How Will the New Dual Agency Disclosure Law Affect You?

Attention all California CRE Agents!  A law was passed in August 2014 by Governor Jerry Brown known as the real estate broker agency disclosure bill (SB 1171). Starting on January 1, 2015, it requires commercial real estate agents in California to disclose buyer and seller relationships.  Real estate legislation on the commercial side has long favored landlords or sellers.  This law intends to bring much needed protection to buyers and sellers, but especially the former.

Previously, landlords held the advantage whenever a broker represented both the seller and the buyer. This is because landlords provide most of the remuneration in a transaction.  So to make a transaction economically desirable for the landlord, there could be internal talks about how much to charge for a building, looking at various factors such as the local market, how much a buyer will be willing to pay, etc. Legally, this cannot happen starting next year. Brokers/agents will have to act as messengers.  Instead of potentially relaying confidential information to sellers (e.g., what is the maximum a buyer is willing to budget for their property), agents can only communicate information that is willing to be shared to the other party. The new regulations also prevent buyers from getting private information from agents (e.g., what is the lowest a seller is willing to sell their property for).

Many professionals in the commercial real estate world felt that legislative action was needed.  In fact, one of the instigators of the bill was Jason Hughes, President and CEO of Hughes Marino, a San Diego based commercial real estate agency. Prior to the governor signing the bill into law, Hughes hoped that the industry would become more transparent when it involved dual agency disclosure. More than two years after he had conceived the idea, he asked State Senator Ben Hueso to sponsor the bill for him. After senate and assembly approval, Governor Jerry Brown approved the Senate Bill on August 15th.  In a press release, Marino said, “no longer will clients be duped by thinking the broker is looking for their best interests when, in fact, he or she might be in a hugely conflicted position.” Stuart Beilinson, an agent with Commercial Brokers International, shares the same sentiment. He adds that real estate agents are not doing their jobs if they are participating in this scheme.

Interestingly, these rules already apply to residential real estate. In fact, they have for several years. It appears illogical that a bill was not passed concurrently so that both residential and commercial real estate would be covered.  Nevertheless, commercial agents will now be on equal footing with residential realtors in the level of transparency required when representing a buyer, seller, or both. It will be interesting to see how commercial agents/brokers react to this law. Will representing both a buyer and a seller become too much of a legal burden?  Also, how will buyers or sellers react, assuming they know such a law has been passed? Should they be worried about being represented by a dual agent?  Should they have been in the past?  In any case, the written disclosure will provide much-needed protection for both buyers and sellers.