Simone Lawson
In the context of real estate, substantive contact is a term used to describe the point at which a real estate broker or agent provides specific assistance to a prospective purchaser. This typically involves the disclosure of certain information, such as the types of brokerage services offered or which party the broker is representing. For example, a seller's agent must disclose their representation to a prospective buyer even if the buyer is accompanied by their own broker. While the specific definition of substantive contact may vary slightly from state to state, it generally refers to the earliest practicable opportunity during a conversation with a consumer, particularly before the licensee provides specific services or solicits sensitive information.
| Characteristics | Values |
|---|---|
| Nature of information conveyed | Personal and compromising information |
| Circumstances | The prospective purchaser is unrepresented by a real estate broker, or the purchaser's broker is not present |
| Disclosure | The real estate broker must disclose which party they represent |
| Documentation | A written notice regarding agency, such as an ADF, RSC-3, or IABS Form |
| Relationship | The real estate broker must not be a dual agent |
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What You'll Learn
The prospective purchaser is unrepresented by a real estate broker
The Agency Disclosure Law requires a real estate broker to provide an ADF (Agency Disclosure Form) to a consumer when the broker has "substantive contact" with them. However, the law does not define what constitutes "substantive contact".
According to the Department of State (DOS), a real estate broker must provide an ADF to an unrepresented consumer. This means that if a prospective purchaser is unrepresented by a real estate broker, the seller's real estate broker must provide an ADF. This is to ensure that the prospective purchaser is aware of the seller's broker's role in the transaction.
For example, consider the following scenario: A prospective purchaser, Buyer A, is interested in a property listed by Seller B's real estate broker. Buyer A is not accompanied by their own real estate broker. In this case, Seller B's broker must provide an ADF to Buyer A at the earliest practicable opportunity, typically during their initial conversation. This disclosure ensures that Buyer A understands that the broker represents the seller and protects both parties from any potential misunderstandings or conflicts of interest.
It is important to note that the ADF is not just a one-time formality. If, during the conversation or subsequent interactions, the seller's broker elicits or accepts personal or compromising information from Buyer A, it may constitute "specific assistance". This could include details such as Buyer A's budget constraints, their urgency to move, or any other information that could impact their bargaining power. At this point, the interaction would likely be considered "first substantial contact", and the seller's broker would be obligated to provide the ADF if they haven't already done so.
In summary, when a prospective purchaser is unrepresented by a real estate broker, the seller's broker must provide an ADF at the earliest opportunity, especially if they are providing specific assistance or receiving compromising information that could influence the negotiation process. This ensures compliance with the Agency Disclosure Law and maintains transparency and fairness in the real estate transaction.
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The purchaser discloses their maximum mortgage amount
A prospective purchaser's disclosure of their maximum mortgage amount can be considered a substantive contact that influences the progression of a real estate transaction. This statement provides valuable insights into the purchaser's financial capabilities and intentions, potentially shaping the negotiation dynamics and outcomes.
When a prospective purchaser reveals their maximum mortgage amount, it signifies a serious intention to pursue the property purchase within a defined financial boundary. This disclosure helps the seller understand the purchaser's financial limitations, fostering realistic expectations on both sides. It also enables the seller to assess the purchaser’s commitment and capacity to secure the necessary financing, potentially impacting the seller's decision-making process.
This information can be strategically used by the seller to negotiate terms that align with the purchaser's financial capabilities. For instance, if the disclosed maximum mortgage amount falls short of the asking price, the seller may consider alternative options or potentially accept a lower offer. Conversely, if the maximum mortgage amount exceeds the asking price, the seller may have more leverage to negotiate a higher selling price.
Additionally, this disclosure can expedite the decision-making process by providing a clear understanding of the purchaser's financial threshold. It helps assess the viability of the transaction and guides adjustments to the asking price or terms. This transparency prevents prolonged negotiations that may not reflect the purchaser's financial reality, saving time for all parties involved.
In conclusion, a prospective purchaser's disclosure of their maximum mortgage amount holds significance in real estate transactions. It provides financial insight, influences negotiation strategies, and helps set realistic expectations. This information streamlines the decision-making process, ensuring negotiations remain focused and aligned with the financial capabilities of the prospective purchaser.
