Legislature(2003 - 2004)
05/02/2003 04:10 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 257 - DISCLOSURES BY REAL ESTATE LICENSEES Number 1347 CHAIR McGUIRE announced that the final order of business would be HOUSE BILL NO. 257, "An Act relating to the disclosure requirements for real estate licensees, to disciplinary action against real estate licensees, to private actions against real estate licensees, and to real estate licensee agency relationships, fiduciary duties, and other duties; and providing for an effective date." [Before the committee was the proposed committee substitute (CS) for HB 257, Version 23-LS0893\Q, Bannister, 4/28/03, which was adopted as a work draft on 4/28/03.] Number 1376 HEATHER M. NOBREGA, Staff to Representative Norman Rokeberg, Alaska State Legislature, on behalf of Representative Rokeberg, sponsor, noted that there was a new proposed CS for consideration. Number 1392 REPRESENTATIVE SAMUELS moved to adopt the proposed CS for HB 257, Version 23-LS0893\U, Bannister, 5/1/03, as the work draft. There being no objection, Version U was before the committee. MS. NOBREGA explained that Version U no longer has the commercial [real estate] exemptions, which some realtors objected to. She relayed that the Alaska Association of Realtors (AAR) has reviewed Version U and, aside from one suggestion for change, now fully supports the bill. The AAR's suggestion is to change, on page 4, line 17, "blanket" to "written preauthorized", and she said she thought that this was a good suggestion. This change would occur to proposed AS 08.88.396(d), which is a new provision specific to Version U and which is intended to reflect current real estate practices. She elaborated: The way [subsection (d) is currently] written, basically, from house to house to house, you have to have a change in paperwork because there is a change in your circumstance, and (d) requires, anytime there's a change [in] circumstance, [that] you get it in writing. Well, the reality is, a realtor doesn't go and change their paperwork [for] every house they go to depending on who is listing the house and who is ... selling the house and what office it is. So this allows the daily practice of a realtor to show multiple houses, and not until they decide what a buyer wants to buy - which house, and what the relationship is between the buyer and the seller, and who is the selling agent and who is the listing agent - once you figure that out, the end, and you're ready to write an offer, then you know exactly what kind of relationship you're dealing with, and that's when you get the final - finalized in writing - "this is our relationship" [disclosure]. MS. NOBREGA said that although, technically, this practice is not allowed under current statute, as a practical matter it is what occurs on a daily basis; therefore, [proposed subsection (d)] is intended to merely reflect current practice. CHAIR McGUIRE reopened public testimony on HB 257. REPRESENTATIVE GARA asked for a comparison between Version U and Version Q, which has already been reviewed by the committee at the bill's last hearing. MS. NOBREGA relayed that in addition to amending AS 08.88.396(d) - found on page 4, lines 14-17 - for the previously stated purpose, the "legislative findings and intent" language has been removed, as have the provisions, including their sunset, pertaining to the exemption of commercial real estate transactions. Number 1702 DAVE FEEKEN, Legislative Chair, Alaska Association of Realtors (AAR), noted that he is a real estate broker in Kenai. He confirmed that the AAR almost unanimously supports Version U, recommends the previously mentioned change, and urges passage of HB 257. REPRESENTATIVE GRUENBERG turned attention to page 4, lines 8 and 9, and sought confirmation that the addition of "representation" and the removal of "agency" merely conforms this language to that of other statutes in Title 8. MS. NOBREGA confirmed that. REPRESENTATIVE GARA, noting that the prior version intended to exempt commercial real estate transactions from the common law principles of agency, referred to Section 3, page 3, of Version U and mentioned that he is still uncomfortable with the possibility that deleting "agency" might also exempt a real estate licensee from the fiduciary duties that arise from the common law principles of agency. He asked Mr. Feeken whether the AAR believes that under the law of agency, fiduciary duties between real estate agents and the public should be maintained. MR. FEEKEN opined that because the abrogation of the common law principles of agency is not included in Version U, a licensee would still have