How a simple question on zoning turned into a lesson on Agency

It all started with a simple question to VAR legal guru Lem Marshall concerning a proposed major change to our county zoning ordinance. Without getting into all the details of the zoning change, suffice it to say this is a major ch

a

nge for our county from a fairly simple two acre minimum building lot to the sliding scale as shown.

STANDARD SUBDIVISIONS
Parcel Acreage # Lots
4 -10acres = 2 lots 140.01 – 180 = 10 lots
10.01 – 20 = 3 lots 180.01 – 220 = 11 lots
20.01 – 30 = 4 lots 220.01 – 260 = 12 lots
30.01 – 40 = 5 lots 260.01 – 320 = 13 lots
40.01 – 60 = 6 lots 320.01 – 380 = 14 lots
60.01 – 80 = 7 lots 380.01 – 440 = 15lots
80.01 – 100 = 8 lots 440.01 – 500 = 16lots
100.01 – 140 = 9 lots 500.01=16 lots+ 1/100 acres

Lem: Our county is about to pass this new sliding scale zoning: http://www.co.rockbridge.va.us/pubhearings/JPH080501.pdf. We need to know our obligations as REALTORS® for disclosure – how they are different – what about existing listings – what about under contract properties …

Lem’s quick response:

I don’t see that it’s the listing agent’s job to do the buyer’s due diligence as to zoning or the suitability of the land for buyer’s purposes.

The agent of the buyer buying development property, on the other hand, should be up to speed on this kind of change, and bring it to the attention of the buyer client. But even then the contract (if one has been entered into) should speak to buyer’s obtaining certain assurances as to zoning and planning approval, and if the buyer has not already reserved that due diligence right, he’s in trouble even before this change.

Like all land-use issues, the commercial broker needs to be able to guide buyers in the basics of due diligence (assuming the buyer is not represented by competent real estate counsel) and to suggest the appropriate provisions be included in the offer. Otherwise, I don’t see the need for any special disclosures, especially by the listing agent.

I’m relieved to check this off my “to do list” and report back to our Association Board of Directors Lem’s note along with my thoughts “…seems to follow along with the “Buyer Beware.”

But not so fast, we have member questions & further concerns. The following are excerpts from a string of emails that I found to be a very interesting lesson on Agency.

Member concerns & questions:

We need to get our membership educated on the new law and how it will affect our business practices. We need to be sure that we do not expose ourselves to an liability for passing along incorrect information to sellers or buyers.

Lem, I’m very concerned about liability for our agents on either side of any transaction and believe that disclosure backed up by documentation is need for this to work.

Lem’s Response:

Pursuant to what requirement do sellers and listing agents have to inform buyers about zoning issues? There has never been such a requirement, and the latest changes to the Code of Virginia make specifically clear that land use issues are beyond the disclosure obligations of listing agents. See Section 54.1-2131.

This is the buyer’s responsibility. Any buyer who buys land to build on should not expect seller or the seller’s agent to determine and inform buyer about how many lots can be carved out of the land purchased. This is the buyer’s responsibility, and the buyer’s alone. (Buyer agents might have some responsibility to alert buyers to the need to check, but even our buyer agents are not expected to be zoning experts.) This information is available from the locality, and if the buyer wants it, that’s where he gets it. He and the buyer agent can determine the role the buyer agent is expected to play, but to my mind, the proper role is not to play zoning expert, but to remind the buyer (if he needs reminding) that the buyer needs to do due diligence about the suitability of the property for the buyer’s purposes.

I would even go further. Listing agents who take it upon themselves to make representations about zoning may do so, but they do so at their considerable risk. If they’re going to render zoning opinions to the buyer, they had better be right. Why would they take on this responsibility?

Further member concerns:

Actually, I’m relieved to know that there is no requirement that listing agents reveal in advertising or mls listings the maximum number of building rights a parcel may have by law and that buyer agents may direct their clients to do their own due diligence in that regard.

I don’t see this as a zoning issue. When a seller, for instance, wants to sell off a portion of his property he will have to clearly state how many building rights are going to convey with it… When it comes to advising a seller client about a suggested listing price or a buyer client on an appropriate offer amount, shouldn’t agents consider this type of information? Should we direct our clients to produce this information for us before we can provide such advice?

Isn’t this information a material fact about a property just like some uncommon easements (mineral rights) or covenants (conservation easements)? If not, please help me to understand why it isn’t. I know a number of experienced agents who see this just as I do.

Is it possible that we practice the profession locally a bit differently than some in other parts of Virginia?

Lem’s response

I think I understand what you’re saying about the importance of the zoning/building lot issue, but where I think we’re getting crossed up is in determining whose responsibility it is to protect the buyer here. Certainly listing agents need to be able to counsel sellers about their affairs in this regard, and buyer agents need to be able to help buyers. But the original inquiry was as to whether listing agents have a duty to buyers to disclose how many houses can be built on a particular piece of land being sold. Ultimately, this is a land-use and zoning issue, because the number of units that can be built on a particular lot is a function of the zoning ordinance you are dealing with. (Building density is always a zoning issue.) I don’t know how else to say it except that sellers of real estate and their agents have no duty to make determinations and then representations to buyers about land-use issues.

