Introduction

After several attempts, the Missouri real estate agent industry has accomplished one of its major goals. On September 1, 1997, the new provisions of Chapter 339, RSMo, making significant changes to the law governing the practice of real estate licensees, became effective. One of the major purposes of the new law is to create a "statutory" agency which is intended to take the typical real estate agency relationship out of the realm of common law agency.¹ This article will summarize the new law and its potential impact on real estate related litigation. While the legal implications of attempting to abrogate the common law impact every aspect of these new statutes, this article will focus on certain specific provisions of the new law.

II. Impacting the Inception and Direction of Agency

Initially, the provisions of this new law set forth activities which real estate licensees may perform, but which do not by themselves create an obligation of agency. Much of the litigation involving real estate licensees focuses on the potentially misleading nature of a licensees involvement in a transaction. Despite regulatory obligations of licensees to make both oral and written disclosure of their agency relationship to other parties in the transaction, many claims against real estate licensees point to actions of the real estate licensee which may have created obligations to, or the appearance of a relationship with, a party other than the party with whom the licensee had a written brokerage or agency relationship. The new law specifically designates certain licensee activity which is deemed "ministerial" and, thus, does not rise to the level of active agency representation.² In accordance with this proposition, the law attempts to make clear that any presumption or implication of agency will not arise if a licensee is performing only ministerial acts.³ Under the new law, any licensee whose actions exceed those considered ministerial acts and who does not have an established written agency agreement stating the contrary will be presumed to be a limited agent of the buyer or tenant in the transaction.⁴

III. General Effect on Agency Obligations

The new provisions of Chapter 339 do not drastically alter the basic concepts of real estate agency. The basic obligations of reasonable skill and care, loyalty, accounting, confidentiality and, to an extent, obedience remain.⁵ However, under the new law, a licensee who enters into an agreement to perform the duties and obligations set forth in the new statutes becomes a "limited agent."⁶ The limited agent performs these duties and responsibilities for his or her "client."⁷ Other parties to the transaction, who are not in a brokerage relationship with a licensee, are referred to as "customers."⁸

Despite the retention of basic agency obligations, the statute specifically affords limited agents the right to represent other clients or assist customers whose interests conflict with the interests of their client without breaching any duty or obligation to said client.⁹ For example, § 339.730.4 specifically allows a sellers or landlords limited agent to show other properties to prospective buyers or tenants and to list competing properties without breaching his or her duty to the client. Although this type of practice has been common prior to the new laws, the codification of this concept is likely to afford the licensees with added protections by avoiding some of the uncertainty under common law concepts. However, while the practices have been common in "sellers agency," the concept becomes more precarious in buyers agency representation. The new laws are liely to result in an increase of licensees offering buyers agency, and while the law at § 339.740.4, RSMo, specifically allows the licensee representing a buyer to show properties in which said buyer is interested to other prospective buyers and to further assist the other prospective buyers in purchasing a property in which the licensees client is interested, the implication of such competing interests may cause significant issues for consumers. While the statute clearly allows this type of activity, neither the statute nor existing or proposed regulations thoroughly detail the licensees obligations of disclosure regarding these potentially conflicting interests.

In Missouri, real estate licensees have had the ability to represent both parties in a transaction as a dual agent. The concept of dual agency remains under the new law, with certain aspects of that relationship now codified. A dual agent is defined as "a limited agent who, with the written consent of all parties to a contemplated real estate transaction, has entered into a brokerage relationship with and therefore represents both the seller and buyer or both the landlord and tenant."¹⁰ The written consent to a licensee operating as a dual agent is often included as a provision in the brokerage agreement (i.e., listing agreement, buyers agency agreement, etc.) with the client.