common law fiduciary duties. Removing "agency", he posited, will merely standardize the language throughout the real estate statutes, wherein the licensee is referred to as a real estate licensee, rather than an agent. REPRESENTATIVE GARA argued: I guess I worry; it seems to me ... that if ... throughout the statutes we take out the words "agency", and throughout the statutes we indicate that we as a legislature intend that there's not an agency relationship, and if it doesn't state anymore anywhere in the statutes that there is an agency relationship, I'm worried that what we do could be interpreted as trying to abrogate the agency relationship. Is there some other place in the statutes that says there is an agency relationship if we take ... the word "agency" out of this section? Number 1891 MR. FEEKEN said he is not sure on that point. Instead, he offered that in the practices of real estate agents, fiduciary duties are governed by the common law of agency, which is not very simple to abrogate. He noted that although a number of states have attempted to abrogate portions of common law, none have them have done so successfully. No matter what the statutes say, the court system uses the common law of agency as its "guidance" in a dispute. REPRESENTATIVE GARA said, "So, if we did something in this bill just to make sure that ... the common law of agency would continue, I take it you wouldn't have an objection." MR. FEEKEN said no, because that's what's in place now. REPRESENTATIVE GRUENBERG offered that use of the word "representation" on page 4, lines 8 and 9, has the same effect as using the word "agency", and suggested that perhaps language could be added to clarify that point. CHAIR McGUIRE agreed to return to that issue after others have had a chance to testify. REPRESENTATIVE GARA mentioned that there are four points that still cause him concern. He turned attention to page 4, lines 14-17, and asked Mr. Feeken what the term "written preauthorized consent" entails and when it would come into play. MR. FEEKEN explained: What is common practice in the industry is, when you take a listing, or someone puts a property on the market, there's a discussion of agency at that time. And it's fairly common for the listing agent to obtain written, preauthorized consent to basically show the property themselves and enter into the potential dual- agency, dual-representation situation at that time. That was not clear in the [current subsection (d)] as to what happened when ... a particular buyer was found. The interpretation of the [current subsection (d)] was that that had to be reestablished in writing at that point. This [proposed new language] is just to clarify what's really the practice in the industry. Number 2028 REPRESENTATIVE GARA replied: I guess what I'm worried is happening here is -- I mean, I think we're both on board that we want customers to know if there's a dual agency at some point, so we want some sort of disclosure if that happens. I'm wondering whether this new language, by allowing a written preauthorized consent, gives the agent the right to, just at the outset of the relationship, state to the client, "Look, I'm not representing anybody else, I'm just representing you, but would you mind signing this form document that says you're giving me preauthorization to represent both sides if that ever occurs in the future." Is that the kind of document we're talking about? MR. FEEKEN explained that the document says that the seller acknowledges - or doesn't acknowledge, if he/she doesn't want it to happen - that there is a potential for that agent to move into a neutral position in which he/she will withhold certain confidential information, for example, what the seller is willing to take for the property and what the buyer is willing to pay for the property. These are the most common issues of confidentiality that the agent would retain. Condition of the property and "all of that" is still passed freely back and forth, he assured the committee. The seller, at the time of the listing, has the ability to reject that option if he/she prefers the agent to fully represent him/her through the entire process. He remarked that as a practical matter, such does not happen very often. He mentioned that this document would be presented to the client at the outset of the relationship, and he offered to fax members a copy so they could see the wording. REPRESENTATIVE GARA said that would be helpful. Number 2172 LINDA S. GARRISON, Broker, AAR #1 Buyer's Agency, first relayed that HB 257 would neither hurt nor help her company. She remarked that although testimony has indicated