Buying a Home in San Diego: Learn All About the "Disclosure Regarding Real Estate Agency Relationship" Form - A FORM YOU MUST SIGN BEFORE WORKING WITH AN AGENT

Before you begin working with an agent, the state of California wants you to be aware of how agency works. California real estate agents have a two-page disclosure form that they are required to give to any prospective clients before they begin working together. Listing Agents must give sellers this disclosure form before signing a listing agreement, and Buyer Agents must give Buyers this form before working as their agent on the Buyer side (before acting as the Buyer's agent in any way, shape, or form). The purpose of the disclosure form is to make sure that every person in the state of California who hires a real estate agent is given an opportunity to learn how agency works and understand which agents are looking out for their best interests. This blog is dedicated to helping Buyers understand key parts of the purchase process when buying a home or condo in the San Diego area, so we will be looking at this disclosure form from a Buyer's point of view. As a Buyer in San Diego, you should get familiar with this form. Although you are required to sign the form, it is not a contract. It is a disclosure that is designed to make sure you are educated about how agency works before committing to working with an agent.

Here, I will break down the form into small sections to help you understand exactly what you are signing.

To view the two-page disclosure form in its entirety, or to download or print the form, click here.

Above, you see what is written in the form's introductory sentence.

Below, you see the first type of agency relationship listed on the form, Seller's Agent. The key phrase below is "fiduciary duty." What does "fiduciary duty" mean? TheFreeDictionary.com defines "fiduciary duty" as "the legal duty of a fiduciary to act in the best interest of the beneficiary." The Seller's agent has the legal duty to act in the best interest of his/her client, the Seller. If you are a Buyer, this is important for you to know. The Seller's agent, although he/she has the obligation to treat you fairly, honestly, etc. (see below), must always act in the best interest of his/her client (helping the Seller get the best price and terms, etc.). Do you see yet why California wants homebuyers to read this disclosure form before ever signing an agreement or purchase contract? Many Buyers don't understand how agency works until they read about it on this disclosure form.

You will notice above that the Seller's Agent also has certain duties to the Buyer. Line (c) is super-important. The Seller's Agent is required to disclose to you, the Buyer, any material fact that may affect the value of the property in your mind. Although, they are required to disclose these things to a Buyer, the Seller's Agent is not required to act as a fiduciary for the Buyer in helping the Buyer make sense of disclosures. Remember, the Seller's Agent's #1 priority is to look out for the best interests of the Seller.

Below, is the next section of the form, the duties of a Buyer's Agent in regards to agency. First, it explains that the Buyer's Agent is not an agent of the Seller even if an arrangement has been made for the Seller to pay a commission to the Buyer's Agent (as this post is written, it is common practice in San Diego for many Sellers to offer a commission to the agent who brings the Buyer). The point here is: Even though a Seller many times pays a commission to the Buyer Agent, the Buyer's Agent's fiduciary duties are to the Buyer. The job of a Buyer Agent is to act in the best interest of the Buyer (help the Buyer get the lowest price possible and the best terms, and help the Buyer review all disclosures, reports, inspections, and other documents to determine if purchasing the home at the agreed-price is in the Buyer's best interest).

Below, you see the next paragraph of the form, which explains a little about how dual agency works. A "dual agency" situation is one in which the same agent represents both the Buyer and the Seller on the same transaction. First of all, it is currently legal in the state of California for an agent to represent both the Seller and the Buyer in a transaction, so long as both the Seller and the Buyer are aware and have consented to the dual agency situation. Secondly, ask yourself, "Is this the situation I want to get myself into?" Thirdly, ask yourself, "How can one agent negotiate the best price and terms for the Seller and, at the same time, negotiate the best price and terms for the Buyer?" Dual agency presents a conflict of interest in which the role of the agent is reduced to paper-shuffler rather than consultant.

Here is the final paragraph of page one:

There is one more point that a Buyer needs to understand about the way real estate works in California.All real estate agents must "hang their license with" (work for) a Broker. A Broker is a real estate agent who has taken extra classes, met extra criteria, and passed an extra (more difficult) "Broker" exam. Every real estate company must have at least one Broker, and every real estate salesperson must either be a Broker or work for a Broker. Here is the interesting part of this: The Broker is responsible for every transaction that takes place in his/her office, AND every client of every one of his/her real estate agents is a client of the Broker. I repeat. Each client is a client of the Broker. In most cases, the Buyers and Sellers have never met the Broker, but if they are being represented by one of the Broker's agents, they are ultimately being represented by the Broker (in fact, most brokerages have policies in place that force a listing agent to leave his/her listings behind with the brokerage if that agent were to ever leave the company, because those Sellers are actually clients of the Broker). This is an important concept to understand, because it changes the way you read this disclosure form. In truth, dual agency is happening quite a bit in San Diego. Any time a Buyer and Seller in a transaction are being represented by the same company (brokerage), the company is practicing dual agency. Even if there are two seperate "agents" involved, the truth is that both of those agents report to the same broker AND both of those clients are clients of the same broker. Many brokerages have another name for dual agency. They call it "double-ending" a transaction, meaning the agent earns twice the commission because he/she represented both sides of the transaction. Unfortunately, (in these situations) even with the nicest and most honest agents, the people who lose out are the clients (because they sacrifice having true agency and fiduciary benefits from working with an agent who only works for them). Now, I must also tell you that I have friends and relatives who work for traditional real estate brokerages. Agents who work for traditional brokerages are not bad people. There are many agents who work for traditional brokerages who would never practice dual agency. Their policy is to never represent both sides of the transaction, which means that sometimes they force themselves to stop representing a client in the case of a dual agency situation.

There is another way. It's called single agency. There are real estate companies in California that only represent sellers OR only represent buyers. A company that only represents buyers is commonly referred to as an exclusive buyer agency or exclusive buyer brokerage. The disclosure form we reviewed in this article doesn't go into that great of detail, but I think it's important that buyers are aware that they have the option to work with an exclusive buyer agent.

And now, back to the form! Below, you see the last section of the first page of the form. The highlighted section explains why you are signing the form (you are acknowledging receipt of a copy of the form and the civil code). In case you are unfamiliar with the term "civil code," it's basically the actual text right out of the California Law that this first page is summarized from.

One quick note: You also must initial the bottom right-hand corner of the second page of the form, and you are then done with your first piece of paperwork (and on your way to buying a home in San Diego!).

UPDATE: I have written a second post reviewing the second page of this disclosure form (the Civil Code). Be sure to read this new post by clicking here.

To view the two-page disclosure form in its entirety, or to download or print the form, click here.

Any marks including highlighting, underlining, etc. were added by the writer of this post to draw attention to certain parts of the document. The write of this post does not practice law. A real estate agent can only offer real estate advice. If you are in need of legal advice, please consult with an attorney.