A dual agent generally has the duties and obligations of a limited agent to each of the respective parties to the transaction. Obviously, the fiduciary duties specified in the statutes relating to a sellers limited agent and those for a buyers limited agent may lead to some conflict, particularly with regard to the sharing of information with one client about the other and vice versa. Fortunately for the licensee, § 339.750.3, RSMo, specifically states that a dual agent may disclose information to one client from the other if the information is "material to the transaction unless it is confidential information." Subsection 4 goes on to list certain information which the licensee is prohibited from disclosing as between the clients.¹¹ Unfortunately, it is not clear as to whether the list of information not to be disclosed constitutes the "confidential information" specified in Subsection 3.¹² In fact, the definition of "confidential information" in the new laws does not appear to clear up any of the confusion regarding such information under the prior laws.

Despite the fact that the new laws create a presumption of buyers agency, all types of agency under the law are required to be evidenced by a written agreement between the client and the broker. This agreement must contain the real estate licensees duties and responsibilities.¹³ Other required elements of these agreements are enumerated in the statutes and in existing or proposed regulations.

With regard to duties and obligations to customers, the new laws specifically require limited agents to disclose to customers all adverse material facts actually known or that should have been known by the limited agent.¹⁴ Despite a current regulation to the contrary, the statute states that a limited agent does not have any obligation, on behalf of a customer, to independently investigate the potential for certain adverse material facts or verify information provided by such agents client.¹⁵

It is important to note that customers are defined by the statute as consumers who have not entered into a brokerage relationship with a licensee.¹⁶ There is no provision in the new laws prescribing obligations to other consumers to a transaction, such as consumers who have entered into a brokerage relationship with another licensee. Take, for example, a transaction in which there is both a sellers limited agent and a buyers limited agent. On January 2, 1998, the Missouri Real Estate Commission proposed regulations which would relieve agents of any obligation to disclose their agency status to other parties who are represented by another agent, but the statute itself does not set forth the obligations of a sellers limited agent to such a buyer, nor does the statute detail the obligations of a buyers limited agent to such a seller. Arguably therefore, a sellers limited agent would also not have to disclose adverse material facts about which the agent knows or should know to a buyer who is represented by a buyers agent. Under common law, there was no distinction between disclosure obligations based on the other partys representation or lack thereof. Because of the lack of guidance on this issue, the authors of this article believe that the common law theories of agency and misrepresentation may still apply in such situations. Otherwise, the new law would suggest that an agent could wilfully withhold information about adverse material facts simply because the other party elected to have their own agent.

In concluding this review of the new laws impact on agency, it is important to note that this statute attempts to break the traditional vicarious liability ties that, under common law, often linked together the principal, their agent, and any subagents in defending misrepresentation actions. This statute purports to specifically abrogate such liability for the misrepresentation of others unless the party in question knew or should have known of the misrepresentation.^16a

IV. Designated Agency

The new statutes provide an alternative to dual agency in some situations, namely the concept of designated agency. At common law, if a broker entered into an agreement to provide brokerage or agency services, all licensees affiliated with that broker were deemed to represent the interests of that client. Therefore, if one affiliated licensee entered into a listing agreement on behalf of the broker and another affiliated licensee entered into a buyers agency agreement on behalf of the broker, any transaction involving both parties resulted in dual agency for the broker and all of his or her affiliated licensees. Under the new statutes, a broker may choose to implement designated agency, by which he or she can appoint, in writing, one or more affiliated licensees to represent a client to the exclusion of all other affiliated licensees.¹⁷ The appointed licensee(s) becomes the designated agent of the client.¹⁸ By utilizing this concept, the broker can designate one licensee to represent one party to a transaction and another licensee to represent the other party, while theoretically avoiding dual agency.

