Disclosure of Real Estate License - Posted by TJ

Real Estate Investing
#1

Posted by Ron (MD) on April 16, 2001 at 10:50:14:

Brenda,

When I first got my license, I thought it could be a profitable sideline, especially with the home prices here in Howard County. I started spending time in the broker’s office, took “floor duty”, etc. It didn’t take long for me to reach two conclusions: Most agents do a lot of unproductive wheel-spinning to make a modest income, and this was just a distraction from my real money-maker…rehabs.

I only act as an agent for myself. I occasionally will submit an offer for an investor/friend, but only if he has looked at the house without me. I don’t chase around looking at houses with any one.

My commission income in 1999 was about $10k and last year it was about $5k. Peanuts, no matter how you look at it. I list very few of my re-sales, although I will be doing more because I cut a very attactive deal with my broker. When I buy houses, my commission is only a few hundred dollars. But, office managers are not just evaluated based on their commission income. They also are measured based on their unit volume, which I am some help with.

I’ve never had any pressure from my broker to increase my volume. I’ve had two branch managers, who have both been real nice to me, despite my low volume. I am aware, however, that I could get the boot at any time. I try to make it to most of the weekly sales meetings, partly to be a “good citizen” and partly to keep abreast of what’s going on.

I’m with Long and Foster, which I prefer because other agents/brokers take you more seriously if you’re with a bigger name broker. However, if they do ask me to leave, there are smaller brokers that would probably be happy to have the nickels and dimes I bring in.

Regards,

Ron Guy

#2

Disclosure of Real Estate License - Posted by TJ

Posted by TJ on April 12, 2001 at 19:03:56:

I’ve heard it said over and over that Brokers and Licensees must disclose that status to the other party in RE transactions. In fact, this is often adduced as a reason why a real estate license actually DISadvantages investors. I always just assumed this to be true until I recently read in a California real esate law text that, at least in CA, there is no such requirment. The book in question even includes a letter of opinion by a Department of Real Estate official responding to the author’s inquiry about this, and that opinion letter states outright that the law nowhere requires this disclosure.

Does anyone have a definitive answer to this. Can anyone cite the statute or case-holding imposing mandatory disclosure. As a broker-invester I’ve always been perturbed by this pointless requirement. I’m heartened to think it may not exist at all. But so widespread is the belief that disclosure is required I’m still unnsure even after reading this law text.

#3

Re: Disclosure of Real Estate License - Posted by dewCO

Posted by dewCO on April 13, 2001 at 14:40:06:

If someone is licensed, and a Realtor, I wouldn’t think that you’d need any further explanation other than that your state real estate commission probably requires it and the realtor code of ethics does tooooo!

#4

Re: Disclosure of Real Estate License - Posted by Rob FL

Posted by Rob FL on April 13, 2001 at 08:34:42:

I can’t speak for California, but I know in Florida there is no law on the books requiring disclosure. Where the disclosure requirement is found is in the Division of Real Estate’s regulations for licensed individuals and firms, not in the legal statutes. You better look over the California regulations, because there is a good chance that the disclosure requirement will be found there.

I hear alot of people say show my the statute, show me the statute. Many times rules are created through the courts or through regulatory agencies and no statute exists.

#5

Re: Disclosure of Real Estate License - Posted by JPiper

Posted by JPiper on April 13, 2001 at 07:55:41:

A long time ago I had a California real estate license. EVERY time made an offer I disclosed my license status and other things. It’s been enough years now that I can’t remember anything about why I thought this requirement existed. But I did briefly scan through the California law last night…I couldn’t find it. Maybe you’re right…it doesn’t exist.

If it does not exist (the requirement to disclose license status in principal transactions), I am simply amazed. California, where there is a law for virtually everything, has missed this one??? Especially in light of the fact that MANY other places DO have such a statute. (I now use the term “many” since I have not read each of these statutes, and now wonder if any other states missed it as well.) My state and the adjacent state, in which I had licenses at one time, BOTH have specific statutory requirments to disclose license status.

But if I were you I wouldn’t gleefully go about NOT disclosing, ESPECIALLY in foreclosures in the state of California. One of the longest held principles of law in my opinion is that if they REALLY want to get you, they can. Once you’re licensed its more or less like holding a gun to your head.

For example, in California there IS a law that requires disclosure of material facts. Would a court deem it a material fact that YOU were a licensee??? You decide. But if I had a license in California I would continue to disclose. And I would particularly do so in the foreclosure area…an area full of land mines in California in particular.

JPiper

#6

Re: Disclosure of Real Estate License - Posted by David

Posted by David on April 12, 2001 at 22:43:20:

The California Department of Real Estate “Reference Book” has a two-page discussion on the topic of licensee’s acting for their own account.

