Clients left in the dark about where their agents' interests lie

By KENNETH R. HARNEY

Washington Post Writers Group

Date: March 19, 2006

WASHINGTON --- A pending lawsuit in the Washington, D.C. suburbs is focusing new light on a growing problem: Many realty agents aren't disclosing who they represent in transactions - even where state laws require them to do so in writing at their first substantive meeting with a potential client.

According to research by the National Assn. of Realtors, just 30% of all buyers during 2005 received disclosures about representation from their agents at their first meeting. Nearly half of first-time buyers either received no disclosures anytime during the sales transaction or were unaware of whether they did.

To the Realtor association's top lawyer, general counsel Laurie Janik, this is very bad news.

"I was so extremely disappointed" at the latest low disclosure percentages, she said in an interview. "Our eye is not on the ball anymore."

Most states require realty agents to inform potential sellers or buyers in writing about who will be representing whom. Agents frequently represent the property seller exclusively. But under "buyer agent" arrangements, they may represent the purchaser exclusively.

Clarity about representation is crucial. because sellers and buyers often divulge information to agents about their finances, personal circumstances or bargaining strategies that can dramatically affect pricing and negotiations. If a buyer mistakenly

confides key personal or tactical information to an agent representing the seller, that agent is highly likely to pass it along for the advantage of the seller.

When agents fail to provide the written disclosures mandated by most states, clients may be misled into paying too much, forgoing contractual protections such as contingency clauses, and generally ending up dissatisfied with the transaction. Some buyers or sellers end up angry enough to sue.

That's what Joel Stern of Silver Spring, Md., did after dealing with two agents affiliated with Weichert Realtors, a large, independent brokerage firm. Though the specific allegations are complicated, the bottom line is Stern believes he was induced to sign a contract on a house with an excessive price because the agent he thought represented him as a buyer's agent was in fact functioning as an agent for the seller.

The agent did not disclose her representation until the contract signing, according to the suit. Maryland state law requires written disclosure much earlier. Meanwhile, the agent's partner allegedly persuaded Stern to list his current home for sale through her with Weichert. The first agent, Stern claims, also persuaded him not to include a contingency clause that would have required his current home to be sold before the new purchase could close.

The agents "defrauded [Stern] into overpaying" on the new house "because they assured him he could quickly sell his house," according to the complaint. Working together, the agents "were intent on making the highest commission" off Stern's purchase and in profiting further from the listing of his current home.

Stern had put a $34,000 deposit on the home he sought to purchase. He backed out of the contract when he learned that his agent represented the seller, not him as he had assumed, and suspected that he had agreed to an excessive price.

A county Circuit Court ruled recently that Stern's agent's failure to disclose her representation was not sufficient to cancel the contract. Stern is appealing that decision and seeking $300,000 in punitive damages and the return of his $34,000.

Lawyers representing the agents and Weichert declined to discuss the case, citing a company policy of not commenting on ongoing litigation.

What's the significance here for you? The statistical reality is that agents nationwide are neglecting to provide the upfront disclosures regarding representation that their own trade association says they should.

Under the circumstances, buyers and sellers need to be on alert.

Demand a formal disclosure of representation before beginning any substantive discussions with an agent. Do not assume that you are working with a buyer's agent whose sole loyalty is to you.