Why did the RI Department of Business Regulation adopt this regulation?

According to DBR, it has received complaints from members of the public who learned only after the signing of a purchase and sales agreement or even after closing that the real estate licensee had a conflict of interest.  Buyers often wonder whether they paid too much for a house, just as sellers question whether they should have waited for a higher offer.  Imagine their reaction when they learn only after the fact that the broker’s corporation, LLC or family member was on the other side of the negotiating table. DBR treated this lack of disclosure seriously before but wanted to make its regulation more specific.

The REALTOR Code of Ethics has long required REALTORS to disclose potential conflicts of interest, so REALTORS should have been making most of the disclosures all along.   The main difference between the Code of Ethics and the DBR regulation is that the Code of Ethics does not require disclosure of family relationships beyond the immediate family while the DBR regulation requires disclosure relationships with extended family, like cousins, grandparents, and in-laws.

Does this regulation apply to rentals and sales?  

Although the regulation does not specifically mention landlords and rentals, the regulation requires real estate licensees to disclose a potential conflict of interest in “any real estate transaction,” which could include rentals, sales, exchanges, residential and commercial transactions.

What type of relationships must I disclose?

The simplest test is “When in doubt, disclose.”  DBR specifically requires a real estate licensee to disclose that,

“(1) he or she has an ownership interest in the property being sold (regardless of the percentage or type of ownership);

(2) he or she is or will be purchasing any portion of the property being sold (regardless of the percentage of potential ownership);

(3) he or she has a business interest (ownership or otherwise) in a business entity that is a buyer or seller; or

(4) is acting on behalf of a family member which is defined in Section 21(F).”

“(4) A representative of a family member, which includes any person who is related to the licensee, whether by blood, marriage or adoption, as any of the following: spouse, father, step-father, father-in-law, mother, step-mother, mother-in-law, son, step-son, son-in-law, daughter, step-daughter, daughter-in-law, brother, step-brother, brother-in-law, sister, step-sister, sister-in-law, grandfather, step-grandfather, grandfather-in-law, grandmother, step-grandmother, grandmother-in-law, grandson, step-grandson, grandson-in-law, granddaughter, step-granddaughter, granddaughter-in-law, uncle, step-uncle, uncle-in-law, aunt, step-aunt, aunt-in-law, niece, step-niece, niece-in-law, nephew, step-nephew, nephew-in-law, first cousin, step-first cousin and first-cousin-in-law.”

Although the regulation does not specifically mention fiancés or couples who live together – whether same sex or different sex -  you would be wise to disclose those potential conflicts of interest.

 

When do I make the disclosure?

Disclosure of a conflict of interest must be made in writing at the first point of personal contact with a buyer, seller, tenant or landlord if you’re seeking a commission.   If you are not seeking a commission, disclosure can be made verbally or in writing but it is still a good idea to protect yourself by making a written disclosure.

How do I make the disclosure?

There are a number of options for compliance.   When listing a property in which you, a family member, a business, etc. has an interest, you can disclose this in “property remarks,” in the Multiple Listing Service, on your web site, in advertising, the Mandatory Real Estate Relationship Disclosure (if the buyer or tenant comes directly to you); on the sales disclosure form, fax, email, or any other form of writing.  You can also use the revised Disclosure of Personal or Family Interest form.  However you decide to disclose, make sure to have the buyers, sellers, landlords, and tenants, sign/acknowledge and date the disclosure, then keep a copy for your files.

Can I disclose on a purchase and sales agreement or lease?

Disclosure must be made at the first personal point of contact, so in most cases disclosing on the purchase and sales agreement or lease will be too late in the transaction.   However, you can use a purchase and sales agreement or lease to confirm a previous disclosure.

What are the penalties for not disclosing?  

The penalties for not complying include forfeiting your commission; the standard DBR penalties: a maximum fine of $1,000 and/or suspension or revocation of license.  A consumer might also file suit for breach of fiduciary duty or on other grounds.

Questions?  Contact the RIAR Legal Department at 401-785-3650 ext. 5 or email: monica@riliving.com.