Section 54.1-2131 B of the Code of Virginia provides: “A licensee engaged by a seller shall disclose to prospective buyers all material adverse facts pertaining to the physical condition of the property which are actually known by the licensee. As used in this section, the term ‘physical condition of the property’ shall refer to the physical condition of the land and any improvements thereon, and shall not refer to: … (ii) matters relating to governmental land use regulations ….”

I think this is the main confusion. What you say about the advice agents are expected to give their clients is true, but you shouldn’t take it further to impose on listing agents an obligation to do land-use due diligence for buyers. If it’s in the seller’s interest for the listing agent to be involved in the buyer’s affairs, so be it. But the legal duty just isn’t there, other than as necessary to achieve the seller’s objectives. And as I said earlier, there’s substantial risk in making zoning and other land-use representations to anybody.

A member’s conclusion:

It isn’t the listing agent’s responsibility to disclose to a prospective buyer how many building rights a listed property may have just as it isn’t the buyer agent’s responsibility to do the same for his client. If needed, they should both refer their clients to the appropriate authorities or professionals for accurate information.

As agents we all strive to serve our clients to the best of our abilities. The member questions were all good questions, coming from a seasoned agent that works hard for their clients. They take the time to get to know the clients requirements and use for the property, they take their responsibility and duties to their client seriously. This exchange illustrates just how easy it is to overstep our agency obligations; not only exposing ourselves to unnecessary liability but also actually not representing our clients best interest.

Moral of the story : Be the source of the source not the source.

Note: Bold and italics added by Candy Lynn for emphasis.

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10 Responses to How a simple question on zoning turned into a lesson on Agency

  1. Jim Rake says:

    The Buzz continues to excite me – good stuff. I’ve especially appreciated the inputs from Lem, whether video or written. While in this case the Code seems fairly clear (and shall not refer to: … (ii) matters relating to governmental land use regulations ….”), however, when in the sales business, competence and credibility normally win the day. In this case, can the listing agent leave it up to the buyer’s agent? Sure they can, but should they? Somehow, I’d rather not!

  2. Candy Lynn says:

    Jim:
    I think thats where we all get hung up on this. Our question is about what the Local Association needs to let members know about regarding this new zoning- specifically: how it affects their disclosure obligations. The VA Code is pretty clear about that. Beyond that you cross over into business practices & the association cannot be involved with recommending business practices to members as long as they are with in COE & VA Code.
    I still think on both sides Buyer & Seller “be the source of the source not the source” is always good advice.
    I’m looking forward to the discussions here!

  3. Jim Rake says:

    Candy – agreed on “be the source of the source not the source”, but do believe that similar to dual agency, it may not be illegal in Virginia, but we sure can discourage certain procedures and encourage others. Asking our agents to “refine” their professionalism, or encouraging them to do their “due diligence” can only improve our business.

  4. Candy Lynn says:

    Jim:
    Agreed – I generally direct them to the source & sit in on the meeting with the source – in this case the County Planning Director, that is part of my business plan for my professionalism.

  5. FAAR has actually been taking a look at building a summary of real estate related county ordinances for the members. The issue is how to figure out what isn’t a RE related ordinance. They all are! With a geographic coverage area the size of planning district 16 and the overwhelming number of rules changes that occur almost at whim in some areas, it almost isn’t feasible to do more than provide links to each jurisdiction’s ordinance page.

    Buyer agents were hired to protect the buyer. That can been done by putting the buyer’s nose in a book with the relevant issues being address. It’s almost impossible for the agent to know every county’s rules and to know each time it changes.

    Should the listing agent be required to disclose such information to the Buyer’s Agent? No,but I suppose it’s not a bad practice if the Buyer Agent makes it known the intent of the client, to send the buyer agent information – but only with the permission of the seller.

    Example: Buyer wants to buy the seller’s 2 acres with the intent of putting horses on it; but you know that one must own 5 acres for a horse – should you (the listing agent) tell the buyer agent?

    I think your Seller will be upset that you ran off the buyer, when you had no obligation to. However, if you can convince that it was the right moral thing to do, then so be it.

    The Seller hired you to sell the home – not protect the Buyer’s interest.

    My issue is that the Selling (buyer) Agent SHOULD be much more responsible to their clients and should take more time to explore POA and county ordinances with their clients.

  6. This question pleases me because of the people who responded and the categories Candy felt were relevant. As an Accredited Land Consultant (ALC)© I’d like to add my twist. Being an ALC does not give me the right to say I’m an expert that should be left to the public and my peers. I do feel that being an ALC© has given me an education in the field of land that has been approved by NAR©.

