Legislature(2003 - 2004)

04/15/2004 01:30 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ 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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