ADRE Rule And Policy Regarding Providing Information To A Client
Posted on February 10, 2006 by Michelle Lind, Esq.
ADRE RULES AND POLICY STATEMENTS
The Arizona Department of Real Estate (“ADRE”) has the authority to promulgate Administrative Rules, which are often referred to as “Commissioner’s Rules” and Substantive Policy Statements. These rules and policies expand on the statutes that govern the ADRE and the brokers and salespersons regulated by the Department.
The Administrative Procedure Act (“Act”), which applies to all state agencies, such as the ADRE, defines Administrative Rules as the ADRE’s “statement of general applicability that implements, interprets or prescribes law or policy or describes the procedure or practice requirements of an agency.” A.R.S. §41-1001(17). The rule-making process is governed by statute and all rules must be approved by the Governor’s Regulatory Review Council before they become effective. A.R.S. §41-1021 et. seq.
The Act defines a “substantive policy statement” as:
A written expression which informs the general public of an agency’s current approach to, or opinion of, the requirements of the federal or state constitution, federal or state statute, administrative rule or regulation, or final judgment of a court of competent jurisdiction, including, where appropriate, the agency’s current practice, procedure or method of action based upon that approach or opinion. A substantive policy statement is advisory only. A substantive policy statement does not include internal procedural documents which only affect the internal procedures of the agency and does not impose additional requirements or penalties on regulated parties, confidential information or rules made in accordance with this chapter. A.R.S. §41-1001(20).
The policy making process is not regulated by statute. However, a policy that exceeds the agency’s policy making authority may be challenged. A.R.S. §41-1033.
ADRE RULE AND POLICY RELATING TO COMMUNICATING INFORMATION TO A CLIENT
The ADRE Rule that provides guidance on a broker’s duties when communicating information to a client states:
A salesperson or broker shall exercise reasonable care in ensuring that the salesperson or broker obtains information material to a client’s interests and relevant to the contemplated transaction and accurately communicates the information to the client. A salesperson or broker is not required to have expertise in subject areas other than those required to obtain the salesperson’s or broker’s license. A salesperson or broker shall take reasonable steps to assist a client in confirming the accuracy of information relevant to the transaction.
A.A.C. R4-28-1101 (I).
The related Substantive Policy Statement states:
A licensee is a real estate professional with a fiduciary duty to his or her client to act in the client’s best interests as described in R4-28-1101(I). Reasonable care or competence may include recommending that a client seek professional or technical advice when the matter is beyond the expertise of the agent.
Licensees are expected to take reasonable steps to assist their clients in confirming or verifying information under circumstances in which a reasonably prudent real estate professional has reason to question the accuracy of the information being provided in a transaction, or where the client has questioned the accuracy of the information.
These considerations are intended to provide a reasonable standard for licensees to follow in complying with their duties and obligations under statute and rule.
SPS No. 13 (Revised 6-1-2001; revised and renumbered 5/28/04, revised and renumbered 4/8/2005).
This Policy is consistent with the obligations imposed by the NATIONAL ASSOCIATION OF REALTORS® Code of Ethics, Article 2, which states: “REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction. REALTORS® shall not, however, be obligated to discover latent defects in the property, to advise on matters outside the scope of their real estate license, or to disclose facts which are confidential under the scope of agency or non-agency relationships as defined by state law.” Standard of Practice 2-1 states: “REALTORS® shall only be obligated to discover and disclose adverse factors reasonably apparent to someone with expertise in those areas required by their real estate licensing authority. Article 2 does not impose upon the REALTOR® the obligation of expertise in other professional or technical disciplines.”
The Policy is also consistent with the Restatement (Second) of Torts § 552, which provides that:
One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for the pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
THE GUIDANCE PROVIDED IN THE ADRE RULE AND POLICY
A salesperson or broker shall exercise reasonable care in ensuring that the salesperson or broker obtains information material to a client’s interests and relevant to the contemplated transaction and accurately communicates the information to the client”. What is reasonable in most cases is dependent upon the circumstances and will vary according to many factors. However, the rule and policy provide some guidance on this issue.
- “A salesperson or broker is not required to have expertise in subject areas other than those required to obtain the salesperson’s or broker’s license.” In other words, the real estate agent is not required to have the expertise of a home inspector, appraiser or surveyor when representing a client. Therefore, if the seller states that the roof is in excellent condition and only an inspector would have the expertise to determine otherwise, the broker should have no liability for merely passing along the seller’s representation.
- “A salesperson or broker shall take reasonable steps to assist a client in confirming the accuracy of information relevant to the transaction.” “Licensees are expected to take reasonable steps to assist their clients in confirming or verifying information under circumstances in which a reasonably prudent real estate professional has reason to question the accuracy of the information being provided in a transaction, or where the client has questioned the accuracy of the information.” In other words, if the seller states the roof is new and in excellent condition, but the agent has reason to believe that the roof is old and in a state of disrepair, evidenced by broken shingles and obvious water leaks, the agent should point out these circumstances to the buyer/client and recommend that the buyer obtain a professional roof inspection. Similarly, if the buyer questions the accuracy of the seller’s representations or other information provided during the transaction, the same rule applies: the agent should assist the buyer in obtaining independent verification.
- “Reasonable care or competence may include recommending that a client seek professional or technical advice when the matter is beyond the expertise of the agent.” In other words, in the above scenario, if the client is concerned about the roof’s condition, the agent should advise the client to have the roof inspected by a roofing expert..
BECOME FAMILIAR WITH THE ADRE RULES AND POLICIES
Every broker should become familiar with the ADRE Rules and Substantive Policy Statements: www.azre.gov/LawBook/Documents/LawBook.pdf.