Q: I am confused as to when Agency Disclosure forms are supposed to be delivered to a client and on which property transactions. I hear different advice from various Agents. What is the correct answer?
A: The requirements for when Agency Disclosure forms (“AD”) must be given and on which transaction are governed by Civil Code Sections 2079.14 – 2079.16.
- WHAT IS THE PURPOSE OF THE AGENCY DISCLOSURE FORM? The Agency Disclosure form was created by the California Legislature to provide information to consumers regarding their agency representation options in a real estate transaction and what duties are owed to them by the real estate licensees in that transaction. The form itself does not create an agency relationship but can be evidence of the existence of that relationship. (See paragraph 4 below.)
- TO WHICH PROPERTIES DOES THIS LAW APPLY? The Agency Disclosure form must be given to clients in all “real property transactions” where a real estate licensee is representing a Seller or Buyer and is required for all types of properties including residential and residential income, commercial, vacant land, ground leases coupled with improvements, and a leasehold of a residential 1-4 unit residence for more than one year in duration.
- WHEN MUST THE AGENCY DISCLOSURE FORM BE GIVEN?
A. The Seller’s Agent must give the AD form to the Seller prior to entering into the listing agreement. This AD form is to be signed by the Seller and the Seller’s Agent.
B. The Buyer’s Agent must provide the AD form to the Buyer, as soon as practicable, prior to the execution of the Buyer’s offer to purchase. Actually, that is the latest that the AD form should be provided. In fact, the disclosure form should be provided to the Buyer as soon as that Buyer seeks the services of the Agent in more than a “casual, transitory, or preliminary manner” with the object of entering into a real property transaction. (Cal. Civ. Code § 2079.13(b).) This AD form is to be signed by the Buyer’s Agent and the Buyer.
NOTE: The need for the third AD form to be delivered by the Buyer’s Agent to the Seller or their agent was eliminated in 2019 and is no longer required.
- IMPORTANCE OF GIVING YOUR BUYER AN AGENCY DISCLOSURE FORM EARLY IN YOUR RELATIONSHIP. In a dispute between two agents from different brokerages over who is entitled to Seller’s Broker’s offer of compensation, one of the factors that an Association of REALTORS® arbitration panel can consider is whether the agent who introduced the Buyer to the property gave that Buyer an AD form. This is one of several factors that favors the Introducing Broker as against the Closing Broker who received the commission at the close of escrow. Thus, the fact that a Buyer’s Agent provided Buyer with an AD form early in their representation of that Buyer can be a significant factor in that agent winning an arbitration and being paid the commission.
For more information, see Weekly Practice Tip “Procuring Cause Disputes.”
- WHO KEEPS COPIES OF THE AGENCY DISCLOSURE FORMS?
A. Buyers and Sellers must be given a copy at the time that they sign their AD form.
B. The Seller’s Broker keeps a copy signed by the Seller in the Seller’s Broker file.
C. The Buyer’s Broker keeps a copy signed by the Buyer in the Buyer’s Broker file.
D. The Seller’s Broker does not need to keep a copy signed by Buyer; and the Buyer’s Broker does not need to keep a copy signed by Seller. Do not engage in a needless paper chase.
- CONFIDENTIAL INFORMATION: The AD form contains information about the limitation on the ability of an Agent for Seller or Buyer to convey “confidential information,” as described, to the other party:
“In representing both Seller and Buyer, a dual Agent may not, without the express permission of the respective party, disclose to the other party confidential information, including, but not limited to, facts relating to either the Buyer’s or Seller’s financial position, motivations, bargaining position, or other personal information that may impact price, including the Seller’s willingness to accept a price less than the listing price or the Buyer’s willingness to pay a price greater than the price offered.”
For more information see CAR Legal Q&A “Agency Disclosure and Confirmation” at:
https://www.car.org/riskmanagement/qa/agency-folder/agency-disclosure-confirmation
PRACTICE TIPS:
- Seller Agents: Be sure to get an AD signed by the Seller PRIOR TO the signing of the Listing Agreement as required by this law.
- Buyer Agents: For the same reason, be sure to get an AD signed by the Buyer PRIOR TO the signing of the Purchase Agreement by Buyer. NOTE: You are only required to get one AD from a Buyer, even if you write on several properties prior to ratification.
- Buyer Agents: Give the Buyer an Agency Disclosure form as early in your relationship as possible. After the Buyer has signed it, give a copy to the Buyer and make sure a copy is put in the Broker file. If an Agent fails to provide the Buyer with that statutory form, the other Broker can legitimately argue that, as a matter of law (as stated on the Agency Disclosure form), the Agent had less than a “casual relationship” with the Buyer.
ATTORNEY-CLIENT PRIVILEGED COMMUNICATION: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
Copyright© Broker Risk Management 2022 Rev. 3/04/22