It seems to center on the licensee that occupies the status of agent AND principal, e.g., a broker employed to sell property is also given an option to purchase. They make it very clear that disclosure is required if the agent chooses to exercise the option. I don’t think that is what you are referring to however.

I believe you are referring to the licensee NOT acting as an agent, only a principal. I too have never seen anything to indicate the necessity to disclose licensee status in this case, but have been told many times it is necessary.

Assume for a minute you are correct that disclosure is not required of the licensee acting only as a principal. It seems to me (maybe I’m paranoid) that a buyer or seller could easily make your life totally miserable by simply asserting that they believed you were an agent…perhaps they know you are an agent in other deals, and therefore thought you were acting in that capacity for this deal.

Even if disclosure is not strictly required, maybe you should consider disclosing anyway.

Btw, what’s the name of the book?

David

#7

Re: Disclosure of Real Estate License - Posted by Ron (MD)

Posted by Ron (MD) on April 12, 2001 at 22:03:48:

TJ,

I’m a full time investor with a RE license.

I just don’t understand the problem with disclosing it. I’ve always treated this written disclosure like the minor formality it is. I’ve never had a buyer or seller even blink.

Some investors discourage others from getting licensed because they claim that this disclosure is likely to scare off sellers or buyers who will fear that you will use your knowledge to take advantage of them. That holds no water, as far as I’m concerned. I just don’t see why either a buyer or seller would trust an investor, but not a realtor.

Ron Guy

#8

Here it is ==> - Posted by Redline

Posted by Redline on April 12, 2001 at 21:45:02:

Article 4 - National Association of Realtors
Code of Ethics and Standards

“REALTORS shall not acquire an interest in or buy or present offers from themselves any member of their immediate families, their firms or any member thereof or any entities in which they have any ownership interest, any real property without making their true position knwon to the owner or the owners agent. In selling property they own, or in which they have any interest, REALTORS shall reveal their ownership or interest in writing to the purchaser or the purchasers representative.” (Amended 1/91)

#9

Re: Disclosure of Real Estate License - Posted by frank

Posted by frank on April 12, 2001 at 20:47:24:

ME TO!!! Thirty years as a CA broker and just last week
the local office of DRE told me I don’t need to disclose when dealing on my own account.
frank

#10

Yes, but… - Posted by TJ

Posted by TJ on April 13, 2001 at 18:28:44:

The point is, in my state of CA the Real Estate Commision does NOT require it. ( Show ME The Regulation/Statute/Case !! ) As for the Ass. of Realtors - who cares? I’m not a member, not required to be, and not bound by their hairbrained “ethical” codes.

#11

Re: Disclosure of Real Estate License - Posted by No Such Reg Here

Posted by No Such Reg Here on April 13, 2001 at 18:22:21:

If you re-read my post you’ll see I said the author of the CA RE law book, a serious expert in his own right, posed the question TO a the “CHIEF LEGAL OFFICIAL” at the CA DRE. He provides a copy of the officials word-for-word response. I quote from that official: “I know of no statutory law, regulations nor decisional law which imposes any special duty upon a real estate licensee acting exclusively as a principle in a real estate transaction.” The exception pointed out in another post - when a agent for a seller also has an option on the property (usually a right to buy it himself at a certain price and terms if he cannot solicit a better offer) - is no exception at all. It deals with a situation where that licensee has an option (a legal interest) in a property he is supposed to be marketing to others while he has an agency contract with the seller. It has nothing to do with the lease-option deals generally discussed on this board where the optioner-buyer is strictly a principle with no duties to the seller.

“Agency” and “licensee”, often used interchangable out of convenience, are by no means legally synonymous terms. I can be someones’s agent without a license (though not in RE). For instance, each partner is a legal agent for a partnership entity. Conversely, if I happen to be a licensee, even when I’m buying or selling a property, I am no ones agent at all unless I have an agreement with someone to represent them. If I’m acting for myself the higher duties imputed to agency do not come up at all.

Apparently in CA there is just no duty to disclose. I find it facinating nonetheless how people hate to let go of even an adverse fallacy when they have grown so accostomed to the belief.

P.S The book is California Real Estate Law, by Gordon. See p. 386-7. I recommend the book.

#12

“Show Me The Statute” - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on April 13, 2001 at 12:01:42:

Rob,

I’m one of those who, when told that something is illegal, responds with “show me the statute”. The normal response to my plea is silence or some noncommittal rhetoric because normally the person who’s telling me something is “illegal” doesn’t know what they’re talkin’ about.

