Legislature(2003 - 2004)
02/18/2004 01:04 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 29 - REAL PROPERTY TRANSACTIONS/LICENSEES Number 0086 CHAIR McGUIRE announced that the first order of business would be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 29, "An Act relating to real estate licensees and real estate transactions; and providing for an effective date." [Before the committee was CSSSHB 29(L&C).] Number 0100 REPRESENTATIVE NORMAN ROKEBERG, Alaska State Legislature, sponsor, relayed that the concept of SSHB 29 was brought forth by the Alaska Association of Realtors (AAR), and that a task force - numbering 30 to 40 people - was formed by the real estate industry to draft the specifics of the legislation. He went on to say: I had the fortune to rewrite the entire title under the real estate code, some eight years ago, and at the time, this particular section of the law ... [AS 08.88.396] was fundamentally left substantially untouched because the industry was still struggling with the current statute and how it applied in the field and what remedial legislation needed to be done. So, in a nutshell, I rewrote the entire real estate law without this section. REPRESENTATIVE ROKEBERG thanked the task force for all its work over the last two years in crafting SSHB 29, and said it is an excellent example of how the public process can work. He said that the hallmark of SSHB 29 is that industry, in crafting the legislation, defaulted in favor of the consumer. He opined that the consumers of Alaska will be substantially more protected by this legislation than they are by current law, and said he is proud to bring the bill forward. Number 0396 PEGGYANN McCONNOCHIE, Member, Agency Task Force, Alaska Association of Realtors (AAR), thanked Representative Rokeberg for his work on this issue. She went on to say: We're very proud to bring to you what we believe is the best consumer protection statute, or bill, that we could possibly provide in our area of real estate. First of all, you must understand that every licensee in the state of Alaska and all over the U.S. understands the need for consumer protection. After all, we're the ones who look in the eyes of the person buying their first home, or the person who's out to rent their very first property, or the person who's out looking at an investment property for the third or the fourth or the fifth time. We know they place their trust in us; we want that trust to be well placed. To give you a little bit of background, representation in our industry used to be, we all represented the seller - the buyer had no representation whatsoever. That, thank goodness, has gone by the wayside. We've moved to what the statutes currently allow now, where one agent may represent the buyer [and] one agent may represent the seller. But part of the problem with that process is this ugly thing that is called, within the statutes, dual agency. MS. McCONNOCHIE, in response to a request, said: Up until the law that currently is in place passed, which was in [the late 80s, early 90s], the law said that all real estate agents worked for the seller. So you'd go to a real estate company - say, my firm - work with an agent in my firm to sell your property, and no matter what agent out there at every other firm worked with a buyer who [potentially] wanted to see my property, they all worked, still, for my seller. Which, if you think about it, that's a rather difficult thing to do when you represent a seller who you've never met [and who] you have no personal feelings for. So consequently, trying to be a fiduciary for that seller, who works with somebody at another agency, was very difficult. We went away from that, thank goodness. So, if you and I were at different firms, [and] your firm had a seller who wanted to sell their house [and] my firm had buyer who wanted to buy your house - different firms - each party was equally represented, and that was better. We still, in our law today, have something called dual agency, where, in the same firm you can have one agent dealing with the buyer [and] one agent dealing with the seller and that buyer wants to buy that seller's property, ... we have to go to something called dual agency. The statutes and regulations we operate under now have a paragraph "about this long" that explains what the duties and responsibilities are, of the agents, to that seller and that buyer, and it's wholly inadequate. Number 0627 MS. McCONNOCHIE continued: With the passage of this bill, we will throw out dual agency. You must understand that we believe if lawyers can't practice dual agency, surely we can't either. So consequently, our goal, with this law, is to make the duties and responsibilities to the consumer more clear to the consumer and also to the licensee. To give you just a little bit of information, ... most of the agents - licensees - within the state belong to [the] National Association of Realtors [NAR]; they are, we are, a trade organization now of almost 1 million people. This is an organization that has looked at this whole issue of representation for many years. Back in about 1986, the [NAR] put on a survey; they surveyed people who have bought and sold, using a realtor, and asked them who they thought the realtor worked for. At that time, they thought the realtor worked for them, whether they were buying something or whether they were selling something; in point of fact, in 1986, the realtor usually worked for the seller. You could see how scary it was to get back that information. There are a couple [of] major lawsuits that talk about vicarious liability at that time, the Federal Trade Commission [FTC] got involved and they said, "You have to start to figure out how you're going to protect the consumer." Consequently, the law started changing and allowing, in fact encouraging, representation of each party. So [the] buyer had somebody there to help them look after their best interests, the seller had somebody there to look after the seller's best interests. In 