In 1984, legislators for consumer protection enacted a groundbreaking federal law regarding real estate tenant/buyer broker representation. It changed the entire landscape of the broker/client relationship pertaining to real estate agency representation. It was mandated to specifically entitle any tenant/buyer to have equal representation in any real estate transaction in which a Landlord or selling broker is involved. And that entitlement could only be exercised if a tenant/buyer designates a tenant/buyer representative in writing (referred to as an Appointment Letter). Each state’s licensing board governs strict adherence to this law.
Enactment of this law resulted from a national five-year study that concluded the general population was dangerously uninformed regarding their rights in tenant/buyer real estate transactions involving a Landlord’s broker. Tenants and buyers were in an inferior position in a real estate transaction, because they thought that any broker they were working with were representing them. Without an Appointment Letter, there is no representation and, the dental tenant is afforded no guarantee of confidentiality in the transaction.
Landlords/Selling Brokers clearly had the upper hand in real estate brokerage transactions prior to this legislation. There were no required written agreements between tenants or buyers and a real estate broker. There were no written guidelines to remove the gray areas and provide clarity as to the question of equal-party real estate broker representation when a Landlord’s broker is involved. The tenant/buyer was afforded NO Fiduciary protection. Payments of real estate fees were disputed, loyalties were questioned, and many lawsuits ensued because of the vast gray area in real estate broker representation.
Handshakes, assumptions, oral agreements – if witnessed and documented in writing by a competent adult – may have been enforceable in a court of law, but it became a case of who said what to whom. Establishing the real meaning of perceived implications caused conflicts with no clear path to resolution. This legislation clearly removed the uneven advantages that were previously available to Landlords/Selling Brokers and dangerously detrimental to prospective tenants and buyers. It clarified the general public’s perceived ambiguities regarding real estate representation and provided a legal pathway for prospective tenants and buyers to exercise their granted entitlements to rights and protections within the realm of real estate brokerage representation.