Because licensees in a designated agency arrangement retain all of the duties and obligations of a sellers or buyers agent, respectively, such licensees must take great care to prevent the disclosure of confidential information to licensees who may ultimately serve opposing parties in a transaction. In the typical real estate brokerage environment, where licensees do not operate out of private offices and all licensees have access to the same files and facsimile transmissions, there is a significant risk of revealing confidential information about a client to agents who represent other parties but have no obligation of confidentiality to the client in issue. This is not of significant concern in offices continuing under the concept of dual agency, since all affiliated licensees are immediately considered dual agents and the obligations of dual agency place significant restrictions on the disclosure of information.¹⁹

A number of interesting questions have arisen regarding designated agency. Perhaps the most important regards the role of the broker in transactions where his or her affiliated licensees are representing opposing parties to a transaction. It must be noted that brokerage agreements are contracts between the broker and the client, not the affiliated licensee and the client. In a designated agency arrangement, it will be important to clearly establish whether the brokerage agreement results in the broker having limited agency obligations to the client. If the brokerage agreement creates limited agency obligations for the broker, then the broker with one affiliated licensee representing the seller or landlord and one affiliated licensee representing the buyer or tenant in the same transaction will have two agreements for agency services and, thus, will most likely be a dual agent. However, the statute does not necessariy lead to this conclusion. Rather, it simply states that the broker

[s]hall not be considered to be a dual agent solely because such broker makes an appointment under this section, except that any licensee who personally represents both the seller and buyer or both the landlord and tenant in a particular transaction shall be a dual agent and shall be required to comply with the provisions governing dual agents.²⁰

While not yet taking any official position, it appears that the Missouri Real Estate Commission interprets this situation to be that such a broker will be deemed a dual agent (i) upon learning confidential information about either party to a transaction; (ii) upon being consulted by any licensee involved in the transaction; or (iii) in any event when the broker personally represents one of the parties but supervises a licensee who represents the other party. Current and proposed regulations from the commission require the broker to supervise all real estate related activities of licensed and unlicensed persons associated with them.²¹ This requirement seems to undermine the ability of a broker to remain "neutral" while designating agents to act on behalf of a seller and buyer who have each entered into written agency agreements with the broker and who are now involved in the same transaction. In any event, a broker should be advised to use great caution to ensure that both sellers and buyers have provided written consent to the brokers potential dual agency status in order to avoid undisclosed or nonconsensual dual agency. According to regulations proposed by the Commission on January 2, 1998, such written consent would relieve the broker in designated agency offices of the traditionally mandated dual agency disclosure upon occurrence of the events leading to the licensees dual agency status.

Other questions which may arise in offices utilizing designated agency include (i) determining how to make certain that brokers have complied with all statutory and regulatory disclosure obligations for their role in the transaction; (ii) determining what happens to the brokerage or agency relationship if the designated agent terminates affiliation with the broker, and (iii) determining whether individual licensees should purchase their own errors and omissions insurance. None of these issues are specifically addressed or resolved by the new statutes.

V. Office Policy

Under the new statutes, brokers must adopt a written office policy which identifies and describes the relationships into which the broker and his or her affiliated licensees may enter with consumers.²² The policy must clearly state whether the brokerage offers sellers agency, buyers agency, landlords agency, and/or tenants agency. The policy should have a clear statement identifying whether the broker is authorizing affiliated licensees to enter into brokerage agreements on behalf of the broker.²³ The policy must also specify whether the broker intends to make designated agency appointments. The office policy should address all rules and procedures of the broker and provide appropriate guidance to licensees for compliance with all laws, including the new laws discussed herein.

VI. Educating the Consumer

One of the most significant practical impacts of this new law on the day to day practice of real estate agents is the requirement that licensees distribute an informational pamphlet to any consumers not represented by a licensee. This pamphlet is to be provided at "the earliest practicable opportunity" during or following the licensees "first substantial contact" with consumers who have not already entered into a written agreement for agency services.²⁴ The pamphlet is referred to as the Broker Disclosure Form and has been prepared by the Missouri Real Estate Commission. Its purpose appears to be to educate the consumer regarding the different types of agency relationships available in Missouri, thus allowing the consumer to make an informed decision regarding agency representation. It is this information which may lead to an increase in the number of buyers agency relationships. It should be noted that the Broker Disclosure Form is not intended to disclose the agency status of the licensee providing it to the consumer. Rather, it is for informational purposes only.