1990, Representative Rokeberg worked with the [AAR], with our first task force, to put in the agency law we currently have in force today. One of the things you need to understand is that the laws and how we work with buyers and sellers throughout the United States has been in place, in many instances, since 1990, but in many instances, other states have gone through two, three, and four changes to their laws, recognizing that you don't necessarily get it right the first time. Number 0772 MS. McCONNOCHIE went on to say: We at the [AAR] have recognized [that] there need to be changes in the law since 1990; this, in fact, has been the third if not maybe the fourth major task force that we put together in order to try to figure out how to fix it. In many ways, we looked at this ... [to see if there were] some simple things we could do to make this better for the consumer, better for the person coming in, whether they're working with an agent to buy, sell, rent, or lease. It took us a long time to realize that we needed to do what many states - particularly the states of Washington, ... Nebraska, Montana, and ... Colorado - have done, where we have to start from scratch; we have to throw everything out and go from the beginning, saying, "What does a consumer need and want to know, how can we provide that information and protect their right for service, [and] protect their right to have trust?" Consequently we put together this task force. We had members from all over the state of Alaska. We had members from residential real estate - that practice in big firms and small firms - we had members ... from the commercial area, [and] from the property management area. And we looked very, very carefully at what was happening in Nebraska, for one, for example, because Nebraska is a state not unlike Alaska, where you have ... [a few] big towns and lots of little towns [and] big huge firms [and] very small firms. And we looked at how their laws have worked and whether or not the consumer has been protected in that state. We also looked at Colorado, ... Montana, and ... the state of Washington. Number 0869 MS. McCONNOCHIE also said: When we did, we saw that some of the commonality in those states, that worked well for the consumer, [was], for example, something called, "designated agency within a firm." In the current law and in the upcoming law, ... the broker will be the owner of the listings. But one of the things [other states] did to change it, to help protect the consumer, was when a consumer came in, and let's pretend that they wanted to buy something from you, then they were looking [at] another property that somebody wanted to sell ... [through] you, that consumer who had a relationship with you to buy would not need to forego your expertise to help them negotiate if they wanted to buy something that was also listed in the office. The broker could say [to two licensees], "You're designated to work for the buyer, you're designated to work for the seller." The rules and regulations say the [Real Estate Commission] will establish policy and procedures that the broker will have to have to prove that there is a firewall between the two agents, that the broker can properly supervise both agents [to] make sure that the two individuals are getting the best possible representation in that particular instance in that one office. It's called designated agency. And in the states that we looked at - Montana, Nebraska, Washington ..., and Colorado - it has worked extremely well in making sure that, number one, we get away from this ridiculous dual-agency thought process, and, number two, ... that the buyer, the seller, the landlord, [and] the tenant has an understanding of what the duties, rights, and responsibilities of the agent are to them. The second thing that we thought was incredibly important about what these other states were doing has to do [with] informing the public of what's going on. In each of those states, they have, within their statutes or regulations, the requirement for one, and I mean only one, pamphlet - and I hope many of you have this pamphlet that we worked on as far as a draft - that would be handed to everyone before they ... contract with [an] agent to use their services. One of the problems that you have today - it doesn't matter where you go, if you go ... from Juneau to Nome, Fairbanks to Kenai - [is that] every agency, every agent has a different form that they use. Imagine how confusing that is, especially when you're in a state where we all travel around all the time. Number 0992 MS. McCONNOCHIE relayed: In all of those [aforementioned] states there is one form - there is only one interpretation of what the law is, and it's very specific as far as what it requires from all of us - and it gives good notice, reasonable notice, hopefully in plain-English notice, to buyers, sellers, landlords, and tenants [regarding] what they can expect from their real estate agent. ... And we have found in all of those states, the buyers, sellers, landlords, and tenants found that this document, the fact it was [the] same everywhere, helped to protect them; they didn't have to worry about what was trying to [be] pulled on them ..., they could spend the time doing what they needed: finding a property that met their needs. We as an association, if you should be so kind as to pass this through, are making a huge commitment to you, because one of the things that we want to do and has been worked out through this bill, is we believe that there's two aspects of education that need to go on. First of all is the education of our licensees; they need to understand. We will be working with the [AAR], through the ... Real Estate Commission, in order to ... educate the licensees, [and] we ... have put together a team. Gordon Schadt, who's the attorney for the [AAR], and myself have volunteered to go throughout the state to every, what we call local board, which means every region, and teach all the licensees, whether they be a member of the [NAR] or