that the purpose of HB 257 is to bring statute in line with industry practice, there has been no mention that the bill would offer any additional public or consumer protection. She opined that current statute and common law work well as is. She suggested that the assertion that new disclosure documentation must provided to the seller every time a different prospective buyer looks at a piece of property is inaccurate. The agent has the option of simply telling prospective buyers that he/she represents the seller. In conclusion, she said that her concern centers around the fact that certain members of the industry are attempting to change the law to conform to how they conduct business, rather than conforming how they conduct business with current law, which, she reiterated, works well as is. Number 2266 DAVID A. GARRISON, Associate Broker, AAR #1 Buyer's Agency, said that although he could agree with the provision in the bill pertaining to written preauthorization and with the addition of "lessee" and "lessor", and would like to see those items move forward, he thinks that the rest of the bill could be gotten rid of. He then turned attention to page 3, line 3, and said that removing "agency" from that provision, which pertains to what real estate examinations may include, does not make any sense whatsoever because agency, not "real estate licensee relationships", is what needs to be taught. He mentioned, however, that if "real estate licensee relationships" were followed by ", agency", it might resolve his concern. He offered his belief that the reason [proponents of HB 257] want to eliminate "agency" is because "they don't even want to teach it." MR. GARRISON mentioned that he was one of the members of the AAR who voted not to support [the legislation]. He suggested that the committee keep the word "agency" in this proposed statute: Why call something, something else if it's still a duck?" He also mentioned that he would like to see the Real Estate Commission be responsible for creating the agency [disclosure] form that's to be presented to buyers and sellers, receipt of which is to be acknowledged at "first substance contact," just as it is responsible for creating the disclosure form that's to be presented to the buyer. On the issue of disclosing one's representation, that is something that can be added to one's e- mail messages so that every recipient is informed. In conclusion, he offered that the bill should be narrowed down to just fix the perceived problem of the agent having to get written authorization for each buyer in order to act in a dual- agency capacity. TAPE 03-49, SIDE B Number 2393 REPRESENTATIVE GARA said he still has concerns about the language contained in what is now proposed AS 08.88.396(e), which says: (e) The failure of the licensee to make a written disclosure as required by this section or to obtain a written acknowledgment or consent as required by this section does not give a person a cause of action against the licensee for the failure. However, this subsection does not limit a person's ability to take any other action or pursue any other remedy to which the person may be entitled under other law to recover for damages or losses suffered. REPRESENTATIVE GARA asked Mr. Garrison if it would trouble him, as an agent, to be held liable for not making written disclosure of dual representation. MR. GARRISON, in response, mentioned that the courts have held that although dual agency is not a good idea in the first place, it should definitely be disclosed if it is going to be done. He said he thought there definitely should be some strong punishment for failure to disclose, and suggested deleting all of [subsection] (e). MS. GARRISON added that any time the public's legal recourse is taken away, it negates the purpose of having checks and balances. CHAIR McGUIRE, after determining that no one else wished to testify on HB 257, closed public testimony. Number 2295 REPRESENTATIVE SAMUELS made a motion to adopt Amendment 1: page 4, line 17, delete "blanket" and insert "written preauthorized". There being no objection, Amendment 1 was adopted. Number 2259 REPRESENTATIVE OGG made a motion to adopt Amendment 2: page 3, line 3, after "real estate licensee relationships," insert "law of agency,". Number 2236 CHAIR McGUIRE objected for the purpose of discussion. She noted that testimony has indicated that the common law of agency will apply regardless of whether there is reference to it in statute. She then invited Ms. Nobrega to comment. MS. NOBREGA remarked that all last year, an agency task force has been discussing this issue. "We know that agency exists