Note: After this post, Out and About will be published on Mondays or Tuesdays instead of the current Friday schedule. Next one: Jan. 14.
A new statutory requirement for real estate agents and associate brokers (licensees I customarily refer to merely as “brokers”) went into effect on Jan. 1, providing critically important additional protection to consumers and causing confusion, as well as consternation, among the ranks of the untutored.
Enacted last year, the amendment to real property law modifies the agency disclosure form to allow advanced consent to dual agency and now adds a requirement for use of agency disclosure forms in real estate transactions for condominiums and cooperatives. (You can download a PDF of the form.) The form lets you know who is representing whom, and it applies to both sales and rentals.
Fundamental to the form is an understanding of the difference between client (basically for these purposes, someone to whom a broker gives advice) and customer (basically, someone to whom a broker provides superficial information such as what properties are available and what are the details in the listing).
I’m oversimplifying, but the form forces clear definitions of dual agents, designated agents and buyer or seller representatives.
As the law explains, “dual agent” is currently recognized in real estate license law as a valid form of agency relationship in which the buyer and seller are represented by the same real estate brokerage company.
In practice, when a buyer walks into an open house and begins a conversation that could lead to what we call a “direct” transaction, the buyer may be unaware that the broker represents the seller’s best interests, not also the buyer’s. If the buyer asks the listing broker’s advice and assistance, that becomes dual agency–whether undisclosed, which has long been forbidden, or disclosed.
Dual agency also occurs when a consumer who is, in fact, represented by his or her own broker sees a property for which both the buyer’s and seller’s broker are affiliated with the same brokerage. Listings belong to the brokerage, not to the broker who is marketing a property (and who also is classified as an agent of the brokerage firm). Because the brokerage firm “owns” the listing, the brokerage is engaging in dual agency via the two brokers; that is, it is representing both seller and buyer.
But that’s not all.
To put a finer, if confusing, point on the situation, buyers’ agents frequently take their clients to a number of properties in their search. They often will run into situations where an interested buyer is represented by the same brokerage firm for whom the seller’s agent works. In that event, the brokers representing the seller and the buyer will become designated agents (theoretically named by the firm once the encounter occurs) with the written permission of both clients.
Until the new law became effective and covered apartments, the property could not be shown until an agency disclosure form was signed on the spot by the seller and buyer. In my experience, that process has occurred from seldom to never.
The amendment essentially allows the consumer to start the search or marketing by giving blanket approval of dual agency in advance; at the same time, the selection by the buyer or seller of “dual agency” in advance of it occurring is completely optional but only in advance. Should someone decline to sign the form, there is a procedure for the broker to record that position.
Before the amendment, brokers working with sellers of condos or co-ops or with buyers of those apartments needed only oral permission to proceed. The new law demands that real estate licensees provide a form to be signed by their clients acknowledging their agency relationship, whether in advance or immediately before the relationship begins.
(Sorry to be repetitive, but I can come up with no short way to explain its subtleties after numerous attempts to do so.)
The amended law amounts to far more than a technical change.
It is an essential weapon against broker shenanigans that are driven by an individual’s desire to avoid sharing the seller’s commission with a buyer’s agent. Such brokers put their greed ahead of their lawful responsibilities to represent a client’s best interests, glossing as they do over important distinctions and definitions.
Therefore, if your broker fails to offer you the form–which defines other sorts of relevant agency relationships–for example, designated agency–don’t hesitate to move on.
Below are properties that are listed by various brokers for under $1 million, all on the Upper West Side, and that I saw at the end of the year:
- In the mid 80s just west of Columbus Avenue, a one-bedroom condo that suffers from the sight of a grim gray wall outside the living room window. The pass-through kitchen is disconcertingly high end, with Viking, Fisher-Paykal and the like, but that’s nothing to condemn. And there is decent closet space. But the latest offering price for this 766-sf apartment, which went on the market at $725,000 arly last year, is unrealistic: $685,000 with combined monthly costs of $1,149.
- An eccentric two-bedroom, two-bath duplex condo in the mid 90s between West End Avenue and Riverside Park. This 1,150-sf unit’s top selling point is its 300-sf terrace, which abuts public spaces while being technically private. The apartment has exposed brick walls, an open kitchen with granite countertops and handsome cabinetry, a small bedroom below grade, a spiral staircase and renovated, if dated, baths. In a building with live-in super and no amenities beyond a laundry room, the unit was originally listed for $995,000 with monthly common charges of $533 and real estate taxes of $664, then was reduced to $945,000. It should sell for just under $900,000.
