New law puts agents in ‘neutral’ role

By Christine Dunn

Journal Staff Writer:

A new state law that goes into effect May 1 will bring a fundamental change to the way real estate brokers and agents operate in Rhode Island. The law will eliminate the current legal presumption that all real estate licensees represent sellers. Brokers and agents will be considered neutral unless they have signed agreements with clients stating otherwise.

However, the law does not change the way agents are compensated. In practice, sellers, who usually foot the bill for commissions, will likely retain that privilege. But the new law will “level the playing field” for buyers, according to Bruce Allen, of Remax Professionals in Newport, who chaired a task force of the Rhode Island Association of Realtors that worked to change the law

“It’s crystal clear,” said Sharon Steele, owner of The Sharon Steele Group, in Providence’s East Side. Steele also served on the RIAR task force. “There are no more assumptions about what you get.… Everyone starts out in this neutral position.”

“You must be proactive as a consumer,” she added, “ … telling the agent what role you want the agent to play for you.”

The new agency law, as it is known, will also do away with “vicarious liability” — the listing agent’s and seller’s legal responsibility for any misrepresentations made by any agents working on their behalf as “subagents.”

Michael Jolin, deputy chief of legal services for the state Department of Business Regulation, said the change of Rhode Island’s “antiquated” law governing real estate licensees is progress, and will make it easier for the changing industry to offer different business models.

Although buyers’ agents are able to operate under current Rhode Island law, the state is the only one in the country that still has a law that expressly presumes that licensees represent sellers’ interests.

“This is a much better law,” said Allen. “It’s more in line with what other states are doing.”

The new law will require real estate agents and brokers to present a new disclosure form to all prospective clients at the first personal contact or before an offer to purchase real estate, whatever comes first. The disclosure requirements apply to both residential and commercial real estate transactions.

Consumers will have the choice to select agents to represent their interests as sellers’ or buyers’ agents. The law will also introduce a new category of real estate service. “Neutral transaction facilitators” will be allowed to provide basic services such as handling paperwork and showings, without representing either side in a sale.

“Our concerns were that people were informed, and that written consent was crucial,” Jolin said. “It requires [licensees] to disclose what the different options are … so that the consumer can make a more informed choice.”

The new agency law also regulates instances in which individual agents are involved with both the seller and the buyer in a single transaction.

Under the new law, an agent who represents the seller and then has contact with a potential buyer can no longer legally represent both sides.

“You can’t serve two masters; this was our main concern,” Jolin said. “… It’s like representing both sides of a divorce.”

But with permission from the parties involved, and under the supervision of a licensed broker, this agent can become a “neutral dual facilitator” in the transaction.

In this case, confidential information that the agent may have about the seller — why the seller is moving, the lowest price the seller is willing to accept — should not be disclosed to the buyer. Similarly, an agent in this situation should not reveal any confidential information about the buyer to the seller: for instance, when the buyer needs to be in a new residence, or how much the buyer is prepared to borrow or spend.

“Talk about the house, not about the people,” advised Kevin Dumont, of Dumont Realty in Pawtucket, when he was teaching a class on the new law for agents this month.

“Either you’re neutral, or you’re serving one side or the other,” Jolin said.

Instead of becoming a neutral dual facilitator, an agent in this circumstance could also have another agent from the same office represent one of the clients, again with permission of the client and under the supervision of a broker.

The new law makes the rules “a little clearer and somewhat easier to follow,” Steele said.

Consumers will be presented with new forms by May 1 and the state association is working to prepare agents and brokers for the change with classes on the new law.

“It is, frankly, good for licensees, brokers and agents, but I also really believe it is very pro-consumer,” said Ron Phipps, owner of Phipps Realty in Warwick, of the new law. He said the elimination of subagency and vicarious liability “is a very good thing, particularly for sellers.”

“If you were doing things properly before, it will be a fairly easy transition,” Steele said. “… If you were not, this has a big learning curve.”

“Transitions, by definition, are always hard,” Phipps said.

cdunn@projo.com