as far as real estate goes; whether or not we want it to exist and have a different type of relationship is something we've been discussing," she added. House Bill 257 does not abrogate the common law of agency, she stated. In response to a question, she said that neither she nor the sponsor object to Amendment 2. REPRESENTATIVE OGG said that Amendment 2 would merely clarify that the law of agency is something that a real estate licensee should know in order to pass a real estate examination. Number 2164 CHAIR McGUIRE withdrew her objection to Amendment 2, and asked whether there were any further objections. There being none, Amendment 2 was adopted. Number 2155 REPRESENTATIVE GARA made a motion to adopt Amendment 3, to reinsert "agency" on page 3, lines 13, 17, 19, [and 28]. He offered that doing so would clarify that the relationship remains an agency relationship. Number 2132 CHAIR McGUIRE objected for the purpose of discussion. REPRESENTATIVE GRUENBERG asked whether the same should be done on line 22. CHAIR McGUIRE pointed out that line 22 says "an agent" rather than "agency". REPRESENTATIVE GARA said he did not think altering line 22 would be necessary. CHAIR McGUIRE surmised that by reinserting "agency" on lines 13, 17, 19, and 28, Representative Gara is simply seeking to amend the areas of statute that refer to the agency relationship itself, which is not what the language on line 22 refers to. MS. NOBREGA indicated that Amendment 3 is acceptable. Number 2064 CHAIR McGUIRE withdrew her objection to Amendment 3, and asked whether there were any further objections. There being none, Amendment 3 was adopted. Number 2055 REPRESENTATIVE GRUENBERG made a motion to adopt Amendment 4, on page 4, lines 8 and 9, to [insert] "agency" in front of "representation". Number 2020 CHAIR McGUIRE objected for the purpose of discussion. MS. NOBREGA indicated that Amendment 4 is acceptable. Number 2011 CHAIR McGUIRE withdrew her objection to Amendment 4, and asked whether there were any further objections. There being none, Amendment 4 was adopted. REPRESENTATIVE GRUENBERG turned attention back to Section 4, which adds new subsection (e) to AS 08.88.396. He suggested that if the intent of that language is to excuse an agent from providing written disclosure at a particular point in time such as when a buyer first views the property, it might be helpful to have a conceptual amendment that specifies exactly that. Number 1971 REPRESENTATIVE GRUENBERG made a motion to adopt Conceptual Amendment [5]: [on page 5, lines 19-20] replace "as required by this section" with something like "at the time the person viewed the property". Number 1959 CHAIR McGUIRE objected. She posited that the goal of Section 4 is to clear up some misunderstandings that have occurred due to perceptions of what's required at what time. She opined that [Conceptual Amendment 5] would muddle the issue more. REPRESENTATIVE GRUENBERG replied that he merely wants to make Section 4 more specific than what is done by use of the term "as required by this section", which, he suggested, refers back to page 3, lines 14-15, which says: "at the time that the licensee begins to provide specific assistance to locate or acquire real estate for the buyer [or lessee]". Number 1901 REPRESENTATIVE GRUENBERG, after indicating a desire to change [Conceptual Amendment 5], made a motion to word it such that it would replace "as required by this section" with "at the time that the licensee begins to provide specific assistance to locate or acquire real estate for the buyer [or lessee]". Number 1881 CHAIR McGUIRE objected for the purpose of discussion. Number 1874 REPRESENTATIVE NORMAN ROKEBERG, Alaska State Legislature, sponsor, noted that there are other points in time to be considered; aside from that which is specified on page 3, lines 14-15, another point in time, for example, is referenced on page 3, lines 25-26. He offered that by using the term "as required by this section", the drafter is simply economizing on language, and thus [Conceptual Amendment 5] is redundant. He assured the committee that Section 4 will not abrogate the duties required by Section 3. Number 1802 REPRESENTATIVE GRUENBERG withdrew [Conceptual Amendment 5]. REPRESENTATIVE OGG suggested, however, that perhaps some standard language from the Uniform Commercial Code could be used to clarify the issue. For example, in dealings between individuals and/or business entities, the term "within a reasonable time" is used. Number 1759 REPRESENTATIVE OGG [made a motion to adopt Conceptual Amendment 6], to alter page 4, lines 19-20, so that it would read: "The failure of a