Redfin Direct, a pilot program that allows consumers in limited markets to make direct offers on homes listed by real estate brokerage Redfin online without being represented by a buyer’s agent, is violating a regulation regarding agency disclosure, according to the Massachusetts state government agency that oversees real estate licensees.

A staff member at the Massachusetts’ Board of Registration of Real Estate Brokers and Salespersons told Inman via email that the board had “reviewed the Terms and Conditions found on the Redfin Direct website and has determined that Redfin is not meeting it’s (sic) requirements under 254 CMR 3 (13) (a) by providing the Mandatory Agency Disclosure Form to the buyer disclosing that they are the seller’s agent and that they have no fiduciary duty to the buyer.”

The regulation, 254 CMR 3 (13) (a), requires:

A real estate broker or salesperson shall provide to a prospective purchaser or seller of real estate a notice developed and approved by the board which clearly discloses the relationship of the broker or salesperson with the prospective purchaser or seller of the real estate. The notice, developed by the Board, shall be provided to a prospective purchaser or seller at the time of the first personal meeting between the prospective purchaser or seller and the broker or salesperson for the purpose of discussing a specific property.

The rule also says the broker or salesperson providing the disclosure and the prospective buyer or seller should sign and date the disclosure.

To submit an offer on a property through Redfin Direct, the new service that has been quietly tested by the brokerage in Boston since March 2019 and which is planned to expand to Virginia later this year, buyers must complete a 55-question online form on the brokerage’s website.

As buyers fill out the form, Redfin provides market information that may impact how buyers choose to tailor their terms, such as pointing out that 71 percent of recent Boston-area Redfin client offers included an inspection contingency, 87 percent included a financing contingency, and Boston listings on average sell for less than 1 percent off the listing price.

The very last screen before a buyer clicks “Send my offer terms” discloses that “Redfin represents the seller in this transaction. The information in this form does not constitute legal advice, tax advice, or the creation of a real estate agency relationship with Redfin.”

Buyers are required to click “I understand” to submit their offer terms. Redfin does not present an agency disclosure form that buyers must sign as part of the questionnaire.

Screen shot of Terms and Conditions on Redfin Direct

“Under the Board’s regulations, the buyer must acknowledge receipt of the disclosure,” the Massachusetts board said.

“The Board will be contacting Redfin to advise them of the requirements under the regulation.” Asked if Redfin would face any fees associated with non-compliance, the board did not have an immediate response.

Redfin CEO Glenn Kelman told Inman via email that Redfin has a “more comprehensive” agency disclosure form it asks buyers to sign than the Massachusetts form.

“We ask the seller as our client to sign the Massachusetts form disclosing our efforts to market the seller’s property to unrepresented buyers. At open houses, we also put visitors on notice that we represent only the seller,” Kelman said.

“And then when buyers make an unrepresented offer via our site, we ask the buyers to sign a much more comprehensive disclosure that makes it very clear we do not represent the buyer.”

“We have been using this form when Boston buyers have sought to make offers on a Redfin listing, prior to the launch of Redfin Direct, without complaint from Massachusetts Board of Registration of Real Estate Brokers and Salespersons; the only difference is that we are now accepting these offers online,” Kelman continued.

“The Board hasn’t contacted us about any issues with the disclosures we make to the seller as our client, or to the consumer making an offer; we’ll now contact the Board to confirm that our disclosure is consistent with their requirements; we’re always happy to collaborate.”

Redfin’s form says, in part, “BUYER IS UNREPRESENTED. Buyer is not currently represented by, or otherwise working with, a real estate agent. 2. REDFIN REPRESENTS SELLER ONLY, NOT BUYER. Redfin does not represent Buyer or Buyer’s interests. Redfin solely represents the interests of the seller of the Property. 3. NO AGENCY RELATIONSHIP WITH REDFIN. There is no agency relationship between Buyer and Redfin.”

Part of the issue may be the timing of the disclosure. According to Redfin, “The disclosure form is provided at the same time the offer contract is given to the buyer to sign.”

After buyers submit their offer terms through Redfin Direct, a “support agent first receives the offer from the support queue. After that, they send it to the listing agent and the listing agent reviews the deal with the seller. After review, the listing agent drafts up the offer contract and sends to the unrepresented buyer to sign and review. They sign via DocuSign,” Redfin said.

The Massachusetts regulation requires that the agency disclosure “shall be provided to a prospective purchaser or seller at the time of the first personal meeting between the prospective purchaser or seller and the broker or salesperson for the purpose of discussing a specific property.”

Currently, Redfin Direct buyers receive the disclosure after going through Redfin’s 55-question form, submitting their offer terms and having those terms reviewed by the listing agent and seller.

Inman has asked the Massachusetts board when it plans to reach out to Redfin; whether it objects to Redfin’s use of its own disclosure form or to the timing of the disclosure, or both; how long Redfin will have to comply; whether there are any fees associated with non-compliance; and at what point in its online experience Redfin should be providing the disclosure form. We will update this story if and when we hear back.

Upon Redfin’s announcement of the new program, which the brokerage has so far launched only in Boston, some Inman readers expressed concerns in online correspondence that Redfin could be functioning as a dual agent by providing information to buyers that they could take as advice, and by collecting a listing fee and a transaction fee from the seller.

But the Massachusetts board told Inman, “Redfin Direct does not appear to be functioning as a dual agent as defined by the Board’s regulations, 254 CMR 3 (13) (c).”

That regulation covers disclosure of designated agency — when two agents from the same brokerage separately represent the buyer and the seller. Redfin has been licensed in Massachusetts since 2007.

“Accepting offers from unrepresented buyers on behalf of our listing clients is not only legally permissible; we feel that not doing it, and instead requiring a buyer of a Redfin listing to hire an agent, would be a self-serving act that is inconsistent with our ethical and fiduciary duties to our listing client,” Kelman said.

“The listing client wants as many offers as he or she can get, with as little friction as possible, and the maximum net proceeds.”

Email Andrea V. Brambila

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