Minimum Services Law Introduction

by Peg Ritenour
Vice President
Legal Services and Administration

The purpose of this legislation is to clarify some of the issues involving new real estate brokerage models in the market place. Such business models are often referred to as “fee-for-service,” “flat-fee,” “minimum service,” or “MLS entry-only brokerages.”

Regardless of the label placed on them, these arrangements all involve the situation in which a real estate broker performs fewer services than does a traditional broker, and as a result, the seller usually pays a lower fee. For example, the seller may opt to do their own marketing, handle their open houses and showings and may even negotiate the purchase contract themselves. In some instances, such as the sale of a builder’s new construction, the only service the builder seeks from the real estate broker is to put the property in the MLS.

It is important to understand that nothing in HB 150 prohibits such arrangements. Instead, it provides clarity in the license law regarding those duties that licensees must provide to a client, and which ones the client may waive and do for themselves. It also assures that consumers understand the services they will receive. Finally, it clarifies certain issues with respect to negotiations and advertising.

Duties of real estate licensees

HB 150 codifies the position of the Division of Real Estate and Professional Licensing that all licensees owe their client the full fiduciary duties outlined in the Ohio Revised Code. This is true regardless of whether a broker enters into a minimum service agreement, an exclusive right to sell or an exclusive agency agreement. The fiduciary duties of all licensees, which cannot be waived, are as follows:

  • Exercise reasonable skill and care in representing the client and carrying out the responsibilities of the agency relationship;
  • Perform the terms of any written agency agreement;
  • Follow any lawful instructions of the client;
  • Be loyal to the interest of the client;
  • Comply with all requirements of Ohio real estate licensing laws and other applicable statutes, rules, and regulations, including state and federal fair housing laws;
  • Disclose any material facts of the transaction of which the licensee is or should be aware;
  • Advise the client to obtain expert advice related to material matters when necessary or appropriate;
  • Account in a timely manner for all moneys and property received in which the client has or may have an interest;
  • Keep all confidential information confidential, unless permitted to disclose the information pursuant to ORC 4375.74(B). This includes the duty to not disclose confidential information to any licensee who is not an agent of the client.

Waiver of duties

HB 150 adds other certain specific duties that a licensee is required to perform in the course of representing a client. However these duties can be waived by a client. This would be done, for example if the seller was going to handle their own negotiations under a minimum service listing agreement. In this case HB 150 requires the client to specifically waive the duty(s) on a new form the Division of Real Estate must adopt.

The following are the duties of a licensee that can be waived by a client under HB 150:

  • Accept delivery of and present any offer or counter offer;
  • Answer the client’s questions and provide information regarding any offers and counteroffers (within the scope of knowledge required for licensure);
  • Assist the client in developing, communicating and presenting any offers and counteroffers;
  • Answer the client’s questions regarding the steps the client must take to fulfill the terms of any contract (within the scope of knowledge required for licensure);

As previously stated, if a real estate licensee is not going to perform any of the above duties, the client must waive those duties in writing, by signing a “Waiver of Duties Statement.” This form, like others developed by the Ohio Division of Real Estate and Professional Licensing, will be mandatory and cannot be changed by licensees.

It should be noted that this form will only be necessary if a licensee does not intend to perform any of the above duties. If a licensee is planning on providing these duties, as is typically done under an agency relationship, this form does not need to be used.

Negotiations

HB 150 will also provide greater clarity in Ohio license law with respect to negotiations. Current law prohibits a licensee from negotiating with another broker’s client, even if consent is given. HB 150 will allow a licensee to negotiate directly with a consumer who is using the services of a limited service broker as long as that consumer’s broker authorizes such direct negotiations in writing. Such written consent could be provided in an e-mail, letter, or through the MLS.

HB 150 also clarifies what constitutes “negotiations” under the license law. It defines negotiations as doing any of the following:

  • Delivering or communicating an offer, counteroffer or proposal;
  • Discussing or reviewing the terms of any offer, counteroffer or proposal; or
  • Facilitating communication regarding an offer, counteroffer, or proposal and preparing any response as directed.

Under this definition a licensee who has been given written authorization by a broker to “negotiate” directly with his/her client may engage in the above interactions without violating license law. Further, HB 150 clarifies that negotiations conducted pursuant to such instruction does not create or imply an agency relationship with that party. This provision is designed to protect licensees from allegations of acting as an undisclosed dual agent.

Advertising

The final provision of HB 150 deals with the issue of advertising property using the term “for sale by owner.” The legislation codifies the Division’s position that such a term cannot be used in advertising by a broker that has an exclusive right to sell agreement on the property. Such advertising by a licensee is considered to mislead the public to believe the owner is not exclusively represented when he/she is.