In a time of scrutiny of various practices impacting the real estate industry, the 2024 Oregon Legislature passed House Bill 4058, which was signed by Gov. Tina Kotek and will take effect on Jan. 1, 2025. The law shares characteristics with legislation passed in other states that aimed to improve transparency and strengthen consumer protections in real estate transactions. HB 4058 has three main objectives: 1, to regulate residential property wholesaling; 2, to prohibit future right to list contracts; and 3, to set forth requirements for real estate agents to enter into written agreements when representing buyers and require transparency of agent compensation.
HB 4058 regulates residential property wholesaling The law places restrictions on real estate investors who wholesale residential property. The law defines residential property wholesaling as marketing residential property where the marketer only has an equitable interest or an option to purchase, has held this interest for fewer than 90 days, and has invested less than $10,000 in the development or improvement costs associated with the residential property.
Those parties engaging in residential property wholesaling must register with Oregon’s real estate commissioner, pay a registration fee, and provide disclosures to any potential buyers, sellers, or real estate brokers engaged in the sale. The law also requires residential property wholesalers to provide disclosures in all property advertisements. The real estate commissioner is still finalizing the standards for proper residential property wholesaler disclosure and advertising requirements, which are expected to be released before the law takes effect in 2025.
HB 4058 prohibits future right to list contracts The law prohibits most future right to list contracts, which it defines as a contract granting a right to list, or to refer to another for listing, residential real estate for sale in the future. This includes any document recorded in the county where the residential real estate is located. Real estate licensees in Oregon may not enter into or receive compensation from future right to list contracts if: (a) the duration of the contract exceeds 24 months; (b) the contract purports to run with the land or bind future owners of the real property; (c) the contract allows for assignment of the right to provide service without notice and consent of the owner of the residential real estate; or (d) the contract creates a lien, encumbrance, or other real property security interest. This prohibition applies to residential property only and does not apply if the residential property is owned by a corporation, limited liability company, or partnership.
HB 4058 requires real estate agents to use representation agreements when representing a buyer This law revises Oregon’s real estate agency law. New requirements are placed on real estate licensees representing buyers. Agents representing buyers in residential real estate transactions now must enter representation agreements with the buyer. The law defines a representation agreement as a contract between an agent and a buyer of real property that authorizes the agent, in exchange for compensation, to act on behalf of the buyer in purchasing real property or identifying real property for purchase.
HB 4058 requires written agency agreements for brokerage relationships with both sellers and buyers. Such agreements must be entered into before or as soon as reasonably practical after the broker commences providing brokerage services. For listing agreements, this is expressed in terms of the broker’s efforts to offer the seller’s property for sale or to find a buyer. For buyer representation agreements, the trigger is the broker’s commencement of efforts to assist the buyer in purchasing or identifying a property to purchase.
Representation agreements must state whether the agency relationship is exclusive or nonexclusive. The agreements must also describe the legal obligations of a buyer’s agent or seller’s agent either directly or by referencing the agency disclosure pamphlet required by ORS 696.820. The agreements must contain any other additional requirements prescribed by rule by the real estate commissioner. The duration of both buyer representation agreements and listing agreements may not exceed 24 months. These requirements apply only to residential real estate.
In addition to the buyer representation agreement requirements and the listing agreement requirements, HB 4058 places further requirements on disclosed limited agents. Under ORS 696.815, disclosed limited agents may represent both the buyer and seller in the same real estate transaction after entering into a disclosed limited agency agreement. HB 4058 requires further disclosure in that the disclosed limited agent must also enter into both a listing agreement with the seller and a buyer representation agreement with the buyer. So, an agent acting as a disclosed limited agent must have three agreements in place: 1, a disclosed limited agency agreement signed by all parties to the transaction; 2, a buyer representation agreement signed by the buyer; and 3, a signed listing agreement signed by the seller.
HB 4058 also addresses transparency of real estate agents’ compensation by introducing new disclosure requirements. The law requires that listing agents and buyers’ agents disclose to their respective clients the amounts and terms of any compensation they will earn from any real estate transaction. This disclosure requirement applies both to residential and commercial transactions. In other words, although brokers who represent buyers of commercial real estate are not required under the new law to enter into buyer representation agreements, all brokers (whether they represent parties in residential or commercial real estate transactions) must comply with these compensation disclosure requirements.
Conclusion The legislature’s stated purpose in enacting HB 4058 was to protect consumers and promote transparency in the real estate industry. HB 4058 comes in the wake of similar legislation passed in other states as the real estate industry and governments respond to ongoing class action lawsuits and settlements regarding broker compensation. Stay tuned for rulemaking and other implementation measures by the real estate commissioner.
Andrew Mathews is a Stoel Rives LLP attorney and a member of its real estate group. Contact him at 206-386-7592 or andrew.mathews@stoel.com. Elizabeth Clampitt is a Stoel Rives LLP attorney and a member of its real estate group. Contact her at 206-386-7645 or elizabeth.clampitt@stoel.com. The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither author nor the DJC guarantees the accuracy or completeness of any information published herein. Copyright © 2024 BridgeTower Media. All Rights Reserved.
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