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.