Homebuyer-protection law panned Consumer group calls it 'inadequate'

January 06, 1993|By Ellen James Martin | Ellen James Martin,Staff Writer

WASHINGTON -- A law meant to protect Marylanders whe they buy homes is "totally inadequate" and could be costing homebuyers at settlement, a consumer group said yesterday.

The Consumer Federation of America and the National Association of Realtors said in a joint news conference that most real estate agents work for property sellers and that agents should be required to disclose that to buyers.

The two groups said they would push states -- including Maryland -- to strengthen real estate agent disclosure laws.

"Maryland's law is totally inadequate," said Stephen Brobeck, the federation's executive director said. More than half of the states were ranked higher than Maryland by the association based on the strength of their homebuyer disclosure laws.

Across the nation, weak homebuyer disclosure laws have cost consumers "hundreds of millions of dollars -- it may exceed a billion," said Mr. Brobeck, whose group is a Washington-based association of 250 pro-consumer groups.

In Maryland and elsewhere, most real estate agents represent sellers -- even when they are engaged by homebuyers to help search for properties.

Believing they have the loyalty of the agent who helps with a househunt, homebuyers often unwittingly give away information that weakens their bargaining position -- information that the agent is obligated to pass on to the seller.

"Confusion about whom a real estate broker or agent represents in a home sales transaction needs to be totally eliminated," said Almon "Bud" Smith, executive vice president of the National Association of Realtors, a Chicago-based trade association with 750,000 members.

In Maryland, real estate agents are legally bound to represent the home sellers in 95 percent of cases.

Under Maryland's homebuyer disclosure law, first enacted in 1989 and amended in 1991, an agent must make a written disclosure to a buyer that he legally represents the seller within a "reasonable time" after their first face-to-face contact, said Jonathan Acton, the assistant attorney general who represents the Maryland Real Estate Commission. State law dictates that the disclosure must occur, at the latest, before the buyer signs a sales contract, he said.

In requiring written disclosure, Maryland's law meets just one of the four key criteria for a strong law, according to standards set by consumer and Realtor associations.

The local law falls short by failing to require that disclosure be done on a state-prescribed form, that it be made at the "first substantial contact" between buyer and agent, and that it be signed by both buyer and agent.

"These disclosures are so important because most agents working with buyers actually represent sellers," Mr. Brobeck said.

Maryland real estate executives had varying reactions to the assessment that the state's consumer law was "totally inadequate."

"I think the law has been working -- we haven't had any complaints," said Ed Hilley, executive vice president of the Maryland Association of Realtors.

But the president-elect of the same organization, Arthur Davis III, said he believed the state law should be more specific in requiring that consumer disclosure be made early.

Too often, he said, the homebuyer might have given away valuable negotiating information to his sales agent before even realizing that the agent's loyalty was to the seller.

"In some cases it [disclosure] is slipping through," said Mr. Davis, president of Chase Fitzgerald, a Roland Park-based real estate firm.

Confusion about the apparent conflict of loyalties that agents can have has led to an increase in a new type of agent. Known as a "buyer's broker," the agent represents the buyer solely and may be compensated by either the buyer or seller.

But one such buyer's broker, John J. Long, head of Columbia-based Creative Real Estate Consultants, estimated that buyer's brokers are involved in fewer than 5 percent of residential real estate transactions in Maryland.

Mr. Long, who has been a buyer's broker since 1984, is highly critical of the state homebuyers' disclosure law -- which he says is "usually just passed off as another law right before the contract is signed."

"To make the law practical, the first words out of the traditional agent's mouth after he meets the buyer ought to be, 'I represent the seller,' " Mr. Long said.

Although the real estate industry has shown little enthusiasm for buyer's brokers in the past, the growing popularity of the concept has encouraged the industry to join rather than fight the trend, said Mr. Smith, the Realtors association executive vice president.

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