There is a great deal of confusion regarding the Law of Agency and the statutory requirements of disclosure in real estate transactions in the State of New York. Many of the questions I receive concern this difficult topic, so I thought it might be a good subject for this month’s article.
An agent is someone who stands in the shoes of another and acts for that other party’s benefit. The agent has what is known as a fiduciary duty to that other party, who is called the agent’s “Principal” or “Client.” The agent’s fiduciary duties include loyalty, notice, accounting, obedience and reasonable care. The agent must put the good of his Principal ahead of the good of anyone else, including the agent’s own best interest.
The agent in a real estate transaction, unlike an agent in any other area, also has obligations to a third party, known as the “Customer.” These obligations involve the agent’s dealing with the Customer in an honest and trustworthy manner and include the duty to disclose any material matter about the property to the customer.
Because agents often work so closely with the Customer in a real estate matter, confusion had arisen over the years as to whose agent the real estate professional actually was. In 1991, legislation was enacted in the State of New York which attempted to clarify the various relationships. Since that time it has become the obligation of the agent to disclose to the parties to the transaction exactly who the agent represented. The State has mandated that all real estate agents present to the buyers and sellers, at the first substantive meeting with each, an agency disclosure form that states whether the agent is representing the buyer or the seller in the particular transaction. There is also the same requirement in a rental for the agent to inform the tenant and landlord. Failure on the part of the agent to present the form can result in disciplinary action from the Department of State which could result in a fine and/or other penalties to the agent and his broker.
When the law was first written, there was a requirement that all agents have the form signed again by the parties when the transaction closed, however the law was alter modified to read that no second signature would be required if attorneys had prepared the contract of sale. In this downstate area, virtually all contracts are prepared by attorneys, therefore no second signature is required. Some agents still ask for the second signature, under the theory that it is better to have it and not need it than to need it and not have it.
If a buyer or seller refuses to sign the agency disclosure form, the agent is required to note that the agency disclosure was made, the form presented and the party refused to sign. This note is to be kept in the file the agency is required to keep for three years concerning the transaction.