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The seller's real estate broker represents the seller
In the context of real estate, "substantive contact" is a term used to describe a situation in which a real estate broker comes into contact with a consumer or prospective purchaser. The Department of State (DOS) has issued an opinion on what constitutes substantive contact, focusing on the provisions of the Agency Disclosure Law. According to the DOS, if a real estate broker has "substantive contact" with a consumer, they are required to provide an ADF (Agency Disclosure Form) to that consumer.
However, the DOS also clarifies that if a consumer is accompanied by their own real estate broker, the seller's broker does not need to provide an ADF. Even in this case, the seller's broker must still verbally disclose who they are representing in the transaction. For example, if the seller's broker meets a prospective purchaser at a showing and the purchaser is accompanied by their own broker, the seller's broker must verbally inform the purchaser that they represent the seller.
It's important to note that the definition of "substantive contact" may vary slightly from state to state, but the general principle of disclosing brokerage services at the "first substantial contact" holds true in most states. This typically means disclosing this information at the earliest practicable opportunity during a conversation with a consumer.
In terms of what constitutes specific assistance or substantive services, it generally involves eliciting or accepting personal or compromising information from the prospective purchaser. This could include information about their maximum budget, their preferred location or style of house, or any other details that could impact their bargaining power.
To summarise, when the seller's real estate broker represents the seller, they must disclose this representation at the earliest opportunity, especially when interacting with prospective purchasers. This disclosure ensures transparency and helps purchasers understand whose interests the broker represents in the transaction.
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The purchaser agrees to financing terms other than those offered
In the context of real estate, "first substantive contact" typically refers to the earliest point in a conversation with a consumer where brokerage services must be disclosed. This is especially important when a licensee provides specific assistance to a consumer, such as writing a purchase offer or presenting a CMA.
When a purchaser agrees to financing terms other than those offered, it can be considered a form of specific assistance provided by the licensee. This is because the licensee is now offering tailored advice and guidance to the consumer based on their unique financial situation and preferences.
To ensure ethical and transparent practices, it is crucial for licensees to disclose their brokerage services before providing such specific assistance. This includes informing the consumer about the types of brokerage services offered and clearly outlining which party the licensee represents in the transaction.
In the case of a purchaser agreeing to alternative financing terms, the licensee should disclose their relationship with the buyer, seller, or both, depending on their role in the transaction. This disclosure ensures that all parties involved are aware of the licensee's position and helps to maintain trust and integrity in the real estate process.
By providing this disclosure at the earliest opportunity, ideally before any compromising information is shared, licensees can ensure they are adhering to the legal and ethical requirements of their profession. This proactive approach to disclosure benefits both the licensee and the consumer, fostering a more informed and mutually beneficial real estate experience.
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The purchaser is accompanied by their own real estate broker
The presence of a real estate broker accompanying a prospective purchaser does not constitute substantive contact. The Department of State (DOS) has clarified that when a real estate broker comes into contact with a consumer who is accompanied by their own broker, such contact is not considered "substantive".
This interpretation of the Agency Disclosure Law has been contested, as it may result in the prospective purchaser receiving the ADF multiple times, leading to a possible rejection of the receipt of the ADF. However, the DOS maintains that the ADF must be provided by a real estate broker who has substantive contact with a consumer in specific scenarios. These include instances where the consumer is unrepresented, their broker is absent, or the accompanying broker is acting as a landlord/seller or dual agent.
Even when a purchaser is accompanied by their own broker, the seller's real estate broker is still required to verbally disclose who they represent in the transaction. This ensures transparency and compliance with legislative intent.
To further illustrate, consider the following scenario: Broker Tammy, the seller's agent, is approached by prospective buyer Vera, who is accompanied by her own broker. Despite Vera having her own broker, Tammy must still disclose that she represents the seller before providing specific assistance, such as showing properties or discussing compromising information.
In summary, while the presence of a purchaser's broker may impact the nature of the interaction, it does not negate the seller's broker's responsibility to provide certain disclosures and adhere to legislative requirements.
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Frequently asked questions
"First Substantive Contact" is generally defined as the earliest opportunity during a conversation with a consumer, but is required before a licensee provides specific services or solicits specific information. This includes when a licensee elicits or accepts personal, compromising information from a consumer.
Specific assistance is provided when a licensee elicits or accepts compromising information from a consumer, such as their maximum budget. It also includes showing a specific property or properties to a specific buyer by pre-arrangement.
The Agency Disclosure Law requires a real estate broker to provide an ADF to a consumer when they have "substantive contact" with them. The DOS interprets this as applying when the consumer is unrepresented by a real estate broker or when the broker is not present.
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