Legal Update
NAR’s 2013 Legal Scan of Real Estate Issues By Doug Martin
Every two years, the National Association of REALTORS® (NAR) undertakes a study of the current legal issues and legal concerns facing real estate professionals. This comprehensive research project is intended to analyze current legal liability issues and identify emerging risk management issues. NAR’s 2013 Legal Scan is based on statutes and cases affecting real estate professionals, and on survey responses from key players in the real estate industry. Breach of fiduciary duty was the most common legal issue facing real estate professionals during this review period. The most important emerging issue was social networking, a form of internet advertising, and disclosure of short sales was also top area of concern. Finally, several technology issues were identified as important areas in need of additional training, including state internet advertising rules and social networking.
Agency Issues Agency remained one of most important overall topics in NAR’s 2013 Legal Scan. More respondents ranked various agency issues among their top three current issues than any other group of issues. In addition to statutory and regulatory developments, agency related issues also generated a large number of court decisions during the survey period. The main agency issues identified were breach of fiduciary duty, dual agency, and buyer representation.
Breach of Fiduciary Duty Almost 20 percent of survey respondents indicated that breach of fiduciary duty was the basis for a significant number of current disputes, and more than 55 percent ranked the issue among their top three current issues. Breach of fiduciary duty was also named among the topranked potential future issues, with nearly 80 percent of the respondents ranking it among their top three future issues. Legal Scan respondents made three general comments about fiduciary duty. First, licensees simply do not know what their duties are—whether fiduciary or statutory. Agents generally do not understand that the fiduciary duties extend past the transaction into the future, and carry around misconceptions about what their fiduciary duties are to clients. Second, respondents noted that some agents put their own interests— such as closing the deal and getting a commission—before their clients’ interests. Finally, respondents said that fiduciary duties tend to be “catch all” claims and are the most frequently cited claims in lawsuits. More than one respondent suggested that breaches of fiduciary duties were asserted in order to trigger E&O coverage.
Dual Agency Dual agency also came up as an important area of concern in the Legal Scan. More than 37 percent of respondents stated that dual agency was the basis for a moderate or higher number of current disputes, and 74 percent placed the issue among their top three current issues. Most
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of the respondents (73 percent) believed that the level of disputes over dual agency will stay the same during the next two years, and about 17 percent believed the number of dual agency disputes will increase in importance over the next two years. More than 71 percent of respondents ranked dual agency among their top three potential future issues, and 63 percent believed there is a moderate or higher need for training on dual agency. The Legal Scan comments addressed several problems with dual agency. First, some respondents simply objected to dual agency on principle. Others believed that licensees simply don’t understand the nature of dual agency, and others engage in dual agency unintentionally.
Buyer Representation Buyer representation was not identified as a major source of current disputes, but it was nevertheless named as an important issue by the survey respondents. Only 13 percent of the survey respondents said that buyer representation was the source of a significant number of current disputes, and about 37 percent stated the issue had moderate or higher current significance. Nevertheless, all of the respondents who included buyer representation ranked the issue either first or second as a source for current disputes. Similarly, only 23 percent of respondents believe buyer representation will increase in importance over the next two years, but nearly 89 percent of those who ranked it placed the issue in their top three future issues. Thirty-one percent of the respondents indicated that there is a significant need for training on the issue.