VanEd instructors are continually asked this question by pre-license students, and the answer only varies slightly from state to state, but generally the answer is that brokerage services must be disclosed at "First Substantial Contact". This is typically defined as the earliest practicable opportunity during a conversation with a consumer, but is definitely required at the time before the licensee provides specific services or solicits specific information. This is generally true in all states that require an agency disclosure be made by a real estate professional to a consumer.
Recently the Nebraska Real Estate Commission (NREC) adopted an interpretation further defining First Substantial Contact. We are reprinting the information provided in the NREC Spring 2013 Commission Comment newsletter below for the benefit of students and consumers.
When Must Real Estate Agency Relationships Be Disclosed to a Consumer?
Typically defined as the earliest practicable opportunity during a conversation with a consumer. This can occur prior to entering into a listing agreement, prior to showing a property, or even at an open house.
Chapter 76. Real Property
Article 24, Agency Relationships
SS 76-2421 (1) contains two phrases (in bold italics below) that the Nebraska Real Estate Commission believes need some clarification to guide the conduct of real estate licensees in their practice with clients and customers, to assist designated brokers in their supervision of their affiliated licensees, and to help real estate trainers formulate and implement practical, meaningful agency disclosure training.
Section 76-2421 (1) requires that “At the earliest practicable opportunity during or following first substantial contact [emphasis added] with a seller, landlord, buyer, or tenant . . . the licensee who is offering brokerage services to that person or who is providing brokerage services for that property shall” provide that person, whether a client or customer, with a written copy of the current brokerage disclosure pamphlet and disclose in writing to that person the types of brokerage services offered or which party the licensee is representing.
Although, as has been said in Commission Comment before (see Winter 2000 issue), “earliest practicable opportunity” is somewhat subjective and “depends on the circumstances of each situation,” the ommission interprets “earliest practicable opportunity” to mean that the required brokerage disclosure pamphlet should be presented and signed and the disclosure of the types of brokerage services offered or of which party the licensee is representing should be made BEFORE the licensee provides“specific assistance” to that client or customer. IF the written disclosure is not made before the specific assistance is provided, it must be made immediately thereafter.
Specific assistance means eliciting or accepting compromising information about a potential or actual client’s or customer's real estate needs. Compromising information is information that would reduce, impair or erode that party’s bargaining power in an arm’s length negotiation. Compromising information may include but is not necessarily limited to:
- The person’s motivations or motivating factors.
- That a buyer or tenant is willing to pay more than the offered purchase price or lease rate.
- That a seller or landlord is willing to accept less than the asking sale price or lease rate.
- That a client or customer will agree to financing terms other than those offered.
Specific assistance shall also mean showing a specific property or properties to a specific buyer by pre-arrangement. Specific assistance MAY be provided at an open house if compromising information is elicited or accepted from the buyer at the open house, but specific assistance to a buyer WILL be deemed to be provided when there is a pre-arranged showing of a particular property or properties to that buyer.
Specific assistance may be offered anywhere and not necessarily at a formal showing or appointment, so it is important that the required disclosures be made BEFORE any compromising information is elicited or accepted, even if the setting is an open house or a public place. It is not the venue, but rather the content of the interchange that determines if specific assistance has been provided.
However it is possible to enumerate some things that are not generally considered to be specific assistance within the meaning of this policy interpretation. In the absence of the items listed above, specific assistance will not be considered to include:
- Preliminary conversations about the market, general real estate values and general financing terms;
- Conveying publically available information about the property’s or properties’ general
factual features including price, location, style, amenities, etc.
- Eliciting or accepting general, non-compromising information about a buyer’s or tenant’s real estate needs or desires, such as the person’s general preferences for location, price range, features, etc.
Two useful criteria can be assessed in determining whether specific assistance has been provided:
- The direction information is flowing should be considered. It can generally be held that the licensee eliciting or accepting personal, compromising information from the person constitutes specific assistance, but the licensee conveying general information to the person about the market, financing or a specific property or properties is not offering specific assistance.
- The nature of the information being conveyed should be considered. Generally, if the information being elicited or accepted is compromising (i.e. information a rational person would not share with the other principal in an arm’s length negotiation because that information could reduce, erode or impair that person’s bargaining power), then specific assistance is being provided, but if the licensee is eliciting or accepting general information that is not compromising to the person’s bargaining power or position, then the licensee is not providing specific assistance.
The point at which the licensee first provides specific assistance will be deemed to be “first substantial contact” under this section.
On a related matter, the Commission will deem an electronic copy of the current brokerage disclosure language that has been appropriately checked and completed by the licensee and which has been emailed to the person to whom disclosure is being made to be in compliance with Section 76-2421 (1) (a), provided that the recipient client or customer sends the licensee an email response acknowledging receipt of the disclosure language.
Written and Published by: VanEd