licensee to make a written disclosure within a reasonable time as otherwise required by this section". He suggested that [Conceptual Amendment 6] would provide some clarity as to when written disclosure must occur, while still ensuring that someone making his/her best effort to comply will not be penalized. REPRESENTATIVE ROKEBERG argued, however, that Section 4 merely provides for a "licensing action," rather than a cause of action for damages. He said that although he appreciates Representative Ogg's concern, timeliness per se should not be grounds for a cause of action for damages; by inserting a specific time, the issue would then be raised to a level where it would have to be decided by the courts. CHAIR McGUIRE opined that the "reasonable time" standard would not engender a cause of action because it does not describe a specific time. She indicated that such language wouldn't be either confusing or burdensome. From the consumer's perspective, she added, timing is a part of meaningful disclosure; for example, if disclosure of agency representation occurs three months into the relationship, that disclosure is meaningless. REPRESENTATIVE ROKEBERG offered, however, that the language on page 3, lines 14-15, which says, "at the time the licensee begins to provide specific assistance", raises questions of what that is and when it occurs. Therefore, adding the phrase "within a reasonable time", would make the issue convoluted, he remarked. MS. NOBREGA added the comment that because the timing issue has become a subject of debate, staff in the attorney general's office is working on changes to the regulations in an effort to define what timeliness means. She suggested that at this point, nothing more should be added [to the language in Section 4]; instead, it would be better to allow the issue to be addressed via regulation. REPRESENTATIVE ROKEBERG said he would be happy to provide members with a draft copy of those [proposed forthcoming] regulations. CHAIR McGUIRE said she agrees that statute should not be written so specifically that it results in the micromanaging of activities over the long term. She said that upon further consideration, it is clear that Section 4 does refer back to and is triggered by the language on page 3, lines 14-15, which says, "at the time that the licensee begins to provide specific assistance to locate or acquire real estate for the buyer [or lessee]". She remarked that making changes to regulations sounds like a better way to address this issue. Number 1530 CHAIR McGUIRE said she would maintain an objection to [Conceptual Amendment 6]. REPRESENTATIVE GARA offered that there are two different problems being discussed. He elaborated: You're supposed to give written disclosure, and we want real estate agents to give written disclosure of a conflict. The question is, when do you give the written disclosure. And, generally, I don't think people really have a hard time with that: it's when you contract to do the work for the party. But if at some point somebody wants to better define that time period by regulation, that's fine - or even by statute, that's fine. So that's a separate problem. The problem raised by Representative Ogg is, should we let real estate agents off the hook when they don't give written disclosure of a conflict. And I ... recall the testimony the same way as related by [Representative Ogg], it was that ... we, as real estate agents, don't want to be held liable for failing to give somebody written disclosure on Monday, when we started the relationship, when in fact we gave it to them Tuesday or Wednesday or Thursday. And I understand that. So, I think that ... the suggestion by Representative Ogg - to insert somewhere in Section 4 that ... the written disclosure is provided within a reasonable time - is a good one, [although] we'd have to sit down and scratch out the language. But the moment you remove liability for not revealing a conflict is the moment you make the duty meaningless to a consumer. So, I think we can achieve the intentions of those who've requested this protection, but also do it carefully so that we're not throwing the baby out with the bathwater. Number 1447 REPRESENTATIVE OGG said that regardless of whether language such as is found page 3, lines 14-15, is placed in regulation, also altering Section 4 of HB 257 is not going to complicate the provision on page 3. All [Conceptual Amendment 6] will do, he opined, is to say that if and when regulations are changed to stipulate when that trigger is, then a licensee must make written disclosure within a reasonable time from that point in time stipulated by regulation. He