Designated Agency: Real-Estate Ripoff

On June 9, Connecticut became another state in a long list of victims of the real estate industry. On this last day of the session, in the last hours, the Senate passed House Bill 6981 by suspending its normal rules and tacking this anti-consumer legislation on to another bill as an amendment. The bill’s sneaky backers, aware of strong opposition to H.B. 6981, made sure that the bill’s number was not mentioned in the amendment.

The bill effectively permits real estate licensees to enter into conflict of interest relationships with property buyers.

The opposition of numerous consumer groups and others supporting the rights of property buyers, defeated the real estate industry’s effort to push a similar bill through the Massachusetts legislature.

Having lost the battle in Massachusetts, the real estate industry leadership ensured that the Connecticut bill was kept very quiet. The industry did not mention it during its one-day mass lobbying effort in the capital; nor did trade publications mention it. After they finally learned of the bill, opponents labeled it the “Stealth Bill.”

These disreputable tactics are par for the course for the real estate industry, which has one of the most powerful trade associations in the country—the National Association of Realtors (NAR). NAR’s legislative cronies have systematically weakened real estate consumer protections throughout the country in order to minimize the industry’s liability to the consumer.

In Connecticut, NAR weakened consumer protections by authoring and ensuring the passage of H.B. 6981, a bill that allows “designated agency.” This “Megabroker Bill” will limit consumers’ access to fair representation in real estate transactions while ensuring that megabrokers maintain their profits.

“Designated agency” enables one real estate firm to simultaneously “represent” both sides of a real estate transaction—ensuring the largest possible commission for the firm (analogous to one law firm “representing” both the defendant and the plaintiff in the same lawsuit). Under “designated agency,” both the buyer and the seller will be “represented” by a different licensed person (the licensee), within the same firm, although that “representation” will be significantly reduced.

Neither licensee will be adequately overseen by their supervisor (the broker and often the owner of the firm), as occurs in the majority of transactions. Licensees are required to be supervised by the broker who must pass more stringent requirements to practice.

“Designated agency” is particularly dangerous to consumers because licensees largely learn their job informally through “on-the-job training” provided by the broker rather than classroom education. Although real estate licensees are dealing with houses, which are the largest financial investment for most American consumers, the classroom education requirements are much lower for a real estate licensee than for a hairdresser (30 hours versus 1500 hours).

Proponents shepherded H.B. 6981 to passage by hiding it in another real estate bill, H.B. 6954. H.B. 6954 exempts real estate licensees from obligations to disclose to prospective home buyers any information they have concerning ex-convicts living in the neighborhood. This exemption may be a prelude to future industry efforts around the country to reduce real estate agents’ common law duty to disclose all material facts—matters such as leaky roofs, termites or environmental liabilities.

H.B. 6954 and its “designated agency” amendment is the real estate industry’s latest successful attempt to reduce the allegiance and diligence they must have in protecting the consumer’s interests. It is another insurance policy for the real estate industry against responsibility and legal liability.

The only remedy to this Bill would be a veto by Governor John G. Rowland. Consumers interested in protecting their rights in real estate transactions should contact the Governor and ask him to veto H.B. 6954 at State Capitol, 210 Capitol Avenue, Room 408, Hartford, CT 06106, 860-566-4840; fax: 860-524-7396.