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The Legal Blog, brought to you by NVAR's Professional Standards department, helps you stay on top of the latest rules and regulations in the industry.

Limited Service Limbo - What Rules Apply?

Aug 9, 2016

Listings

Question: I represent a buyer who wishes to make an offer on a property listed by a limited service broker. The seller is reviewing our offer and asking me many questions. May I answer his questions?

Answer:
This is often a difficult situation to gauge. We have been trained to be wary of “going behind the sign,” i.e. violating Article 16 of the Code of Ethics as well as Virginia agency laws. In a limited service situation, the listing broker has typically not contracted to do more than list the property, much less assist the seller in evaluating an offer. The new limited services provisions in the Code of Virginia allow a standard agent to provide to the party represented by a limited service broker the following: (1) information about the transaction and/or (2) aid in securing the contract or performing any contract obligations.

However, it is important to note that these services must be provided to the other party free of charge. The buyer agent can also offer a menu of services for a fee to the seller represented by a limited service broker.

One of the concerns for the buyer’s agent is whether he or she created an unintended dual agency situation by aiding the seller in the transaction. If you are involved as a buyer agent in a transaction with a seller represented by a limited service broker, you may want to provide the seller notice that you represent the buyer and not the seller. In addition, you may want to limit the amount of advice you provide to ensure that you do not appear to represent the seller. Of course, this is easier said than done. If you withhold too much assistance to the seller, he or she may be unwilling to transact with your buyer. So perhaps a solution is to refer the seller to alternate sources of information, or suggest that the seller speak with an attorney.

Question: The seller is represented by a limited service broker. The buyer has reason to believe that the furnace in the property emits high levels of carbon monoxide. As the buyer agent, I have tried to contact the limited service broker to obtain the information, and I was informed this was not part of the services for which he was contracted. Does the limited service broker have a duty to disclose this information?

Answer: This question requires a two-step answer.
The Code of Virginia has made it clear that a limited service agent/broker “shall provide the client, at the time of entering the brokerage agreement, copies of any and all disclosures required by federal or state law.” In addition, the limited service broker shall disclose to the client the following in writing: (1) the rights and obligations of the client under the Virginia Residential Property Disclosure Act; (2) the rights and obligations of the client to deliver or receive the condominium documents or the condominium resale certificate, as applicable; and (3) the rights and obligations of the client to deliver or receive the Property Owners Act association disclosure packet, as applicable. Furthermore, the limited service broker must disclose to potential buyers all material adverse facts pertaining to the physical condition of the property actually known by the broker. This requirement is the same as for a standard agent. The Code of Virginia, therefore, requires a limited service broker to disclose the presence of carbon monoxide (a material adverse fact pertaining to the physical condition of the property) if he actually knows about it. However, a limited service broker often has access to much less information than a standard agent and, therefore, may not actually know of the material adverse fact.

The Code of Ethics does not differentiate between the duties owed by a Realtor® engaged as a limited service agent and those of a standard agent. Article 2 of the Code of Ethics requires that Realtors® discover and disclose adverse factors reasonably apparent to someone with their expertise. However, they are not required to discover and disclose latent (hidden) defects in property or to advise clients or customers on matters requiring specialized knowledge and training not required by the state licensing authority or in the Realtor's® area of expertise. Standard of Practice 1-2 helps define this duty. The duty is to discover and disclose "adverse factors reasonably apparent."

Is the defective furnace an “adverse factor which is reasonably apparent?” The answer lies in the listing agreement. If the listing broker's agreement did not involve an inspection of the property, then it is hard to say that a defective furnace would have been an adverse factor reasonably apparent to the listing broker. As a result, the listing broker would only have a duty to disclose this adverse factor if he had inspected the property.
Group(s):
  • Listings