not; if they have a real estate license, we want to teach them what this law requires of them and how they are to protect the public by using these forms. Number 1089 MS. McCONNOCHIE explained: The second thing we will do is we will also go throughout the state and train the people who turn around and train new real estate agents, because we know that unless a common educational format is put together and then passed out throughout the state, there is a chance that people may not necessarily be teaching other people how to do this correctly. That's just one part. The other part has to do with a public relations campaign, because, after all, it's in our best interest to make sure that we inform the public as to what this does to them, for them. We want to make sure the public understands how they're going to be better protected through this, that we get away from this ridiculous, antiquated idea of dual agency that can't work anywhere, that we make sure that they understand that they have a duty, right, and responsibility to get this form and it clearly outlines what the ... licensee can or cannot do when dealing with them. This, we believe, will be a campaign waged in a public relations format, using PSAs - public service announcements - throughout the state, and we're committed to help out with that. The other thing that we're going to be doing is working with the Real Estate Commission because, after all, there are several things that [it] ... will need to do. We have in this bill the requirement that a real estate broker must have on file, and made available to the Real Estate Commission and ... to the public, [documentation] on how they in their office deal with this idea of designated agency, keeping things confidential, [and] understanding the protection of the buyers', sellers', landlords', [and] tenants' rights. Number 1174 MS. McCONNOCHIE added: We don't want them necessarily to develop this in a vacuum, and we as an Alaska Association of Realtors are willing to work with the Real Estate Commission, as we're doing some drafts here, and to put together some draft policies. Understanding what will work in my office - my office is comprised of me, myself, and I - or what will work in Perry Underwood's office, where he has 80-plus agents, is not necessarily the same thing. So we will help them by providing some suggested ideas on how to work with small, medium, [and] large policies for small, medium, [and] large offices in small, medium, [and] large locations, because the Real Estate Commission will need to get that out to the "licensing public" so that the brokers will know where to go to get ideas on properly ... [providing] that firewall in designated licensees. We're also understanding [that] it is the Real Estate Commission's responsibility to give direction to real estate companies as far as supervising. Right now, if you take a look at [the subject of] supervision in our current statutes, it has maybe two sentences. And one of the things that this bill will do [is] it will direct the Real Estate Commission to more properly flesh out the supervision requirements, because, after all, we can put all the laws in the world in place today, but unless we tell brokers specifically how they need to supervise the ... licensees underneath them, we will have failed in our duties to properly protect the customer. So all those things are a part of this bill; this bill ..., I recognize, is not necessarily the easiest thing to digest, but there [are] several of us here and ... on line to answer any of your questions. Number 1277 PERRY L. UNDERWOOD, Member, Agency Task Force, Alaska Association of Realtors (AAR), relayed that in 2003, the National Association of Realtors (NAR) conducted a survey of 25,000 households that had recently purchased or sold a home. He elaborated on the findings from that survey: When buyers were asked, "How'd you find the real estate professional that assisted you," 58 percent responded with, "I had used that professional before," or, "I had been referred to that professional by a friend or relative." When asked the question ..., "Would you use that professional again," 74 percent of the respondents said, "Definitely," 15 percent said, "Maybe." That's an overall customer satisfaction rate of 89 percent. They also surveyed sellers as well: 83 percent of sellers ... of homes in real estate used a real estate professional. When sellers were asked, "How'd you find the real estate professional that assisted you," ... 67 percent said that they had used that professional previously or had been referred to them by a friend or relative. When asked the question ..., "Would you use this same professional again," 70 percent of the respondents said, "Yes," they would definitely use that person again, and ... 15 percent said, "Maybe," for an overall satisfaction rate of 85 percent for our industry. When asked the number one factor in determining who they would use for assistance in buying or selling homes, 47 percent of buyers and 62 percent of sellers listed the person's reputation as the number one criteria in selecting who they would they use to help purchase or sell their home. Why do I share these findings with you? It's simply this: Our [industry] is ... dependant upon repeat and referral business. We are in the ultimate consumer protection business. People hire us to take care of them, and if we don't take care of them, it's the end of our business. Now, are there people in our industry who sometimes forget why they're here and who they're supposed to be taking care of? Yes, there are. Will this bill eliminate that possibility? No, it will not. But ... today ... we are shackled with a 14-year-old statute that is burdensome to our industry and to the public, and it's time that we made a change. ... Number 1454 MR. UNDERWOOD continued: I just want to give you five points on what [SSHB 29] will do. [Sponsor Substitute for House Bill 29] requires a more thorough and timely disclosure of a licensee's relationship with