Question: Our brokerage is having significant difficulty completing our transaction files because so few people understand who is to deliver the Agency Disclosure form, who is to receive it and when to deliver the Agency Disclosure form. Can we please get some clarity?
Answer: YES! When the Agency Disclosure law went into effect on January 1, 1988, it was difficult to understand why the disclosure form had to be delivered 3 different times; many brokers and attorneys repeatedly requested a statutory change to eliminate the third step. The state Legislature has passed, and the Governor has signed, a CAR-sponsored bill removing the third step in delivering the Agency Disclosure form.
Effective January 1, 2019, the Agency law has been amended and, under Civil Code Section 2079.14, the form only needs to be delivered twice, as follows:
(1) The Seller’s Agent (if any) shall deliver (i.e., must give) the Agency Disclosure form to the Seller prior to the Seller signing the Listing Agreement; and
(2) The Buyer’s Agent shall deliver (i.e., must give) the Agency Disclosure form to the Buyer as soon as practicable prior to the Buyer signing the Offer.
BOTTOM LINE: The two logical times that the Agency Disclosure form needs to be delivered to clients has not changed; the only difference under the amended law is that the Buyer’s Agent no longer needs to deliver the Agency Disclosure form to the Seller prior to presentation of the Offer.
LEGAL EFFECT OF NOT DELIVERING THE AGENCY DISCLOSURE FORM AT THE RIGHT TIME: One Appellate decision (Hujiers v. DeMarrais (1992) 11 Cal.App.4th 676) has already held that failing to deliver the Agency Disclosure form to the Seller prior to the Seller signing an agreement to pay commission (e.g., Listing Agreement, Single Party Compensation Agreement) makes the agreement to pay commission voidable. Thus, before securing a Seller’s signature on any type of commission agreement, the agent should deliver the Agency Disclosure form to the Seller.
The best way to prove that the Seller has received the disclosure form in a timely fashion is to have the Seller date and sign the Agency Disclosure form prior to the Seller signing the listing/commission agreement; however, other means can be used to prove prior delivery, including the sequence of the documents in DocuSign or any other means of electronic delivery. No matter how you provide the listing/commission agreement to the Seller, put the Agency Disclosure form first.
The best practice when working with a Buyer is to provide the Agency Disclosure form to the Buyer prior to the Buyer signing the Offer or the Buyer Representation Agreement. Again, the best way to prove that that step has been completed in a timely fashion is to have the Buyer date and sign the Agency Disclosure form prior to the Buyer signing the Offer or the Buyer Representation Agreement.
PROCURING CAUSE: An important element in establishing an Agent’s right to commission based upon the C.A.R. Procuring Cause Guidelines is whether or not the Agency Disclosure form was delivered by that Agent As is noted directly on the Agency Disclosure form:
“The law requires each agent with whom you have more than a casual relationship to present you with this disclosure form.”
In a Procuring Cause claim, an agent who fails to deliver the Agency Disclosure form to the Buyer can be found to have less than a casual relationship with the Buyer and thus is not entitled to compensation.
PRACTICE TIPS:
1. When preparing a Listing Agreement for a Seller to sign, the first document that should be provided to the Seller is the statutory Agency Disclosure form.
2. When working with Buyers, you should provide the Agency Disclosure form to the Buyers prior to having the Buyers sign an Offer or a Buyer Representation Agreement.
3. The best practices when starting to work with prospective buyers are to:
- First ask if the prospective buyers are working with another agent and whether they have signed any type of Buyer Representation Agreement. If the prospective buyers state that they have signed a Buyer Representation Agreement, ask to see it. Discuss this Agreement with your manager to determine if it is safe to proceed working with these Buyers; and,
- If you and your manager determine that it is ethically safe to work with the Buyers, or if the Buyers state that they have not signed a Buyer Representation Agreement, then promptly give the Agency Disclosure form to the Buyers, whether or not you use a Buyer Broker Agreement.
Doing so early in your relationship with the Buyers may well assist you in prevailing in a Procuring Cause claim for a commission, since having given the Buyers the Agency Disclosure form is a factor favoring you in the Professional Standards procuring cause hearing.
This Weekly Practice Tip an attorney client privileged document and 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 2018 Broker Risk Management 10/12/18