    As an ALC© I believe strongly that most commercial deals are like a team sport. In my game I may have many people that are brought into the game: the Seller’s attorney, the Buyer’s attorney, the Planning Department, a Timber Cruiser, a Surveyor, the Buyer, the Seller, Buyer’s agent, … in a short time you have a large team. When you have many players in a deal you have to be educated in the process. Our clients who are the buyers and sellers expect this.

    This question has the response of several local leaders and a very qualified attorney. My perception to their responses is that they are unfamiliar in the area of land and they have a desire to learn more. Let me make my plug. Look into the Virginia Chapter of the Realtors Land Institute (VCRLI)©, http://www.virginiarli.com/. This is an excellent place to get started – yes started. Education does not end with a diploma or designation. It is a continual evolution of the self.

    This original post was categorized as “Risk Management.” For me this is a red flag. I feel that education and networking are two areas to stay ahead of the competition and reduce the red flag. A great deal of time has been spent developing the educational material for the ALC© designation. In my opinion this education is underutilized by Virginia REALTORS©. If anyone feels that VCRLI should, or could be doing more to reduce the concerns of “risk management” please contact me so that we can discuss the concern.

    For those of us that love that area of real estate called land, we feel more REALTORS© need to be educated. This post is also an indication that more discussion and networking is needed. Our state is changing. We are having more discussions on transportation, water use, land use, energy, and eminent domain. All of these topics relate to land. If Virginia REALTORS© are not knowledgeable and educated in these areas, someone else will be.

  7. Alex Long, ALC, CCIM, AICP says:

    Zoning is a very relevant material fact in terms of land use. The zoning and the subdivision ordinance will impact not just land use, but by extension, the value of the property. Most MLS forms for land require zoning information.

    HOWEVER, zoning and the subdivision ordinance are not carved in stone, but rather organic, changing documents resulting from the legislative authority of the jurisdiction working in tandem with constraints as found in the Code of Virginia, the Comprehensive Plan of that jurisdiction, and the interplay of politics. Therefore, the zoning designation may change and/or what may be permitted in that zoning category or under the subdivision ordinance – all are subject to change.

    It is a broad obligation for the Realtor to have some basic understanding of the real estate market and the issues impacting that market. Keeping up with changes, proposed changes, to ordinances, as reported in most local news papers is essential. Perhaps it is not an exacting legal requirement of the broker, but actively pursuing an accurate perspective and the facts to support that view are what separate the professional from those who are not.

    As to whether the listing agent should breach or bring up the issues of zoning and subdivision ordinance impacts to a property, it is my firm belief the agent should. To begin with, the truth and an accurate picture of the property in all its dimensions should be presented. If an ordinance change looks immanent, then that should be reported. Otherwise, both the Seller and Purchaser will have wasted valuable time pursuing a goal that might not be attainable. Providing accurate information is essential, but just as importantly, is the need to provide the points of contact at the local jurisdiction, with the caveat that decisions and information from the jurisdiction are both a requirement and trump whatever information the agent provides, as a courtesy.

    An ethics teacher at college pounded into our heads that the law is the lowest common denominator of conduct; ethics seeks a higher calling. What voices do hear?

  8. Candy Lynn says:

    Bill:
    Great point:
    “Education does not end with a diploma or designation. It is a continual evolution of the self.”

    Good plug for ALC

  9. Candy Lynn says:

    Alex:
    This is what makes this discussion so interesting – ethics, agency, legal requirements all rolled into one.

    “As to whether the listing agent should breach or bring up the issues of zoning and subdivision ordinance impacts to a property, it is my firm belief the agent should. To begin with, the truth and an accurate picture of the property in all its dimensions should be presented. If an ordinance change looks immanent, then that should be reported. Otherwise, both the Seller and Purchaser will have wasted valuable time pursuing a goal that might not be attainable. Providing accurate information is essential, but just as importantly, is the need to provide the points of contact at the local jurisdiction, with the caveat that decisions and information from the jurisdiction are both a requirement and trump whatever information the agent provides, as a courtesy.”

    Again – “be the source of the source not the source”. My opinion or interpretation of the code is the only that. I am not a zoning expert. Neither ethically nor legally; I cannot represent myself as one. I cannot provide accurate information without first getting it from the source.

    As a local Association our job is to educate the members that change will, may or has occurred, what the change is & who the contact person is in local government.

  10. Alex Long says:

    Several points of clarification: It does not require one to be a “zoning expert” to obtain simple information from the local government. There should be no equivocation or room for judgment or analysis; the property is zoned ______ , and that is it. As to knowledge of your community and proposed changes, that might impart some analysis or judgment about the situation; but more of a cautionary note to the parties involved. The comment about “being the source of the source of the source, but not the source”, is a good one.

    Also, please note that if the zoning might be complicated, by several parcels or questionable, you should advise your client to pay for a Certificate of Zoning from the local government, whereby the zoning administrator will put in writing the zoning and any other information such as proffers that would control the land use.

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