New OAR Backed Legislation Limits REALTOR Liability (OR: Sept. 2011)

by Peg Ritenour
VP Legal Services & Administration

A new provision in Ohio license law will now give REALTORS statewide greater protection from liability in lawsuits alleging that defects or other material facts were not disclosed.  This new provision was spearheaded by the Ohio Association of REALTORS Public Policy Group and was included in legislation passed this summer by the Ohio General Assembly.  This change and others, which become effective October 1, 2011, were the result of the joint effort on the part of the Ohio Division of Real Estate and the Ohio Association of REALTORS to improve Ohio license law.

Many of the new provisions are merely grammatical “clean-ups” that are intended to more clearly reflect what is intended by the license law, while several other changes are technical in nature and will provide for greater efficiency within the Division’s operations and clarify the duties of the Ohio Real Estate Commission.  The remaining substantive changes that could impact REALTORS and their practice, including the new limit on liability, are summarized below.

Limitation on Liability
In the last several years, REALTORS have been sued for failing to disclose defects and other material facts based upon the theory of imputed knowledge.  Under this theory, knowledge of information known by one agent about an adverse condition is considered to be known or imputed to all other licensees in the brokerage.  This has resulted in liability for agents for failure to disclose defects of which they had no actual knowledge.  To limit such liability, OAR was successful in including a statutory provision in this legislation that now bars any legal action against a broker or agent based upon a theory of imputed knowledge.

Dual Agency
Under the new revisions, licensees handling the sale or purchase of their own property will no longer be able to act as a dual agent.  This will mean that if an agent has his own property listed for sale and is working directly with a buyer, that seller/listing agent can only represent himself in the transaction; the buyer can either be treated as a customer or must be referred to another agent for representation.

Conversely, when a REALTOR wishes to purchase property that he has listed, he cannot act as a dual agent representing himself as the buyer and the seller.  Thus, an agent who wishes to purchase his own listing must terminate the agency relationship with the seller and only represent himself as a buyer.  In this instance, the listing may be assigned to another salesperson in the brokerage with the seller’s consent.

Because it is nearly impossible for an agent to be neutral as is required as a dual agent, this clarification in the license law should reduce potential liability in these situations.

Assignment of Commission
The license law will now specify that salespersons cannot sell, assign or transfer any interest in a commission they are owed to an unlicensed entity or person.  In the event an agent does so, the law specifies that the broker cannot pay the individual or entity to which it was assigned and that individual or entity cannot bring suit against the broker for nonpayment.

Disclosure of Seller Concessions
The terms of a purchase contract are considered to be confidential and therefore cannot be disclosed by licensees without their client’s consent.  This includes disclosure of any concessions made by the seller to anyone, including appraisers.  However, the fact that such seller concessions were made is often information that appraisers want to know in order to properly reflect the true price of comparable sales in the area.  Because the Ohio Division of Real Estate believes this is legitimate information that appraisers need to comply with their obligation to analyze all facts and circumstances under USPAP, a “limited” exception has been added to the license law.

Under this new amendment, licensees are permitted (but not required) to disclose seller concessions to appraisers for the limited purpose of conducting an appraisal without violating their duty of confidentiality to their client.