In a new study, the Consumer Federation of America calls real estate disclosures “confusing,” and calls out agents for not doing enough to explain them.

The Consumer Federation of America (CFA) on Monday released another biting report about the real estate industry, this time focusing its attention on the clarity, accessibility and effectiveness of agent disclosures for consumers.

In the report, CFA Senior Fellow Stephen Brobeck analyzed the effectiveness of real estate agent disclosures in 50 states based on Federal Trade Commission and the National Association of Insurance Commissioners criteria that requires disclosures:

  • Include all essential information
  • Provide a brief explanation of relevance of the information to the consumer
  • Place most important information first
  • Use simple, unambiguous language and an organized structure
  • Consider timing and context
  • Separate information with titled sections
  • Vertical lists, color, highlighting and easy-to-read font
  • Tested for effectiveness before dissemination
  • Are given to consumers as early as possible

According to Brobeck, South Dakota, New Hampshire, and Vermont are the only states to meet the majority of FTC and NAIC disclosure standards, thanks to requirements that buyers and sellers receive disclosures at first meeting, short disclosure lengths and the clear explanation of various agent roles and legal duties (e.g. buyer’s agent, listing agent, dual agency).

As for the other states, the study revealed disclosures are often too long, rely on confusing jargon to explain agent roles, and are sometimes presented too late in the transaction process — all of which Brobeck said can disadvantage consumers.

“Not knowing whether your real estate agent represents your interests or those of the other party can be costly,” Brobeck said in a prepared statement and then again during a live teleconference. “An agent working for the other party could, and may be legally required to, pass on compromising information such as the purchase price you’re prepared to sell for or spend.”

To resolve the issue, the CFA suggests states overhaul their real estate disclosures to follow FTC and NAIC requirements with a special emphasis on streamlining the number of terms used to describe agent roles and the levels of “loyalty” ascribed to each role (e.g. total loyalty for an exclusive agent agreement, partial loyalty for a dual agency agreement, no loyalty for when an agency agreement hasn’t been signed).

“The disclosures should then describe the major roles of an agent in that state in terms of loyalty and working for one’s best interests,” the report read. “[Total loyalty, partial loyalty and no loyalty] are understood more by consumers than are terms such as ‘fiduciary’ or ‘dual agency.’”

As proof of the confusion these terms cause consumers, Brobeck pointed to previous survey results published by the CFA in 2019. In the survey of 1,000 American consumers, 55 percent didn’t understand the difference between a “single agent, a designated agent, a dual agent, a subagent, and a transactional agent.”

Although much of the confusion can be solved by states making real estate agent disclosure reforms, the CFA said the rest of the burden lies on agents.

The report cited a 2017 National Association of Realtors survey where 27 percent of all buyers said they received an agent disclosure at the first meeting, which Brobeck said highlights the need for improvement.

“Even when not required by state law, regulators can urge agents to communicate to prospective clients that they do not represent their interests until a written agreement is signed,” Brobeck said.

In a previous Inman article, broker-owner Nicole Solari stressed the importance of understanding state real estate agent disclosure laws and the legal duty agents have to their clients.

“As Realtors, we have all promised to abide by a detailed Code of Ethics that sets a stringent standard of behavior for ‘fair and honest dealing’ with all parties in a transaction,” Solari wrote in her October 2018 article. “Following the Code of Ethics religiously — backed up by a good E&O policy — is one of the best ways to avoid winding up on the losing end of a costly lawsuit.”

Solari suggested taking refresher courses on disclosure laws, explained the tactic of “under-promising and over-delivering” in order to avoid the appearance of a conflict of interest, urged agents to always disclose dual agency and variable commission arrangements, and detailed how to protect client data.

“Our clients place enormous trust in us, so they need to know we will unfailingly treat their financial interests as if they were our own and never put our own interest above our clients,” Solari added.

In an email to Inman, NAR revealed that although “time of disclosure” statistics have remained the same since the 2017 study Brobeck cited, 97 percent of buyers said “they were satisfied with their agent’s honesty and integrity” and 90 percent said “they were satisfied with their agent’s knowledge of the purchase process.”

Read the full CFA study below:

Email Marian McPherson

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