Legislature(2003 - 2004)
04/15/2004 01:30 PM Senate L&C
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HB 29-REAL PROPERTY TRANSACTIONS/LICENSEES
CHAIR CON BUNDE announced HB 29 to be up for consideration.
REPRESENTATIVE ROKEBERG, sponsor, said this bill is the
culmination of two years of effort by a task force representing
the Alaska Association of Realtors throughout the state. There
have been some difficulties since the legislature first adopted
statutory language in 1992 requiring the disclosure of agency-
type relationships between clients and the real estate licensees
in the State of Alaska, a needed step forward in terms of
consumer protection. The statutory requirements were found to be
vague and difficult to enforce. This bill redesigns and
clarifies the meaning and duties and provides a foundation for
the promotion of sound and good commerce in the state. The real
estate industry and the associated businesses provide over a
third of the state's domestic product and people need to give it
due consideration. He pointed out that one of the key elements
of consumer protection in this bill requires a pamphlet that
clearly outlines the responsibilities of their relationships.
Vicarious liability is also provided for. One of two amendments
provided to the committee embrace technical changes and one
fills a gap in the area of psychological impairment of property.
The bill clarifies what the duty to investigate is and requires
disclosure of it.
SENATOR SEEKINS asked him to explain the concept of dual agency.
REPRESENTATIVE ROKEBERG replied:
Dual agency is an allowed form of relationship between
a real estate licensee and their clients. What this
bill does is get rid of that, because it's an almost
unworkable concept - where under the principle of
common law, a licensee in this instance would have to
serve two masters simultaneously. That's fundamentally
a difficult thing in terms of the perspective of
fairness and equity in dealing with the clientele....
We solved this by going to what's called the neutral
relationship and witnesses will describe that for you.
SENATOR SEEKINS asked if the real estate industry has a lot of
confusion when someone comes to an agent who represents the
seller.
REPRESENTATIVE ROKEBERG disclosed that he is a licensed real
estate broker in Alaska, but only deals with commercial
properties and deferred the answer to one of his witnesses.
CHAIR BUNDE asked if it was an oversimplification to say that a
real estate agent who lists his house has the responsibility to
get him the highest prices that's practical.
REPRESENTATIVE ROKEBERG replied that is correct.
CHAIR BUNDE asked if it was also the responsibility of the
buyer's agent to get him the lowest price possible.
REPRESENTATIVE ROKEBERG said that's right.
SENATOR FRENCH disclosed that his wife is a licensed real estate
agent and he might have a conflict.
CHAIR BUNDE moved amendment 1, BA.4, 4/9/04 Bannister, and
objected for discussion purposes.
23-LS0189\BA.4
Bannister
A M E N D M E N T 1
OFFERED IN THE SENATE
TO: CSSSHB 29(JUD) am
Page 5, line 11:
Delete all material.
Insert "to imply a duty to
(1) investigate
(A) a matter that the licensee has not
agreed to investigate; or
(B) a matter that is not known by the
seller, prospective buyer, lessor, prospective lessee,
or licensee; or
(2) disclose, unless otherwise provided by law,
events that have occurred on the real estate that might
affect whether a person wants to buy or lease the real
estate."
REPRESENTATIVE ROKEBERG said amendment 1 related to the
psychological impairment issue. Subsection (B) speaks only to
the duty to investigate, not to disclose. Subsection (A)(4) on
page 4, line 17, addresses the disclosure.
SENATOR FRENCH said it makes sense to not have to investigate
something that isn't known by the seller or the buyer, but then
(2) jumps back to (A)(4) which says "it shall not be construed
to imply a duty to disclose, unless provided by law, events that
have occurred that might affect whether or not a person wants to
buy or lease the real estate.
REPRESENTATIVE ROKEBERG replied if a crime had been committed in
the house or if the house had a HIV or AIDS resident, that can't
be disclosed according to federal law. He said a state
disclosure statute says all sellers of a residence have to fully
disclose stipulated items on their disclosure statement. He
emphasized that the seller, not the licensee, is required to
disclose.
SENATOR FRENCH asked for a list of the required disclosures.
CHAIR BUNDE withdrew his motion to adopt amendment 1 until
Senator French had an opportunity to review the list.
REPRESENTATIVE ROKEBERG said he had no objections. He wanted
everyone to understand the bill.
CHAIR BUNDE moved amendment 2, BA.2, and objected for discussion
purposes.