- In the low 60s in a Central Park block, two adjoining apartments on a very high floor that are striking similar. With startling views of the park and skyline, they are offered separately or together for a total of $19.475 million with costs of $10,299 each month. One apartment covers 2,907 square feet and the other, 2,466. Each of them has the 10-year-old original kitchen and baths–in all, three and a half in one and four and a half in the other. Their ceilings are not high, and kitchen drawers stick. The less expensive one is the most memorable, what with its abundance of gold ornamentation, silver-colored wall covering in the living room with a golden pattern and decorative crimson columns that suffer golden capitals. Let’s say you may want to give this place a facelift should you be tempted to buy it.
- In the low 80s on a Central Park block, a dramatic tri-level co-op in which the top level, a loft, is erroneously described as the bedroom. With one and a half baths and 11-foot ceilings in the elevated living room (which has eight-foot-high bay windows), the 700–sf unit has entry into a rather useless space that has a small, modestly improved kitchen through a doorway on one side and the living room at about chin level. Passage between the floors, which half a flight apart, is via a rickety and unusually narrow spiral staircase. In a brownstone with zero amenities, this apartment has been chasing the market down, now to $649,000 with maintenance of $1,022 a month.
- A one-bedroom co-op that is demonstrably a hard sell in the mid 70s between Broadway and West End Avenue. With entry practically into the open kitchen, which was renovated nine years ago with black appliances and wall tiles, the second-floor unit in a small 1948 pet-friendly building also suffers from courtyard views and floors in poor condition. Listed at $489,000, this apartment has had a single price cut, back in June, to $450,000. One likely explanation for buyer resistance: Barely an amenity and maintenance of $1,049 with none of it tax deductible.
- A sponsor co-op on the ground floor of a 1925 pet-friendly doorman building in the low 100s of West End Avenue. This gut-renovated 1,200-sf unit facing the avenue has much to offer, including two bedrooms, one and a half baths, lovely hardwood floors, a stylish new kitchen, washer-dryer and good flow. It is listed for $990,000 with low monthly maintenance of $1,208 and will go to contract for close to $900,000.
- In the high 60s east of Columbus Avenue, a co-op that is being marketed–how to put it?–optimistically as a convertible two-bedroom, one-bath apartment because of a walk-in closet and wasted space that couldn’t easily, or legally, be turned into a second bedroom. Occupied by the same owner for some 35 years, the unit has a mostly original bath and essentially 70s kitchen (which is–again, how to say it?–marketed as recently renovated). There are three exposures in this oddly laid out apartment, which was first listed back in May for $789,000 before chasing the market in three steps, now to $689,000 with maintenance per month of $1,116, where it has at least slim chance of finding a buyer for much less money.
- A pleasant one-bedroom co-op that was listed originally in April for $585,000. The apartment is sunny and airy, containing an improved bath, good closet space, a dining balcony and an unfortunately cramped and dated kitchen. In a 1930 boutique building that is friendly to pets, this unit in the low 90s between Columbus Avenue and Central Park West now represents excellent value at $440,000 with monthly maintenance of $875.
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022
Ken: Logic suggests that the answer should be “simple”, and in many “plain vanilla” closings, simplicity will rule. On the other hand, how a broker divies up divided loyalty that is owed to the seller and a buyer when a broker acts as dual agent will be a very slippery slope, irrespective of whether the transaction is comsummated…RG
Ron, It has to have a simple answer, no secrets allowed. I take this from the analogous case of a lawyer acting on both sides of any purchase and sale: there MUST be full disclosure to the side that needs to know, and the new legislation surely will be interpreted to protect the agent who does so. The agent should tell both parties that this is what will happen. That is why the parties should rarely allow their agent to become a “dual”, and why the parties are afforded real protection by a forced disclosure of their agent’s conflicts. Ken
Malcolm: You’ve covered it well. But there are a few twists and turns that are possible…to be discussed next week. A sneak preview: what happens when a dual agent is told something by one party that is detrimental to the other party’s interest? Whose loyalty comes first when the broker has diminished loyalty to each party?