the consumer. [Sponsor Substitute for House Bill 29] eliminates the implied requirement that a licensee must act as an agent for the consumer, while permitting the traditional client/agent relationship if the parties so choose. In short, it gives the consumer more options and choices. ... Third thing - huge - it eliminates dual agency and the problems inherent in dual agency, yet it allows licensees to sell their own listings. Dual agency is an antiquated concept that we need to get rid of, that, again, we're shackled with in the exiting statute. Dual agency - we just came off of the super bowl, and dual agency is like having a quarterback playing for both teams - it's just an impossibility that you can represent both sides [of] the transaction totally impartially; you just cannot do it. What [SSHB 29] does [is] it moves the licensee, in those rare situations where they are selling their own listings and they have a relationship established with both sides, away from the quarterback position into the referee's uniform - they are no longer the quarterback, they are the referee. So as a referee, you can be a neutral party, you can make sure that the game is played fairly and all sides are ... taken care of and assisted in a proper manner. The fourth thing that this bill does [is] it moves the relationship with the consumer to the level of the licensee actually representing the consumer, rather than the relationship being with the broker, who may never meet or have any conversation with the consumer. Yet the bill maintains the broker's requirements of supervision. Fifth, [SSHB 29] grants consumer protection from vicarious liability the consumer would normally assume [in a] traditional client-agent relationship. Number 1591 DAVE FEEKEN, Chair, Legislative Committee, Alaska Association of Realtors (AAR), offered the following comments: I was also involved with the 1990 bill. At that point it's important to understand that the industry was moving from a point of ... the agent [representing] the seller only. The point of the 1990 legislation was to put the seller and the listing agent on notice that the agent was probably representing the buyer. That was the whole point of it, that's why it's only a paragraph long. The industry has moved a long ways in the last [13] years. ... The task force that was created to do this ... piece of legislation that's in front of you has worked, I think, since June of 2001 on this issue; it's reviewed the statutes of 30 states. In 1990, when we passed that legislation, we were on the very cutting edge of it; we were the 13th state in the country to pass agency disclosure laws. The law that we passed in 1990 was Maine's law - we just took that bill and introduced it - they were the 2nd state in the country to pass agency disclosure laws. So that was at the very infancy of the entire process of public disclosure of agency. The [AAR] recognized ... the importance and value of legal input through ... this entire process; Gordon Schadt has been retained through all of the Agency Task Force meetings, of which, at the lower committee level, there were eight meetings that lasted a minimum of eight hours to come to this bill. At the end of every one of those [meetings] the drafts were circulated throughout the industry for input. So there's been a lot of chewing on this to get to this point. There was also input from NAR's legal staff ... so that we could review agency lawsuits from around the country to try [to] keynote the issues that were problems. ... We think we've [come] forward with a very good bill ... and I would like to conclude my testimony at this point. Number 1722 KIRK WICKERSHAM, Member, Agency Task Force, Alaska Association of Realtors (AAR), mentioned simply that he'd testified in favor of SSHB 29 in the House Labor and Commerce Standing Committee, and that he is available for questions. Number 1754 LINDA S. GARRISON, Broker, AAR #1 Buyer's Agency, opined that SSHB 29 does not give the consumer a course of action for any violations of [the bill], and that because of this, the state will end up getting involved in defending the rights of the consumer. She relayed that one of the definitions of dual agency is where, in a single company, one agent represents the buyer, while another agent represents the seller; in looking at the definition of designated agency, she pointed out, the broker appoints one agent to represent the buyer and one to represent the seller. She opined that the two are the same, and said she views designated agency as a rehash of "what went on years ago, and basically a smoke screen so the consumer will get away from the term, 'dual agency.'" Designated agency is more harmful, she remarked, because the consumer will not have protections, adding that she views designated agency as undisclosed dual agency. MS. GARRISON offered her belief that under designated agency, if the broker appoints a new agent to represent one of the parties and an experienced agent to represent the other party, the party with the less experienced agent will be at a disadvantage; in addition, there could be questions regarding whether the records are being "kept pure." She referred to page 11 of CSSSHB 29(L&C), lines 5-7, which read: Sec. 08.88.675. Common law abrogated. The common law of agency related to real estate licensee relationships in real estate transactions is expressly abrogated to the extent inconsistent with AS 08.88.600 - 08.88.695 MS. GARRISON opined that the entire bill will abrogate most of [the common law of agency]. Part of the protection that the consumer has, she remarked, is established by that common law: fiduciary duties, confidentiality, accountability, diligence, loyalty. By abrogating the common law of agency, a course of action for the consumer is being taken away. MS. GARRISON, in conclusion, pointed out that although the bill has a zero fiscal note, the Real Estate Commission is going to incur costs for creating the aforementioned pamphlet. If SSHB 29 passes, she added, "and we