23-LS0189\BA.2
Bannister
A M E N D M E N T 2
OFFERED IN THE SENATE
TO: CSSSHB 29(JUD) am
Page 7, lines 15 - 16:
Delete "if the licensee's broker maintains"
Insert "but the licensee's broker has a duty to maintain
the"
REPRESENTATIVE ROKEBERG explained that it is a clarifying
amendment on page 7, line 15, that says that the broker must
maintain confidentiality.
CHAIR BUNDE removed his objection and amendment 2 was adopted.
He said that a substantial number of people want to testify and
he began with Peggy Ann McConnochie.
MS. PEGGY ANN MCCONNOCHIE, Alaska Association of Realtors, said
she also represented the task force that worked on this bill.
She wanted to touch on four points for the committee.
First of all, we want you to know that every licensee
in the State of Alaska and all over the United States
understands the need for consumer protection. After
all, we are the first ones to deal with a person who
decides to buy a home; we're the people who deal with
somebody who wants to rent a property and we're
dealing with the investor who wants to buy their first
investment. We look into their eyes and see the trust
and we want to make sure that we maintain that trust
and their trust is well placed.
The second topic is representation - how it used to
be. It used to be that every single real estate
licensee, wherever he went, always represented the
seller. It didn't matter if he were going from one
agency and looking at a property that was listed with
another agency, everybody represented the seller. When
in point of fact, that's not the way licensees
necessarily operated or the way the buyer believed.
The buyer thought, 'Gosh, they're spending all this
time with me; they're showing me houses listed by that
other company; they must represent me.'
Thank goodness the law changed. Thanks to
Representative Rokeberg in 1992 we got the law changed
to allow for something called buyer representation
where you could come to buy a house and the agent that
you worked with represented you. That was a very good
thing.
What this legislation is going to move to is a
situation in which, rather than the broker and all the
agents representing every single seller who comes
through that agency to sell a house - it will allow
that broker in the office to designate one licensee in
the office to work with the buyer, one licensee to
work with the seller, and for the broker to set up
firewalls so that confidentiality of all parties is
maintained. As many times as we can get an individual
who wants representation to be represented by the
agents, the better off we're going to be. In other
words, we're going to take away that dual licensee
situation. Our goal by this legislation is to make it
far more fair and more understandable for all parties,
the consumer and the licensees alike.
MS. MCCONNOCHIE said that agency people from all over the state,
residential, commercial and property and association management,
worked on this bill. She said that a lot of research was done
including looking at what other states have done. The states of
Washington, Montana, Nebraska and Colorado have agency laws and
basic tenants that meet much of what Alaska wants.
We also knew that [the law] had to make sense no
matter what type of real estate you're doing.... We
also knew that once we got this law passed, we needed
to have a plan in order to be able to implement it and
we do. Our association, the Alaska Association, is
committed to make this work.
The implementation dates are set very purposely so the public
can be educated about the changes. Association members will also
go out to communities to educate agents and work with the Real
Estate Commission to design the pamphlet telling how licensing
works. They will help brokers to design the changes in their
policy and procedures manuals.
This bill calls for the Real Estate Commission to
design supervision standards for their licensees,
especially when we deal with designated licensees. The
Alaska Real Estate Commission knows that the Alaska
Association of Realtors is going to provide them with
some things to look at; we're going to provide them
with words to look at so they can take it from there
and design those standards. The second thing is we're
going to be also providing them with samples of
potential policy procedure manuals that will help a
broker implement a confidentiality standard for their
office. We do not want to leave any broker in the
lurch wondering how in the world they are going to be
able to implement these policies....
MR. PERRY UNDERWOOD, Alaska Association of Realtors, said he is
also the owner and broker of Coldwell Banker Fortune with
offices in Anchorage, Eagle River and Wasilla. He summed up HB
29 in five major points
First, HB 29 establishes specific requirements as to
when and how a real estate licensee must disclose to
the consumer their relationship....
The second thing HB 29 does - it eliminates dual
agency and the problems that are inherent with dual
agency. Yet, it allows real estate licensee to sell
their own listings.... Real estate licensees can sell
their own listings with the consent and the disclosure
of their customers
The third thing that this bill does - it moves the
relationship with the consumer to the level of a
person who is actually being represented.
Traditionally, the broker is who the relationship is
with, but the broker, in most cases, never sees, meets
or even talks to the consumer. It's being done by the
agents that work underneath this broker.... That
avoids the current situation we have where all
licensees in the company, as well as the broker, are
expected to represent and act on behalf of both
parties.
The fourth thing that this bill does - our current
statute that we operate under provides no duties or
minimum standards under which licensees operate. Our
bill before you, HB 29, sets forth duties and
responsibilities by which all licensees must operate
their business clearly establishing those duties and
what the public on a minimum can expect from us as
professionals.