If, however, they came back, not with a statute, but rather with a rule, regulation, or case precedence, I would react the same as if it had the force of law. When I say “show me the statute”, what I really mean to say is “show me any statute, law, rule, regulation, code, or court ruling” that supports your contention that what I’m doing is in any way inappropriate.

Also, if someone were to raise a point which led me to believe that there was some cause for concern, you can be certain that I would investigate the matter myself.

Just my 2¢.

Best of Success!!

Jim Kennedy,
Houston, TX

#13

No Such Thing AS Agent Principle - Posted by Tj

Posted by Tj on April 13, 2001 at 01:14:19:

Actually, as a matter of codified legal definition (I’ve read the statute but cannot cite it off-hand) there is no such thing as an agent-principle. This is just a fuzzy term people casually use to describe a broker who happens to be acting on his own behalf in a given transaction, and it is a simple misnomer.

“Agent” is defined by law, including the DRE’s usage of the term, as one authorized to act on behalf of the interests of ANOTHER. One cannot legally or logically be an agent for oneself. This is not a mere semantic technicality; it has definite legal import. The purpose of creating the legally recognized status of agent is not only to empower someone (usually with special knowledge) to represent another but to impose on that appointed representative a fiduciary duty to place the interests of the principle in the highest regard and even before ones own interests. One might say he holds the power to act “in trust” for the principle. Agency relationships are not unique to real estate and crop up many business contexts.

“Agency” is a RELATIONSHIP. The concept has no application when a person is acting strictly on his own. That is precisely why, as noted in the post above, an agent who represents a Seller and also has an option to Buy must disclose his status to potential Buyers - he might otherwise more easily compromise the sale because of his own covert intentions to buy the property - on better terms. Supposedly, putting buyers on notice that he too has an interest in acquiring the property will help keep him honest. The disclosure, nonetheless, is not for the sake of the potential Buyer even though he too may lose out if the broker succumbs to a conflict of interest. It is to protect the Seller-principle, who is the one he owes a duty to by virtue of a legal agency relationship.

The point is, the opposite party in a transaction cannot “accuse” a Broker who is plainly buying or selling something himself of acting in the capacity of an agent, because he can’t be.

Is it possible this whole mandatory disclosure thing is a myth?

#14

Re: Disclosure of Real Estate License - Posted by JPiper

Posted by JPiper on April 13, 2001 at 08:13:15:

Ron:

I don’t think the issue has ever been that buyers and sellers would not deal with you. I had licenses in several states for years, and never found that to be a problem.

What I do think is a problem is the heightened scrutiny with which a court can view a licensee…the added expectations that can legally arise out of license status.

The fact that you disclose your license is only one element involved. Let’s suppose for example that you perform acts that someone later concludes WERE an act of agency. The fact that some sort of implied agency existed could then conceivably be used to to decide that a fiduciary relationship existed. Once that idea has been decided, you definitely have a problem…read through the principles of fiduciary relationships sometime to see if you agree.

So when the day comes that you buy a property from a little old lady at a VERY good price (to you), later make a substantial profit, and the little old lady hears about it via a friend in the neighborhood, could she conceivably sue and win…using the idea that perhaps there was implied agency due to the existence of your license, and you should have better explained “values” in the area. It’s a stretch…but I think the risk exists nonetheless.

I also wonder for example whether your advertising carries disclosure of your license status. In some states you may have some type of requirement to insert disclosure on signs, newspaper ads, flyers, etc. Does this exist in Maryland?

In one state that I had a license in, licensees had “special” statutory requirements when dealing with properties that were in foreclosure. These special requirements were equivalent to tying one hand behind your back.

I don’t believe this decision of license versus no license would revolve primarily around whether you disclosed in an offer that you were licensed. There are other considerations of the type above that may be much more important.

JPiper

#15

I Agree… - Posted by TJ

Posted by TJ on April 13, 2001 at 01:27:55:

I too am a full time investor “moonlighting” as a commercial broker (representing others) by day. I agree the drawback of the disclosure thing is greatly exagerated and I’ve never found it a convincing reason to avoid becoming a broker. That said, let’s face it: There are situations one would rather not come across as a professional. For instance, I’ve recently begun to dabble in preforeclosures. I’m finding it’s hard enough to overcome people’s initial suspicion (and just plain wierdness) without making them think I’m some kind of slick pro out to “steal” their property, trick them or what not. Therefore I often pose as just some unassuming guy looking for a nice house. I just don’t see any point in mandatory disclosure.

#16

Not all licensees are Realtors… - Posted by David

Posted by David on April 12, 2001 at 22:54:16:

I was a broker for four years and never became a Realtor, so that rule doesn’t apply everybody.