eliminate the rights of the consumer, I think we're going to have the state defending consumers against sections of this bill." Number 1945 STEVE CLEARY, Executive Director, Alaska Public Interest Research Group (AkPIRG), noted that there are recent newspaper articles regarding a real estate agent who is going to be suspended and fined quite a bit of money for failing to disclose dual agency. He said he is having difficulty determining whether SSHB 29 will actually get rid of dual agency or is merely purporting that disclosure of dual agency eliminates any harm to consumers. He indicated that his concern is that designated agency might be a way for large brokerages to delude consumers and ensure a larger commission. He opined that having two [agents] in the same firm acting for both the buyer and the seller would not be representing consumers to the fullest extent that they should be. MR. CLEARY said he is not sure that SSHB 29 puts back in the consumer protections inherent in [the common law of agency], pointing out that the legislative findings language purports that application of the common law of agency has resulted in misunderstandings and consequences that are contrary to the best interest of the public. He indicated that this language causes him to question whether all of the consumer protections inherent in the common law of agency - including the fiduciary responsibilities of agents - are going to be put back into effect by the bill. He remarked that a bill developed by a task force comprised solely of industry professionals might be tilted towards the side of industry and may not actually include the best interest of consumers. In conclusion, he said he would be happy to work with the sponsor and interested parties in order to see some of his concerns addressed. Number 2078 DAVID A. GARRISON, Associate Broker, AAR #1 Buyer's Agency, characterized designated agency as dual agency with "sheep's clothing on." He turned attention to page 11, lines 15-26, proposed AS 08.88.685, and opined that this language allows each company to come up with its own plan of how to implement "their agency." He remarked that this sort of activity is already occurring in Anchorage and offered an example. He said he believes that an agent should disclose whom he/she represents in much the same way that an attorney is required to disclose whom he/she is representing. He opined that better guidelines need to be developed so as to prevent each individual company from coming up with its own method of identifying and describing its relationships with consumers. "As we go further away from common law, we're getting more confusing for the consumer, and I think that we should stick with the common laws of agency," he concluded. CHAIR McGUIRE, after ascertaining that no one else wished to testify, closed public testimony on SSHB 29. REPRESENTATIVE GARA said it seems to him that the problem is that in almost every circumstance, "you want an agent to represent one side, and one side exclusively." REPRESENTATIVE ROKEBERG interjected to explain that it has been his intention to remove the word "agent" from all of AS 08.88 and replace it with licensee and/or broker. He said it is important to do this because the agency relationship is between a broker, as the principal, and a licensee, as an agent of the broker, not of the client, but there is a common misunderstanding regarding who a real estate agent is an agent of. The proper term should be licensee or broker, he concluded. REPRESENTATIVE GARA opined that it's not a simple matter of "just not calling them agents anymore." He elaborated: If you are an agent, you owe all these fiduciary duties to somebody. Once we stop calling you an agent, you don't owe them anymore. So it's not a simple matter of semantics - and that's going to be one of the issues I'd like to discuss - but right now, they're still agents. ... There is a problem that the folks who support this bill are trying to address, and I guess my question is, why couldn't it be addressed in a much more simple fashion, like this: Generally we want an agent to do what agents have historically done throughout the history of agency relationship, which is represent one party, exclusively, with due care, without hiding conflicts of interest. That's what we want them to do. Number 2311 In the real estate world, as it turns out, in some circumstances you will have an agent who works for a company where they represent both sides, and so we've got to come up with a fix for that problem. And at times you might want to have a real estate agent who sort of works as a mediator, as a neutral licensee who represents both sides. Why can't we just simply retain the [common] law of agency, say ... your ultimate obligation is to your client, and say that within big brokerages, where one broker within the brokerage might represent one party and another [broker] within the house might represent another, ... as long as there's a firewall between those two agents, it's okay. So, that solves the problem within big brokerages. And then why not say, very simply, [that] at times we will abrogate the duty of agency that the agent has to the client because you might want to hire a neutral agent. With a one-page document, you could sign something - both sides could sign something - saying we're hiring this [person] as a neutral .... So why couldn't the bill just be: you can sign this one-page piece of paper so [that] you can have a neutral in the circumstance where somebody wants a mediating agent. In a big brokerage you can have one broker who represents one side and the other broker who represents the other side, as long as there is a firewall between the two, and just be on with it, but then preserve all of these fiduciary duties that agents owe to the public, without abrogating them. Why couldn't we ... MR. UNDERWOOD, in response, said: I would ask each of you here to ..., in your mind, identify who you're insurance agent is. ... Now that you have someone in mind, let me spring