A new public act in Illinois requires all brokers, including limited-service brokers, to provide a minimum range of services when they enter into exclusive agreements with their clients.
A new public act in Illinois requires all brokers, including limited-service brokers, to provide a minimum range of services when they enter into exclusive agreements with their clients. Originally introduced in the state Senate as a continuing education measure for real estate brokers and agents, the legislation was later amended in a state Assembly committee to include the provisions relating to these exclusive agreements.
Supporters of the law say the new requirements are intended to aid consumers and agents alike, while some industry professionals question whether such laws could impact consumer choices in real estate. The Illinois legislation may be part of a broader movement to specify minimum brokerage service requirements.
Illinois Public Act 093-0957, enacted in August, defines an “exclusive brokerage agreement” as “a written brokerage agreement that provides that the sponsoring broker has the sole right, through one or more sponsored licensees, to act as the exclusive designated agent or representative of the client.”
Brokers entering into these agreements must, through a licensed agent or agents, “accept delivery of and present to the client offers and counteroffers to buy, sell, or lease the client’s property or the property the client seeks to purchase or lease,” according to the act.
Also, agents subject to these agreements must “assist the client in developing, communicating, negotiating and presenting offers, counteroffers and notices that relate to the offers and counteroffers until a lease or purchase agreement is signed and all contingencies are satisfied or waived,” and must “answer the client’s questions relating to the offers, counteroffers, notices and contingencies.”
Brian Callahan, broker at Homefront LLC, a Rockton, Ill.-based company that provides a flat-fee MLS listing service, said, “Although the public policy behind the new law is legitimate in terms of consumer protection, a concern is that the law may be used by Realtor or MLS associations to attempt to restrict the practice or business models of Realtors and therefore limit the choices currently being offered to consumers.”
He said, “By itself it’s not such a bad law. There has just been a lot of confusion about it,” he said. “When the law first passed there was just pandemonium. Everyone was wondering what it meant.”
His own business model, he said, is not affected by the law because he doesn’t enter into exclusive brokerage agreements with clients. His company provides a marketing agreement rather than a listing agreement, he said, which “allows for the seller to retain any type of professional adviser who they want to represent them, whether it is a lawyer or another broker.”
Callahan said he can understand the pursuit of such measures to define brokerage service requirements. “I believe that many MLS boards throughout the country are wrestling with similar issues as to new business models and how they are to function within the traditional MLS system,” he said. “I think it’s a trend nationwide. It’s just a matter of MLSs kind of revamping their basic structure – they have to figure out a way to accommodate more levels of representation.”
The Illinois Association of Realtors and the Illinois Department of Financial and Professional Regulation supported the legislation. The Illinois law was first introduced as Senate Bill 2887 by state Sen. Antonio Munoz, D-Chicago. Munoz and state Rep. Angelo Saviano, R-River Grove, who leads the committee that added the minimum-service amendment to the bill in May, were not available for comment about the legislation.
In a February announcement to members, the Illinois association said that it “has introduced a strong pro-consumer legislative agenda,” and the continuing-education measure was listed among its legislative initiatives.
Steve Bochenek, legal counsel for the state association, said state law previously didn’t provide a good definition of exclusive brokerage agreements. The association supported the minimum-service requirements for brokerages engaged in exclusive agreements to better protect the public and real estate agents, he added.
“Consumers would find themselves in the situation where they would sign an exclusive agreement with an agent yet no services were provided to them,” Bochenek said.
Also, there were cases in which a listing agent’s client approached a buyer’s agent for assistance. “The seller already had an agent who was providing no services – it put the buyer’s agent in a very difficult situation,” he said. These types of situations were becoming more common, Bochenek said, “based upon comments we were hearing both from the public and the members.”
He noted that those brokerages that do not enter into exclusive brokerage agreements are not subject to the minimum-service requirements.
The association eyed related rules that were proposed in other states, such as Florida and Texas, but ultimately crafted its own unique legislation, he said.
Clare Thorpe, a spokeswoman for the Illinois Department of Financial and Professional Regulation, said the public act “really is a consumer protection bill.” She said that in addition to heightening continuing education requirements for real estate brokers and agents, the measure also is intended to prevent consumers from getting “scammed” by a limited-service brokerage.
“We didn’t want maybe a consumer that isn’t quite as knowledgeable about real estate to get into a situation where they thought they were being represented by a brokerage firm that maybe didn’t provide all the services they thought they were getting,” she said. “There has been a trend lately of some brokerage firms where they’re not offering (some types of) services and we didn’t want the consumer to be scammed.” Most of the calls the department has received about the new law are related to the new continuing education requirements, Thorpe said.
Loretta Alonzo, president of the Multiple Listing Service of Northern Illinois, said that the service, through its member brokers and Realtors, supported the continuing education provision of the new act and also the provision relating to minimum service requirements for brokers.
“We were having confusion with fellow members with some of the limited services provided by some of the brokers – what they were doing and not doing,” she said. “(Some) agents and brokers were taking listings and that’s all they were doing –taking the listing and putting in the MLS, not providing any service. That was providing confusion.” She said the language in the act was intended to clarify the responsibilities of agents in these situations.
Limited-service brokers will not likely be put out of business by the new act, she said. “I don’t know that it will eliminate them. They will still be in business, they will just have to provide more services than they provide now.”
In a recent newsletter to members, MLSNI announced that “MLSNI has been directed to modify its rules regarding ‘Entry Only’ listings as it pertains to the new law.” Alonzo said that the listing service is “working on rules and regulations within the MLS to cover these new guidelines, as well.” A committee met recently to discuss the new requirements, she said, though no new rules have been issued.
Alonzo said she believed the legislative effort to define minimum service requirements in Illinois was similar to another effort in Texas.
The Texas Real Estate Commission had proposed a rule in 2001 that would have required real estate brokers to provide a minimum range of services, including assistance in developing, communicating, presenting, accepting and understanding purchase offers and counter-offers, though that rule was repealed after objections by Aaron Farmer, broker-owner of Austin-based Texas Discount Realty.
Farmer said that he is familiar with the Illinois legislation. “I don’t think that the Texas state Legislature would pass a law like that. I just don’t know that prudent lawmakers would pass such an anti-consumer rule.” He also said that he has spoken with real estate professionals in other states in which similar measures have been proposed.
Corey Scholtka, owner of BuyHomes.com, a flat-fee brokerage based in Wauwatosa, Wis., said, “State legislation sometimes follows a pattern that originates from other states. It’s like a series of dominoes falling.” He said the Illinois legislation “may face legal challenges should their legislation end up restricting consumer-based, free-market choices.”
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