The statute requires the licensee to try to obtain the signature of the consumer acknowledging receipt of the disclosure and specifies the procedures which must be followed if the consumer refuses to sign the acknowledgement.²⁵ Failure to comply with the procedures relating to the disclosure form is likely to result in disciplinary action by the Missouri Real Estate Commission. However, the new statutes do not address any civil penalties or causes of action for consumers in the event of failure to comply.

VII. Conclusion

While the additions and revisions of Chapter 339 of the Missouri Revised Statutes purport to make significant changes to the real estate agency relationship, it remains to be seen how the courts will interpret the desires of the real estate industry. For those attorneys representing real estate licensees, the new statutes may offer liability protections for issues that under the common law often resulted in significant liability but may also require special attention to the management of the licensees administrative and agency activities. For attorneys representing consumers (particularly buyers), these statutes arguably bring real estate transactions closer to the concept of caveat emptor. Judging by the uncertainty regarding the new law, its interpretation and application are likely to evolve through judicial and administrative decisions.

Endnotes

1 Section 339.710-339.860, RSMo 1997. Section 339.840 specifically states as follows: "Sections 339.710 to 339.860 of this act shall supersede the common law of agency with respect to whom the fiduciary duties of an agent are owed in a real estate transaction." The same section goes on to state that, "Sections 339.710 to 339.860 shall not be construed to limit civil actions for negligence, fraud, misrepresentation or breach of contract."
2 Section 339.710(15), RSMo 1997.
3 Section 339.720.2(4), RSMo 1997.
4 Section 339.720.2, RSMo 1997.
5 Sections 339.730.1, 339.730.2, 339.740.1, and 339.740.2, RSMo 1997.
6 Section 339.710(14), RSMo 1997.
7 Section 339.710(6), RSMo 1997.
8 Section 339.710(9), RSMo 1997.
9 Sections 339.730.4 and 339.740.4, RSMo 1997.
10 Section 339.710(12), RSMo 1997.
11 Section 339.750.4, RSMo 1997. This section provides that:
The following information shall not be disclosed by a dual agent without the consent of the client to whom the information pertains: (1) That a buyer or tenant is willing to pay more than the purchase price or lease rate offered for the property; (2) That a seller or landlord is willing to accept less than the asking price or lease rate for the property; (3) What the motivating factors are for any client buying, selling, or leasing the property; (4) That a client will agree to financing terms other than those offered; and (5) The terms of any prior offers or counter offers made by any party.
12 Sections 339.750.3 and 339.750.5, RSMo 1997, both refer to "confidential information" in a manner which seems to indicate that the list in Subsection 4, referred to in note 11 above, is not a list of "confidential information."
13 Section 339.780, RSMo 1997.
14 Sections 339.730.3 and 339.740.3, RSMo 1997.
15 Id.
16 Section 339.710(9), RSMo 1997. However, note that the definition of "customer" in the National Association of Realtors Code of Ethics includes "any" party not represented by "the" licensee, thus including those parties who have entered into a brokerage relationship with another licensee.
16a Section 339.810, RSMo 1997.
17 Section 339.820, RSMo 1997.
18 Section 339.710(10), RSMo 1997.
19 Section 339.750, RSMo 1997.
20 Section 339.820, RSMo 1997.
21 4 C.S.R. § 250-8.020.
22 Section 339.760, RSMo 1997.
23 Section 339.780.1, RSMo 1997.
24 Section 339.770.1, RSMo 1997.
25 Section 339.770.5, RSMo 1997.

-- Timothy J. Sigmund and Sherry A. Mariea are principals in the law firm of Mariea & Sigmund, L.L.C. in Jefferson City and both practice extensively in the areas of real estate agency law and general real estate law. They also provide consulting services and continuing education instruction to real estate agents, real estate agent trade associations, and brokerages across the state. Both are May 1992 graduates of the University of Missouri-Columbia School of Law.

© 1998, Sherry A. Mariea and Timothy T. Sigmund