the news on you: that agent is not your agent. That agent is an agent for [the] insurance company for whom he sells policies - travel agents, same thing. ... Because of the common use of the agent term, [the whole thing has gotten way out of line, and now we're getting our industry and the consumers saddled with the responsibility, and the vicarious liability, that goes along with the common law of agency.] [The previous bracketed portion was taken from the Gavel to Gavel recording on the Internet.] TAPE 04-17, SIDE B Number 2393 MR. UNDERWOOD continued: ... It's important to understand what an agent is. An agent is someone who has been hired by a principal to act on behalf of the principal. We in the real estate industry have never been able to act on behalf of a principal, to make decisions for them; that would require us to have a power of attorney. Under the common law of agency, we could make those decisions for people. That's why it's bad for the consumer to have this agency situation. Who does the agent act on behalf of? Who is the ... principal for the agent? The agents are empowered to act on behalf of someone. That someone is their broker. They can take listings on behalf of their broker, they can take earnest money checks, they can handle closings, they can negotiate transactions - all on behalf of their broker. But because of the use of the term "agent" over many, many years, it has gotten to the point where the public perceives that the agent is their agent. Now, I beg you to look at the other professions out there: ... attorneys, doctors, accountants. They represent people without becoming an agent for the parties they represent. They have a fiduciary duty to these clients; they have ... obligations of accountability, to protect their interests, to act on their behalf. That's what this law does; it says ... [that] when you're representing someone, these are your responsibilities: to act on their behalf, to represent them, to take care of their interests. Number 2324 MR. UNDERWOOD concluded: That's what this is all about, is to identify the responsibilities when people are ... representing another party. ... That's exactly what this bill does. It creates three different areas, or ways, in which we can serve the public. It creates that firewall, under the designated agency; it creates the ... opportunity for someone to serve as a neutral licensee; and it requires full disclosure and consent of all parties prior to them going into the transaction. ... Also, ... the default position is that they represent the person. ... [If someone] is working with a buyer or ... working with a seller, the default position is that they represent that person and have all these responsibilities - fiduciary and otherwise. You only move outside of that default position when you have informed consent. CHAIR McGUIRE asked Mr. Underwood to walk the committee through a hypothetical residential real estate transaction under SSHB 29. MR. UNDERWOOD indicated that the first step is when someone approaches a licensee to provide what's called, in SSHB 29, specific assistance; that person wants the licensee to find him/her a piece of property. At that point, the licensee becomes the person's representative and has full fiduciary duty to that person. He offered an alternative: the same person walks into an "open house." The licensee in that situation is responsible for letting that person know, right up front, when he/she walks in, that the licensee represents the seller or the builder. In the latter situation, he could not, in clear conscience, portray that he is a neutral party or is able to work for the buyer, nor would a jury believe him, he added. He explained that in such a situation, a licensee is required to disclose, right at that time, that he/she is representing the seller. The buyer in that situation may still choose to work with that licensee, or he/she may choose to seek out a licensee that can fully represent him/her as a buyer. Number 2193 CHAIR McGUIRE said it is important for a licensee to know that in the example of the open house, he/she should not attempt to encourage or sway the buyer toward going through him/her under the guise of perhaps getting a better deal. She said that she hopes the training for licensees includes that information. She relayed that she knows of instances in her district where the licensee has said something along the lines of, "You're free to go with somebody else, but I know the seller [or builder] pretty well ... and I can get you a good deal." MR. UNDERWOOD reiterated that from time to time, there will be licensees who "forget who they're here to serve and they forget why they're here." He said that although SSHB 29 will not cure that problem, it clearly sets forth what a licensee's duties to the consumer are. REPRESENTATIVE GARA, referring to the example of the licensee representing the buyer, asked why the common law of agency, along with its inherent fiduciary duties, should be abrogated. It's the [common] law of agency that establishes fiduciary duties, he added, so once that law is abrogated, so too are the fiduciary duties. He went on to say: "I understand that you put some back in, in this bill, but if the goal is to say, for you people who represent only one party, the law of fiduciary duties still applies, why take it out in this bill? Why not just leave it in place?" MR. UNDERWOOD replied: "It doesn't .... If you read, it says the common law of agency is specifically abrogated only where it is in conflict with this. So, if it's not addressed in this bill, then the common law of agency would then still apply." CHAIR McGUIRE noted that that language is on page 11, lines 5-7. REPRESENTATIVE OGG pointed out that language on page 11 [lines 11-14] limits recovery to actual damages. He asked whether the sponsor or the AAR would have any problems with adding language that allows recovery of more than actual damages in instances where the licensee acts with reckless disregard or behaves in a manner