posited that if [Conceptual Amendment 6] is not adopted, it exempts a licensee from ever providing written disclosure, regardless of what point in time is later stipulated by regulation. REPRESENTATIVE GRUENBERG remarked that his concern centers on the fact that "as" - which is used on page 4, line 20 - can be read in two ways. It can be read to mean either "at the time" or "in the manner." Thus line 20 could be read to mean "obtain a written acknowledgement or consent 'at the time' required by this section" or "obtain a written acknowledgement or consent 'in the manner' required in this section." He offered his belief that the intent was to have "as" mean "at the time," and suggested changing the language to that effect. REPRESENTATIVE ROKEBERG argued that the phrase, "at the time" is the crux of the problem "in the field, out there in the real world." When is that time? REPRESENTATIVE GRUENBERG, in response, pointed out that the remainder of HB 257 makes certain requirements. "And what we're doing here," he remarked, "is creating additional confusion by the way ... we're (indisc. - voice faded away) because of the word 'as'." REPRESENTATIVE ROKEBERG said he respectfully disagrees with Representative Gruenberg. "What we're talking about here is, what's the remedy; if there is a failure on the part of this type of a disclosure, and it's in the main a technical problem, then ... the bill provides for a lesser remedy than another type of cause of action," he added, "unless there was actual damages that occurred." CHAIR McGUIRE noted that the issue before the committee is whether to adopt [Conceptual Amendment 6]. She indicated that she is still maintaining her objection. Number 1187 REPRESENTATIVE GRUENBERG offered a conforming amendment to Conceptual Amendment 6 such that line 20 would read: "obtain a written acknowledgement within a reasonable time as required by this section". REPRESENTATIVE OGG indicated that he would accept that amendment to Conceptual Amendment 6. [No objection was stated, and the amendment to Conceptual Amendment 6 was treated as adopted.] REPRESENTATIVE GARA sought confirmation that Conceptual Amendment 6 [as amended] would mean that liability should attach if no written consent is provided within a reasonable time. REPRESENTATIVE OGG agreed. Number 1139 REPRESENTATIVE GARA made what he called a friendly restatement of Conceptual Amendment 6 [as amended]: "There should still be a cause of action unless the real estate agent fails to provide written disclosure within a reasonable time." CHAIR McGUIRE asked Representative Ogg if he accepts Representative Gara's [restatement] that "there should be a cause of action". REPRESENTATIVE OGG said he accepts. Number 1070 A roll call vote was taken. Representatives Ogg, Holm, Gara, and Gruenberg voted in favor of Conceptual Amendment 6, as amended. Representatives Samuels, Anderson, and McGuire voted against it. Therefore, Conceptual Amendment 6, as amended, was adopted by a vote of 4-3. The committee took an at-ease from 5:20 p.m. to 5:22 p.m. [during which Representative Holm indicated a desire to change his vote]. Number 1022 REPRESENTATIVE HOLM [moved that the committee rescind its action in adopting Conceptual Amendment 6, as amended]. Number 0977 A roll call vote was taken. Representatives Holm, Samuels, Gara, Anderson, Ogg, and McGuire voted in favor of the committee's rescinding its action in adopting Conceptual Amendment 6, as amended. Representative Gruenberg voted against it. Therefore, the committee rescinded its action by a vote of 6-1. Number 0952 A roll call vote was taken. Representatives Gara, Gruenberg, and Ogg voted in favor of adopting Conceptual Amendment 6, as amended. Representatives Samuels, Anderson, Holm, and McGuire voted against it. Therefore, Conceptual Amendment 6, as amended, failed by a vote of 3-4. Number 0939 REPRESENTATIVE GARA made a motion to adopt Amendment 7, to delete Section 5. He said he didn't think that [HB 257] should be applied retroactively. Number 0928 CHAIR McGUIRE objected. Number 0832 A roll call vote was taken. Representatives Gara, Gruenberg, and Ogg voted in favor of Amendment 7. Representatives Anderson Holm, Samuels, and McGuire voted against it. Therefore, Amendment 7 failed by a vote of 3-4. Number 0822 REPRESENTATIVE HOLM moved to report the CS for HB 257, Version 23-LS0893\U, Bannister, 5/1/03, as amended, out of committee with individual recommendations and the accompanying [zero] fiscal note. There being no objection, CSHB 257(JUD) was reported from the House Judiciary Standing Committee.
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