DR Legal News: Hot on the Hotline

Urbance

Hot on the Hotline

by Betsy Urbance, Illinois REALTORS® Director of Legal Services 

What were the Top 5 categories from the Illinois REALTORS® Legal Hotline for the first half of 2017, you ask? Here they are in order. Get sample situations from each of these Top 5 important issues:

1. Agency Issues 
2. Contracts to Purchase Questions 
3. Illinois Real Estate License Act – Scope Questions 
4. Advertising Issues 
5. Illinois Real Estate License Act (RELA) – Business Practices

Provided below are some sample situations from each of the Top 5 categories. Find more information about these and other legal subjects in the Legal Center.

1. Agency Issues 

Q. If a team operates within a real estate brokerage company, are all team members automatically considered dual agents? (What Is a Team? While not defined within the Act, for discussion purposes, a "team" is a functional unit operating within a real estate brokerage office comprised of one or more real estate licensees and one or more administrative personnel.) 

A. The answer to this question will depend largely upon how the team operates and how it holds itself out to the public. The key questions will center on the protection of opposing parties’ confidential information. The basic premise under RELA is the presumption of designated agency; meaning that, although the brokerage relationship is with the company, the broker with whom the client works is the presumed legal agent for the client. The designated agent owes the client all the statutory duties contained in Section 15-15 of RELA, chief among them the duty of confidentiality. Now, how can these concepts be applied within a team? 

  • Does the team operate in a manner that can protect the confidential information of opposing parties? If so, teams might be able to function without disclosed dual agency in every situation. Consider the example where the team leader is the listing agent representing the seller, shielding herself from buyers’ information. Conversely, the buyer agent team members protect the buyers’ confidential information from the listing agent. The team operates somewhat like a “shop within a shop” as far as locking physical files and creating password or other “locking mechanisms” to electronic files. Note this is all accomplished without creating a separate legal entity. The team is a functional unit and not a separate legal entity. 
  • On the other hand, if team members function together and each has access to all files related to the team’s clients, disclosed dual agency and informed consent is a must. The team members have greatly limited their roles. They can provide information to their clients, but they are prohibited from “counseling” their clients, i.e. by helping the seller decide what price or terms he should accept, or helping a buyer formulate the actual offer amount. 
  • Analyze how the team holds itself out to the public. If the team implies “all for one,” there is an implication that information is shared among team members, thus necessitating consent for dual agency. If a client does not consent to dual agency and needs more assistance than a dual agent can provide, the client must be referred outside the team. 
  • If your team does not want to operate largely within the limits of disclosed dual agency, then it should make sure the representations to the public don’t imply that a consumer is hiring the entire team and make sure clients of different team members know that the client’s confidential information is protected from the other side. Get more on Teams (logon required).

2. Contracts to Purchase Questions 

Situation: An interesting question arose recently under paragraph 11 of the Multi-board Residential Real Estate Contract 6.1 which form is used mainly in Northern Illinois. The buyer, during the paragraph 11, attorney review provisions, had their attorney propose a modification to the buyer’s loan under paragraph 11(c) because they found a better loan deal. So, rather than buyer’s attorney approving the contract under paragraph 11(a), the buyers’ attorney (at buyers’ direction), sought that seemingly minor modification. In response, the sellers, through their attorney, proposed other modifications that now appeared quite unreasonable to the buyers. Based on the facts presented, the buyers’ side began to suspect that there was a second buyer waiting in the wings. Now that the modifications provisions were “enacted,” the sellers’ side may have seen an opportunity to make the contract untenable to the present buyers. There was no concrete evidence to support the supposition, but the appearances were there. On these facts, if the buyers had almost everything they wanted in the initial contract, the strategy might have been better to have their attorney approve the contract as agreed under paragraph 11(a) rather than reopening “negotiations.” Granted, the sellers’ side may have proposed modifications of their own under paragraph 11(c), but if the buyers had been able to simply approve the contract they maybe, just maybe, had a better chance to remain in the deal. 

3. RELA – Scope 

Q. Please explain recent amendments to RELA regarding leasing agent licensed activities. 

A. RELA was recently amended under PA 100-0188, signed by the Governor on August 18, 2017 to become effective on January 1, 2018. Some of the RELA amendments clarify the role of a leasing agent licensee. While the permitted and prohibited activities weren’t really changed under this bill, there is new language to make leasing agent activities crystal clear. The key concept regarding the leasing agent license is that this license is limited to residential leasing activities. Specifically, under Section 5-5(b) of PA 100-0188, the leasing agent licensee must refrain from “selling, offering for sale, negotiating for sale, or referring for sale or commercial leasing." In other words, leasing agents must not be compensated for referring sales brokerage business or referring any commercial sales or leasing business. In short, a leasing agent licensee is strictly limited to residential leasing activities. 

The leasing agent must be properly sponsored by a sponsoring brokerage company and that company’s managing broker is responsible for the oversight of the leasing agent. Managing broker oversight duties are also emphasized in PA 100-0188. In fact, a new provision has been added to the Section 20-20 “bad acts” list where a licensee can be disciplined for allowing a leasing agent to engage in activities outside the scope of the leasing agent license. 

For more on PA 100-0188 Amendments to RELA go to this article summarizing changes (logon required).

4. Advertising Issues 

Q. What are current advertising concerns related to the practice of real estate brokerage? 

A. The largest area of concern involving real estate licensees’ advertising continues to revolve around the use of social media. Always remember that any advertising related to a licensee’s real estate brokerage business using social media must comport with RELA and the REALTOR® Code of Ethics. This means that the sponsoring brokerage company name is required. Generally, the ad content must also contain enough information to be true and not misleading in any way. Also, because the social media platform is web-based, the RELA Administrative Rules apply to the advertising content. The licensee must include the state where he is licensed and the city and state where his office is located. Find more advertising guidelines, and learn more about the Real Estate License Act.

Another huge concern involves copyright issues. Before licensees use an image, such as a photograph, if the licensee did not create the photo himself, the licensee must get the appropriate permission from the person who holds the copyright. Generally, the person who created the work owns it. So, the photographer is the original copyright owner. The photographer might license the use of her photos to others. The license agreement should describe the permitted use and whether there is a cost assessed in exchange for the limited license. Sometimes, the photographer (in this example) will transfer all the rights under what is known as a “work made for hire” agreement with a party who is basically purchasing all rights to the photo (or other copyrighted work). The general rule to remember is that permission is required to use any “work” that is created by someone other than the person using it. Learn more.

5. RELA – Business Practices 

There are many different business models emerging rapidly in the real estate industry, with technological advances happening at incredible speed. If is important to remember that if a business model involves brokering the sale or lease of in interest in real estate, in Illinois, a properly sponsored real estate license will be required. On the other hand, there are sometimes situations where, while real estate is central to the transaction, there is no brokerage activity taking place. Sellers may sell and buyers may buy on their own if they so choose. 

The lesson here is, first, analyze whether there is real estate brokerage involved. If so, then RELA must be followed. If there is a possible violation of RELA, then filing a complaint with the Illinois Department of Financial and Professional Regulation (or other proper authority) is the appropriate action to take. Always take care to act on an independent basis. Companies must make their own business judgements about pricing, cooperation, what they need to be paid, what they will pay to others and what are their expectations and models to realize a reasonable profit. Acting in collusion with competitors on any of these issues is anticompetitive and could lead to antitrust complaints. No one wants a visit from the U.S. Department of Justice. 

Stay independent, focused, well-educated and competitive in order to succeed in the real estate brokerage industry. 

For more on Antitrust concerns, download this manual (logon required).