that is fraudulent or grossly negligent. MR. UNDERWOOD opined that such is not necessary because that language merely pertains to cases in which the licensee fails to make timely and proper disclosure regarding the licensee's relationship with the consumer; in any ensuing [civil] case, recovery is limited to actual damages. If, however, the licensee sold a home and didn't make proper disclosures about a physical condition of the property and it causes tremendous damage, he added, then there is the potential for the consumer to recover punitive damages in addition to actual damages. He noted that the language on page 11 [lines 11-14] 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. Number 1953 REPRESENTATIVE OGG suggested, however, that there might be instances wherein the licensee intentionally fails to disclose. MR. UNDERWOOD remarked that such would be very difficult to prove, but if such is proved, then the licensee could be subject sanctions from the Real Estate Commission, which still maintains authority over licensees. REPRESENTATIVE OGG indicated that he would prefer to see language in the bill that provides for punitive sanctions against those who intentionally fail to disclose. REPRESENTATIVE ROKEBERG noted that actual damages are intended to make the consumer whole, and suggested that a separate cause of action could be brought in instances where a licensee's actions warrant it, for example, if there is fraudulent activity "under a different theory of law." He, too, noted that the Real Estate Commission can still place sanctions against a licensee in addition to the bill's allowing the consumer to recover actual damages. He opined that SSHB 29 contains adequate consumer protection. In response to a further question, he relayed that licensees already know the possible sanctions that could be placed against them by the Real Estate Commission; thus there is no need to place additional language in the bill reminding them of those possibilities. REPRESENTATIVE OGG noted, however, that in addition to serving as punishment, the award of punitive damages can also serve as a deterrent. REPRESENTATIVE ROKEBERG offered his belief that the punishment should fit the crime, and suggested that current statutory and regulatory sanctions sufficiently address a licensee's failure to disclose his/her relationship in a timely manner. Number 1675 REPRESENTATIVE GARA offered his belief that current statutory language does provide for the recovery of punitive damages when a licensee engages in reckless disregard of another person's rights or in intentional misconduct, but that SSHB 29 seeks to remove that current right. He added that he did not see how taking that right away protects the consumer. Turning attention back to the issue of fiduciary duties, he said: I've looked at the bill more closely and I don't agree that we're preserving fiduciary duties. Fiduciary duties only exist if you're an agent. On page 1 of the bill, it says, on line 7, the application of the common law of agency is "... contrary to the best interests of the public". Then you go to page 11 and it says the common law of agency is expressly abrogated to the extent inconsistent with this new statutory scheme. Well, this new statutory scheme, essentially, makes most of the common laws of agency - the fiduciary duties - inconsistent. We've come up with a new scheme that's inconsistent with the old common law scheme. So the two statements, that the common law of agency is against the public's interest and that the common law of agency is expressly abrogated to the extent inconsistent with the thirteen pages of this bill, I guarantee you probably takes away most the duties of agency unless they're put back in, in this bill. And so that's the question. Are they put back in some other way in this bill? And I'm going to run through some of the common law rules of agency that I'm concerned we need to retain. ... The Restatement of Agency ... is a book that ... compiles the rules that apply in the law of agency. Alaska law follows them pretty closely; maybe there are a few extra duties that agents have under Alaska law that aren't in the Restatement of Agency and visa versa, but largely Alaska law follows the Restatement of Agency. ... The general principal is that unless otherwise agreed, an agent is subject to a duty to act solely for the benefit of the principal in all matters connected with his agency. That's the current duty; you act solely for the benefit of the person who hires you. I think that's an important duty. ... Number 1541 REPRESENTATIVE GARA continued: Section 389 of the Restatement of Agency [says] you're not allowed to act for an adverse party without the principal's express consent; unless otherwise expressly agreed, you work for one party - the person who hires you. ... I guess I do have trouble with saying that you can work for both parties if you give the consumer a seven-page document, that they may or may not read, that says, somewhere within the text of that seven-page document, that I'm going to represent two parties. I'd be much more comforted if it was a one-page document that was really express that hit the consumer over the head. But a seven-page ... form document worries me. Section 391 of the Restatement of Agency [speaks to] another fiduciary duty: unless otherwise agreed, an agent is subject to a duty to the person who hires him not to act on behalf of an adverse party in a transaction connected with his agency without the principal's knowledge. Section 392 [says] you can only act for an adverse party with principal's express consent - same concept. ... Section 394 [says] you can't act for somebody who's got conflicting interests to the person who hired you, again, unless otherwise agreed. Section 395 [says] you can't disclose confidential information, that the person who hires you gives you, to somebody else. And then there are a list of remedies that are retained. REPRESENTATIVE GARA concluded: The concern that I have with this bill is that