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The Disclosure Dilemma
New law on broker representation hits speed bumps May 01, 2011 07:00AM By Lisa Desai
Stephen Gilpin Teaches Real Estate
It’s been four months since New York State amended its disclosure law for real estate agents, aiming to help consumers understand the sometimes murky world of commissions.
But ironically, brokers say the well-intentioned new law has created even more confusion for both clients and brokers — in the short term at least.
The problem, they say, is the complicated two-page form, which clients are required to sign stating that they understand who their broker represents: the buyer, the seller or both.
Brokers must give the form — called an Agency Disclosure Form — to their clients early in the buying process. Brokers who fail to get the forms signed could face fines, revoked commissions or even suspended licenses.
But brokers say they’re still unsure about when and how to present the paperwork, since some clients are initially reluctant to sign it. While many feel that the law is positive in theory, in practice, some brokers say, it’s taking time to work out the kinks.
“There is confusion as to when to present the form, and the level of education out there is still not where it needs to be,” said Donna Olshan, president and owner of Olshan Realty. “Very often, I have shown exclusives and when the buyer comes in with their broker, they are surprised that they have to sign a form.”
She added that many brokers aren’t adhering to the law yet. “I’ve been told I am the only one doing it,” she said.
Previously, written disclosure forms were only required for transactions involving single-family homes and buildings with four or fewer units. But when the new law went into effect on Jan. 1, it was extended to condos and co-ops.
The goal of the amended rules is to help clients better understand brokers’ allegiances, explained Neil Garfinkel, who is residential counsel to the?Real Estate Board of New York?and helped draft the law. That’s especially important in situations where two agents from the same firm represent opposite sides of the transaction.
But news of the amendment worried agents, who were concerned that more paperwork could make skittish customers less likely to close deals, despite the fact that the rules are in place to protect them.
“In New York City, everyone was worried there would be a big backlash [among] buyers and sellers; we would present the form and it would be like, ‘Oh, wait, I have to get my lawyer to look at this,’” said one broker, who asked to remain anonymous.
Brokers say there is indeed a lack of clarity surrounding the form, for brokers and buyers alike.
“I have seen some confusion,” said Malcolm Carter, a senior vice president at Charles Rutenberg Realty. Carter said he recently brought a buyer, who had already signed the disclosure form, to see a property on the Upper West Side. When they arrived, the listing broker wasn’t sure whether the buyer needed to sign another disclosure form in order to deal with him.
The law requires agents to present the disclosure forms at the time of “the first substantive contact” with the buyer or seller. Brokers say that term is ambiguous and confusing.
As Carter experienced, prospective buyers who were accompanied by their own brokers to property showings were also being asked to sign disclosure forms by the seller’s broker, causing some to balk.
“This interpretation… results in the prospective purchaser receiving the ADF numerous times and likely results in conditioning the prospective purchaser to simply reject the receipt of the ADF,” Garfinkel said in a memo to REBNY.
Since the passing of the law, Garfinkel has been in talks with New York’s Department of State, requesting a change so that buyers already in the presence of their own brokers would not be required to sign another form.
Early last month, the Department of State agreed, and issued a letter clarifying that part of the law. “That’s good news; that’s what we wanted,” Garfinkel said.
Despite these hiccups, brokers say the disclosure law doesn’t actually seem to be hurting the pace of sales. And once the form is explained properly, clients seem to appreciate it.
Jeffrey Richard, who recently sold his three-bedroom apartment at 315 West 99th Street, said his agent sent him a disclosure form immediately after their first meeting. “I thought it was?reassuring to have everything out on the table,” Richard recalled.?”And it turned out that our broker wound up also representing the buyer, and having had the discussion up front reassured trust.”