance here over the years, but this is what the form says (in part):

I take this to mean that the two "designated" agents can go at each other on behalf of their respective principals, but if they choose to get guidance from their supervising broker, everybody knows that the supervising broker will give advice to both "sides" equally. I admit that I am a bit fuzzy about the "designated sales agent … like the dual agent under whose supervision they function, … cannot provide undivided loyalty" part.

Frankly, I would love to hear more specifics about what "designated" agents can and cannot do, but each time I have asked a lawyer or association executive I have gotten boilerplate responses that are not very useful in the real world.

What is clear is that there has to be a "careful" explanation of this. While NYS law does not require that the disclosure form be provided in most cases in Manhattan, I will use it and get my "client" to sign it.

We Manhattan real estate agents will need very practical advice (I guess REBNY would call it "realistic" advice) about the "designated sales agent … like the dual agent under whose supervision they function, … cannot provide undivided loyalty" part. That’s what REBNY is for, isn’t it?

that REBNY verbal weirdness
I hinted up top that something strikes me as weird about the way that REBNY announced this major change in the law. As I said many paragraphs up, this is how the Assembly officially describes the new law:

To me, the REBNY spin on this curiously avoids making the simple statement that now (as of January 1) Manhattan coop and condo transactions are covered by the same disclosure laws as the rest of New York State real estate transactions (my language in [italicized brackets] should help illustrate my point; if not, read again the simpler language in the Assembly memo about the General Idea of the bill that has passed and been signed):

I am going to speculate that REBNY did not want to draw attention to the (likely) fact that way back whenever New York State law was changed to require the written agency disclosure for any real estate transactions in the first place, REBNY, through its Residential Brokerage Division Board of Directors, worked closely with the state legislature and NYSAR to negotiate amendments that would exclude nearly all NYC coop and condo transactions from that transparency and consumer protection effort.

Now, apparently faced with the likelihood that the NYS Legislature would do away with that loophole, REBNY wants to take credit for amendments that "would increase transparency of the real estate transaction process, but also would be realistic for brokers to implement.”

Gotta be realistic about how much transparency REBNY members can handle!

Sept 1 synchronicity
Is there some weird harmonic convergence in the Manhattan Loft Guy universe involving today’s date? Today’s post is only the second major discussion I have had about the critical topic of agency disclosure, with the first being (of course) one year ago to the day. Is Rod Serling still available? Perhaps I should make a note for another Agency post for September 1, 2011.

addenda, and detail
Here is the full text of the REBNY announcement yesterday:

NEW AGENCY DISCLOSURE LAW

New law increases transparency, protects consumers and brokers

NEW YORK, Aug. 31, 2010 – In a move that will facilitate residential real estate transactions and alleviate any confusion about which party is represented by a real estate broker, New York State Governor David Paterson today signed into law amendments to the state’s real estate agency disclosure law to take effect on January 1, 2011 that will increase transparency of the real estate process and offer increased protections for consumers and real estate brokers. The amendments, fully supported by The Real Estate Board of New York’s (REBNY) residential leadership, will impact real estate brokers by requiring that agency disclosure forms be completed for all residential transactions and permitting consumers to give their advance consent to dual agency representation.

Previously, verbal consent for agency disclosure was accepted for multifamily buildings over four units. The new law specifies that a written agency disclosure form must be used for all residential transactions. In addition, the amendments have created a section on the agency disclosure form where consumers can give their advanced consent to being represented by two agents from the same real estate broker in the same transaction.

Neil Garfinkel, REBNY’s residential counsel, who was involved in the negotiations and drafting of the disclosure law amendments said, “These amendments will ensure that brokers and consumers are legally protected by requiring written disclosure in all residential transactions. We also sought to ensure that the advanced consent measure be included so that brokers, who show numerous listings to potential buyers, would not need to have separate agency disclosure forms prior to showing each listing. This is an important distinction, particularly for New York City brokers who frequently represent buyers and who may show dozens of apartments before a transaction happens.  The advance consent provision reflects the realities of the marketplace and will ultimately facilitate transactions.”

“The revised agency disclosure law provides additional safeguards for sellers, buyers, tenants, landlords and brokers to ensure that transactions move forward fairly with all parties understanding who is representing whom,” said Steven Spinola, REBNY President. “REBNY, through its Residential Brokerage Division Board of Directors, worked closely with the state legislature and NYSAR to negotiate amendments that would increase transparency of the real estate transaction process, but also would be realistic for brokers to implement.”

REBNY will be holding multiple seminars in the Fall to educate its members to the nuances of the revised disclosure form before it goes into effect.

From the Assembly memo:

If you have read this far along, THANK YOU. You now know more about agency law than 64.32% of REBNY members.