David

#17

Re: No Such Thing AS Agent Principle - Posted by David

Posted by David on April 13, 2001 at 10:39:43:

The term “occupies the dual status of agent and purchaser” is a DRE term, not mine. They are referring to the broker that takes a listing and option (or net listing), markets for a while then exercises the option. While he was never an agent-principal at the same time, he transitioned from agent to principal?requiring disclosure according to the DRE reference book. I know you are not suggesting this scenario.

But?imagine you get an option as a principal and you don’t disclosure your license status. You later contract to sell at a nice profit, do a double close by simultaneously exercising your option to buy and contract to sell. This is what investors do. The seller later complains to your supervising broker, writes a letter to the DRE and files a complaint in civil court claiming the seller thought (ostensible agent maybe) you were acting as an agent, but made a big fat profit for yourself instead.

Do you think you might have a problem? Do you think this problem might have been mitigated, or avoided if you had disclosed if writing that you were a licensee acting as a principal? I don’t think it matters if you win or lose, you lose.

I think mandatory disclosure in CA is a myth. But I have always made this disclosure, until I dropped my license, now I don’t have to even think about it. The MLS? They keep sending me renewal notices and I keep renewing, so I have still have MLS. I don’t use MLS much, not necessary, sales data is available elsewhere that is more complete and more accurate.

#18

Re: Disclosure of Real Estate License - Posted by Ron (MD)

Posted by Ron (MD) on April 13, 2001 at 08:54:01:

Jim,

I think you’re right that having a license does add some potential legal exposure. However, I think that exposure is minor. I really like the personal access to the MLS system and, if I could get it some other way (even at higher cost), I probably would. Since I sell most of my rehabs without listing them, the only commissions are when I buy my junkers…nickels and dimes, really. The commission income I derive from my license is too small to be a real factor.

You also asked an interesting question about advertising. I currently have a complaint pending against me. I distributed some We Buy Houses flyers and one of the recipients angrily called me, accusing me of blockbusting. That charge has no basis, but he also asked if I (or my company) is a real estate agent. I told him I am licensed, but acting as an employee, not an agent. He filed an angry complaint with the RE Commission, with his primary charges being: 1.) blockbusting, 2.) not disclosing on the flyer that I have a license, and 3.) the tackiness of my florescent pink flyer.

My broker’s office manager (the broker is one of the top couple in Baltimore) thought at first that I should disclose on all of my ads, flyers, signs, etc. that I am affiliated with the broker and a licensed agent. That made no sense to me, because I am only one officer/employee of my company. I am licensed, but the company is not a broker. Also, if the other officer/employee (i.e., my wife) happened to be licensed with a different broker, would we have to disclose relationships with both brokers in every classified ad, etc.? Well, once the complaint went beyond my office manager to the broker’s legal department, the belief was that it made no sense for me to disclose my broker in any ads, unless the house was listed with that broker (which most are not). Secondly, I signed a standard agreement (that my manager didn’t know existed) between my broker and me saying that I am involved in RE transactions that do not involve the broker.

My broker and I responded to the RE Commission about a month ago, and have heard nothing further.

This has been a minor headache that would not have come up if I didn’t have license (or if the complainant had anything better to do with his time). Nevertheless, I buy most of my houses through MLS and would hate to rely on an agent to check new listings every day. I also closely monitor my territory through MLS…what houses go under contract, what they sell for, etc. I’d truly hate to lose the access.

Regards,

Ron Guy

#19

Ron - question re: agent activities - Posted by Brenda (MD)

Posted by Brenda (MD) on April 16, 2001 at 09:17:49:

Ron,

Do you have a lot of business as an agent, other than your own deals? If so, does it keep you too busy to spend a lot of time on your own business. If not, doesn’t the broker you work for get kind of peeved that you’re not doing more agent business (and earning the company more commissions?)

Thanks,
Brenda (MD)

#20

Re: Disclosure of Real Estate License - Posted by JPiper

Posted by JPiper on April 13, 2001 at 09:17:02:

Your story is an example of the potential problem that a license could have. You can see that even here on this board where the immediate impulse is to report the agent/broker to the REC or the Board of Realtors if there is a license.

Offsetting that is exactly what you mentioned…the ability to access the MLS. I agree that this tool is invaluable. For me it’s never been a primary source for deals…but I use it extensively to establish values.

I think I could function easily without this though if I had the ability to access sales via some of the alternatives like Metro Scan, etc. Several of them around. While it’s available in my area, sales price is not a public record item…and therefore it doesn’t work here in my area for that. Might be something to look at though in your area if it is viable.

I think the REC law is really not designed with an active investor/licensee in mind. Especially not a guy with a corporation, etc etc etc. So when they write these disclosure laws they write them in ways that have logical inconsistencies. You mention one of them.

JPiper