a lot of those duties can be waived by a consumer by signing this sort of "form" five- or seven-page document that will be provided to consumers. And it will, in truth, be regarded as a form document that the consumer will sign. ... As I look through this document, nothing really hits me over the head that I'm letting somebody represent both sides of the transaction, [but] I'm much more comfortable with the current law that says the presumption is you're only representing one side. Number 1429 CHAIR McGUIRE remarked that a recent case in Anchorage has highlighted that under current law, there is some confusion for both consumers and licensees. In other words, she indicated, the points listed by Representative Gara have not been recognized. The purpose of SSHB 29, she opined, is to come up with a solution to the current state of confusion, and suggested that members bring specific amendments addressing their concerns to the bill's next hearing. She thanked the Agency Task Force members for their work on this issue. REPRESENTATIVE ROKEBERG, in conclusion, opined that the aspects of the Restatement of Agency that Representative Gara referred to are included in SSHB 29, and suggested that any "holes" created by the partial abrogation of the common law of agency are being filled via the bill. One of the practical problems, he remarked, is that neither consumers nor licensees know what the Restatement of Agency says. However, licensees are required to know the law as it pertains to them, and SSHB 29 is intended to codify the duties, obligations, and responsibilities of licensees, and doing so will also allow consumers to know what to expect from licensees. REPRESENTATIVE ANDERSON noted that restatements are not codified laws; they are simply "professorial statements." REPRESENTATIVE GARA pointed out, however, that most of the duties outlined in the Restatement of Agency are part of Alaska case law; "these aren't just sort of arcane things." He also remarked that one does not have to be a lawyer to recognize the basic fiduciary duty to exercise the utmost care to represent one party, and that most people who have duties under the [common law of] agency aren't lawyers but follow the duty of agency anyway. CHAIR McGUIRE referred to Mr. Underwood's comments regarding travel agents and insurance agents, and remarked that she agrees that there are still common misperceptions regarding "agency." She reiterated her request for members to bring amendments addressing their concerns to the bill's next hearing. Number 1141 REPRESENTATIVE ROKEBERG noted that in members' packets is [Amendment 1], labeled 23-LS0189\X.1, Bannister, 2/18/04, which read: Page 4, line 19: Delete "a pamphlet issued by the commission" Insert "a copy of the pamphlet established under AS 08.88.685(b)(2) and produced under AS 08.88.685(c)" Page 11, line 23, following "contents": Insert "and format" Page 11, lines 23 - 24: Delete "issued by the commissioner and provided" Insert "provided by a licensee" Page 11, following line 26: Insert a new subsection to read: "(c) Based on the content and format for the pamphlets established under (b)(2) of this section, a real estate broker shall produce and pay the costs to produce the actual pamphlets to be provided by licensees in the broker's business under AS 08.88.615(a)(6)." REPRESENTATIVE ROKEBERG remarked that [Amendment 1] would ensure that the private sector, rather than the state, pay for the cost of producing the aforementioned pamphlet. Number 1106 REPRESENTATIVE GRUENBERG remarked that Alaska is a common law state as opposed to a code state like California or New York, where everything is codified by the legislature. Accordingly, it is very unusual to have a provision in law such as proposed AS 08.88.675, which abrogates the common law. He characterized having such as very dangerous because of the potential for unintended consequences. There are so many different decisions on so many different points, and so many of these cases are factually driven, that the law is a different result because the facts are slightly but crucially different. He said: I have concern about that section. I don't have concern about codifying stuff, but I do have concern about throwing out the common law if its not exactly codified, because you can have all kinds of [problems]. So I would like us to be thinking about something in place of [proposed AS 08.88.675] so [that] you can have this stuff codified, and it's probably excellent material, don't get me wrong, but I don't want to throw out the common law that may be absolutely vital given a slightly different set of facts, because these judges actually, in some ways, are mini legislatures in the sense that they look at the best policy given the framework of the historical law and the statutory law and how it should be applied in a given circumstance. I'm very reluctant to throw out hundreds of years of [common law]; I don't have a problem with the bill, but I do have a problem with throwing out hundreds of years of [common law]. And that's kind of a general statement, and I'd like us to keep that in mind. We have immense power, in this legislature, and ... I'd want us to think carefully because ... if we're not really careful, we can do too much, and that can have serious problems on the development of the law, and I'd just urge us to be conservative. REPRESENTATIVE ROKEBERG remarked that Representative Gruenberg has made his case as to why the legislature should adopt the current version of SSHB 29, adding that there has been past discussion regarding whether to totally abrogate [the common law of agency] or abrogate only those aspects of it that are being codified via CSSSHB 29(L&C). He suggested that the judiciary will still have the flexibility to make allowances for unintended consequences. REPRESENTATIVE GRUENBERG said, "You have to be very, very careful or they'll feel they can't." CHAIR McGUIRE announced that SSHB 29 would be held over.
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