The fifth thing that this bill does that is very
important - it eliminates vicarious liability.
Vicarious liability, as you may know, is if I, acting
as your representative, go out and say or do something
- it might be by action, neglect or dishonesty - in a
traditional relationship under common law, the
offended party could not only sue me, but sue the
person I was representing who may be totally innocent
in this. This bill protects the consumer from
vicarious liability and the exposure that would come
from dishonest dealings.
MR. DAVE FEEKEN, Legislative and Industry Issues Chair, Alaska
Association of Realtors, said he is also the broker of ReMax on
the Kenai Peninsula. He said the bill had been worked on by
members from all over the state, but he wanted to comment
specifically on amendment 1. The key is the word "investigate."
TAPE 04-33, SIDE A
MR. FEEKEN said it attempts to clarify the issues of an
investigation. The original paragraph came from Washington and
Nebraska statutes. Also, the amendment attempts to insert
language saying the Real Estate Commission can regulate.
MR. STEVE CLEARY, Executive Director, Alaska Public Interest
Research Group (AKPIRG), said he was concerned that consumers
are adequately protected specifically since the common law is
being abrogated. He thought standardization of the forms, the
disclosures and eliminating vicarious liability would help
consumers. However, he failed to understand how a designated
agency isn't a dual agency. Continuing a football game analogy
that was used earlier, if a back-up quarterback and the
quarterback are on the same team, or the agents are in the same
agency, they would supposedly be playing against each other, but
even with firewalls set up, it's hard to believe that the
consumer's best interests would be served if people in one
agency are representing both seller and buyer.
MS. LINDA GARRISON, Owner and Broker, AAR Number 1 Buyer's
Agency, said:
The only thing I'm concerned about is that the bill is
being rushed through. The common law of agency has
worked for hundreds of years in protection of the
consumer. So, any dilution, even partial abrogation or
total abrogation is extremely detrimental to the
consumer.
MS. GARRISON explained that a lawsuit brought the issue to light
and now it is hard to understand. Currently there are two types
of designated agency under common law and dual agency is one,
which demands that the agent alert the consumer up front. It can
exist in two instances, one is when the same agent in a company
represents both the buyer and the seller and the other when one
agent in a company represents the buyer and another agent
represents the seller.
The designated agency is basically a proposal where
the broker will appoint one agent to represent the
seller and another agent to represent the buyer. That
is still dual agency; however, it is undisclosed dual
agency. The public, the buyer and the seller, will
have an agent representing them without being required
to do the protective language that is currently
required in the statute for dual agency. It's the
common law of agency that creates the fiduciary
responsibilities that the agent owes to the consumer.
Those are such responsibilities of confidentiality,
accountability, loyalty, diligence, obedience - very
important.
We run into a potential problem - what if the broker
appoints one experienced agent to represent the seller
and another somewhat inexperienced agent to represent
the seller? It is an internal problem, but remember
the consumer will think they have their own
representation. With dual agency, they know the
ramifications.
In conjunction with that, the limits of the
liabilities - the liability is limited for the
brokerages and for the agents and it does reduce their
remedy in a legal recourse for only actual damages,
which are very difficult to prove. So, when we take
the combination of this - unrelated and not addressed
in this bill - currently, a person can get a real
estate license with only 20 hours of education and
passing a test - so, that in itself is a detriment to
the consumer. This is the largest sale or purchase of
most people's lives. That isn't addressed in the bill.
When we combine that already detrimental [indisc.]
with the consumer with the removal of common law of
agency of all of those responsibilities, we combine it
with the limit of liabilities to broker and limiting
the recourse of the public, the detriment to the
consumer far [outweighs] any benefit....
MS. GARRISON thought the vicarious liability paragraph on page
10 could be handled in a different manner. "When you add all
these things up, consumer protection does not exist in this
bill."
MR. KIRK WICKERSHAM, Anchorage real estate broker and lawyer,
said he served on the task force that helped develop this
legislation. He said this law is a step forward both for the
industry and for the consumer and encouraged the committee to
pass it. It generally follows the trend other states are going
in to come up with alternatives to conventional agency as
defined in the common law statutes. He thought some of the
problem with it is that it approaches the relationship between
the parties and their agents as an adversarial type situation,
but a real estate transaction is not like that. The parties may
disagree, but generally speaking, they are working in a more or
less cooperative fashion to get a transaction completed that
both of them want. "I think this approach is reflective of how
real estate transactions actually work and the type of services
that are provided by real estate professionals."
CHAIR BUNDE thanked him and closed public testimony and promised
that it would be heard again.
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