Virginia and Tennessee have passed legislation establishing service requirements for full-service real estate licensees while allowing exemptions for licensees that offer fewer services in a real estate transaction.
A number of other states have already passed or are considering legislation relating to agent service requirements, though the restrictions and exemptions vary from state to state. In a handful of cases these laws — sometimes referred to as minimum-service measures — have drawn fire from the U.S. Department of Justice and the Federal Trade Commission. The federal agencies have stated that such laws can be anti-consumer and anti-competitive.
But that was not the case in Virginia. The Virginia Association of Realtors, which backed the bill in that state, invited the Justice Department to review the legislation. In January, John R. Read, an antitrust official for the Justice Department, stated in a letter to the state Realtor association that the Virginia law “does not require brokers to provide a minimum level of services. Rather, it requires real estate brokers to disclose the services that they will and will not offer while preserving consumers’ ability to purchase a limited set of services.”
Read also stated, “The Virginia Association of Realtors should be commended for its efforts to preserve consumer choice in real estate brokerage services. Continuing to allow Virginia consumers to choose the specific services that they want to buy can help save consumers thousands of dollars in one of the most important and costly transactions of their lives.”
He noted that the bill includes a provision stating that it is not an attempt to “limit, modify, impair or supersede the applicability of any of the federal or state antitrust laws.” This, Read said, is “an important confirmation that (the bill) does not manifest an intent to eliminate competition in the market for the provision of real estate brokerage services.”
Approved April 5, the new Virginia law provides that real estate licensees serving in an agency relationship must assist in drafting and negotiating offers and counteroffers, must receive and present offers and counteroffers in a timely manner, provide assistance to satisfy contract obligations and facilitate settlement of the purchase contract, account in a timely manner for all money and property received by the license, and disclose material facts related to the property or concerning the transaction, among other duties.
The legislation, which will become effective July 1, 2007, also provides that licensees acting as limited-service representatives can provide fewer services if they specify in a brokerage agreement which services they will not provide to their clients. “A limited service representative may act as the agent or representative of the client only by so providing in writing in the brokerage agreement,” according to the new law, and limited-service representatives may act as agents or client representatives only if they state this in a written brokerage agreement. Otherwise, the limited-service representative will serve as an independent contractor of the client, according to the law.
While the Justice Department did not object to the language in the Virginia legislation, Read did question whether there was a fundamental need for the bill. “We typically recommend that the state or commission study carefully the need for any governmental restrictions and, if a need is shown, that any restriction be as narrowly tailored as possible. The department has not seen any empirical evidence indicating that fee-for-service brokers have created any significant consumer confusion.”
Supporters of real estate service measures, including Realtor trade groups, legislators and state regulators, have said that laws related to service requirements aim to protect consumers by ensuring they receive an adequate level of services in a transaction. Opponents, though, have said that some versions of these laws are not necessary and can potentially lead to less choice and higher cost for real estate services.
More than a dozen states over the past few years have passed or considered legislation establishing new service requirements for real estate licensees.
R. Scott Brunner, CEO for the Virginia Association of Realtors, said this week that the association “hadn’t had much dialog or input or complaints or anything from consumers in Virginia,” though the association sought to update real estate agency laws for the first time in about a decade.
“We didn’t particularly like the minimum-services idea that a lot of states had gone with. We tried to craft legislation that was respectful of whatever business model a broker would choose but that also empowers the consumer. It doesn’t assume all limited-service brokers are monolithic,” Brunner said.
Association staff had spent hours on the telephone with Justice Department representatives to explain the intent of the legislation, Brunner said, adding that he is pleased with the outcome. “The bill was passed exactly as we introduced it,” he said. The association had earlier held meetings with brokers around the state to gather input on the changes to state agency law. In addition to the provisions relating to service requirements, the bill also provided for additional educational requirements.
Meanwhile, the new Tennessee law provides that a real estate licensee in that state must schedule all property showings on behalf of the client, receive all offers and counteroffers and forward them promptly to the client, answer any questions that the client may have in negotiation of a successful purchase agreement within the scope of the licensee’s expertise, and advise the client about whatever forms, procedures and steps are needed after execution of the purchase agreement for a successful closing of the real estate transaction.
The law also provides that a client can choose to “specifically and individually” waive any of these requirements in writing. “Upon waiver of any of (these) duties, a consumer must be advised in writing by such consumer’s agent that the consumer may not expect or seek assistance from any other licensees in the transaction for the performance of (these duties),” the law states.
This law took effect on May 23, the day it was signed by the governor.
J. A. Bucy, director of governmental affairs for the Tennessee Association of Realtors, said the Realtor group participated in discussions with Justice Department and state regulatory officials about the legislation.
“We worked closely with the Department of Justice, Tennessee Department of Commerce and Insurance, and members of the Tennessee General Assembly in an effort to minimize any concerns on the issue of anti-competitiveness in this legislation. We were in communication with the Department of Justice when we presented … the amendment that eventually became the law. They reviewed it and were comfortable with it,” Bucy said.
Service requirements for real estate licensees has “been a very hotly debated issue among our 24,000 members,” Bucy also said. The association had reportedly sought to resolve ethical quandaries in which full-service agents representing buyers are involved in a transaction with homeowners who have contracted with a limited-service real estate company.