Team Mayhem
While it is true that there is no reference to “teams” in the Real Estate Licensing Law or the Agency Law, it is not true that real estate teams operate outside the scope of either law. The Real Estate Brokers who are team members, are subject to all Washington authority. Team leaders and team members, as well as the designated brokers who supervise them, you need to know the rules so that you can operate within the rules. There has been an increase in non-compliance with basic operational laws as the prevalence of teams has increased. This article will discuss rules every broker should know and apply them to the operations of typical team structures.
It is critical to remember that “team” is a broadly defined term. This article speaks equally to formal and informal teams. Your “team” may consist only of you and an assistant. Every team structure present in today’s market has the potential to be unknowingly engaged in violations of Washington law. You should read this article carefully.
Compensation.
With respect to compensation, Washington law allows Real Estate firms to share compensation with other Real Estate firms but prohibits Real Estate firms from sharing compensation with any person not licensed to the firm. Washington law also prohibits brokers and managing brokers from sharing compensation with any person except through the firm. Said differently, a broker cannot share commissions, directly, with anyone and a firm may only share commissions with other firms and brokers licensed to the firm. (RCW 18.85.301.)
Compare Washington law to some of the trends present in today’s industry. A broker may hire a licensed assistant (transaction coordinator) and compensate the assistant from each closing. If the broker and the licensed assistant are both licensed to the same firm, each may be compensated by the firm, through a sharing of the firm’s commission. It would be acceptable for the firm to receive the full commission and then share it with both broker and licensed assistant or the firm’s designated broker could instruct escrow to pay both firm licensees directly. It is critical that designated broker give this written instruction to escrow because no other person is authorized to give this instruction to escrow. It would never be acceptable for a broker or managing broker, who is not the designated broker, to instruct escrow to pay a portion of a commission directly to another broker. Moreover, broker may not compensate the licensed transaction coordinator directly, for the provision of real estate brokerage services.
In the scenario just discussed, the licensed assistant and the supported broker are licensed to the same firm. It is becoming all too common for a licensed transaction coordinator and the supported broker to be licensed to different firms. It should be understood that in that situation, the broker may not compensate the transaction coordinator directly. To do so, the broker will pay compensation to another licensed broker for the provision of real estate brokerage services. That is a patent violation of the License Law. The only way this compensation can flow is for the designated broker of broker’s firm to share the compensation with the firm to which the transaction coordinator is licensed. The transaction coordinator’s firm will then share compensation with the transaction coordinator.
If the transaction coordinator is not licensed, then broker can compensate transaction coordinator directly because, by definition, the transaction coordinator cannot perform real estate brokerage services. In some cases, a licensed transaction coordinator is compensated directly by a broker and in that situation, the firm should have an office policy restricting the support that the transaction coordinator will provide. Even though the transaction coordinator may be licensed, if a broker is compensating the transaction coordinator directly, then the transaction coordinator cannot perform real estate brokerage services.
Supervision. Washington law is clear. “Responsibility for any real estate broker, managing broker, or branch manager in conduct covered by [the License Law] shall rest with the designated broker to which such licensees shall be licensed. In addition to the designated broker, a branch manager shall bear responsibility for brokers and managing brokers operating under the branch manager at a branch office.” (RCW 18.85.201 and RCW 18.85.275.) The law goes on to explain that while a designated broker is responsible for all supervision, a designated broker may delegate supervision of brokers to a managing broker licensed to the same firm. (RCW 18.85.275.) Any such delegation must be by written delegation agreement, signed by designated broker and the managing broker. (WAC 308-124C-125.) However, only a managing broker may “supervise or exercise right of control over other brokers in the performance of real estate brokerage services.” (RCW 18.85.275.)
Compare Washington law to some of the trends present in today’s industry. In some cases, team leaders licensed to one firm recruit brokers licensed to another firm to show properties, hold open houses, meet with potential buyers or sellers and generally provide real estate brokerage services that will then be converted to listings or sales for the team. The broker is compensated, by the team, for the provision of real estate brokerage services. Compensation issues were discussed previously and will not be repeated but are likely troublesome in this situation. At issue in this discussion is supervision. Who is supervising the broker who is providing real estate brokerage services? In many cases, the broker’s designated broker is not aware that broker is providing real estate brokerage services and thus, is not supervising the broker. The team leader is not supervising the broker because, by law, supervision responsibility rests with the broker’s designated broker. It would appear that broker is unsupervised in delivery of these real estate brokerage services even though the entirety of the License Law structure is dependent upon every broker being supervised by a designated broker.
What about supervision of the team and the real estate brokerage services contracted for by the firm? If the team has a contractual relationship with a consumer, such as a listing agreement or a buyer agency agreement, but the requirements of that contract are performed by a broker licensed to another firm, is the firm fulfilling its contractual obligation to the consumer? What if the broker engages in negligence? The designated broker for the firm that owes a contractual obligation to the consumer has no supervision authority over broker. Often times, the broker is operating in a part of the state that is geographically disconnected from the team’s firm. In that situation, the team’s designated broker may not even know what the broker is doing. Even if the team’s designated broker were aware of negligent behavior by the broker, however, the team’s designated broker has no supervisory authority over the broker who is licensed to another firm.
Could this situation be corrected if the team recruits only brokers who are licensed to the firm? Said differently, what if the team recruits brokers geographically remote from the team’s firm and those brokers then hang their license with the team’s firm? That would then enable the designated broker for the firm to supervise all brokers providing real estate brokerage services to the consumer. However, there could still be a problem. Is the team leader, the person giving direction to the team members, licensed as a managing broker? If not, that team leader may not “supervise or exercise right of control over other brokers in the performance of real estate brokerage services.” That team leader must either obtain a managing broker’s license or cease all actions that direct the provision of real estate brokerage services by other brokers.
Consider the use of transaction coordinators licensed to another firm. Who is supervising that transaction coordinator? The designated broker for the firm that has the contractual and agency relationship to the consumer is not supervising that transaction coordinator. That designated broker has no supervisory authority over the transaction coordinator who is licensed to another firm. The designated broker will supervise the broker handling the transaction but no licensee who is accountable to the consumer will be supervising the licensed transaction coordinator. The transaction coordinator’s designated broker is probably not supervising the transaction coordinator because that designated broker has no idea what is happening in the transaction that belongs to another firm. This relationship violates the License Law and likely violates the Agency Law duty to provide real estate brokerage services with reasonable skill and care. (RCW 18.86.030.)
Perhaps it would be an improvement if the transaction coordinator is licensed to the same firm as the broker supported by the transaction coordinator. That would allow the designated broker to supervise both the broker and the transaction coordinator. Alternatively, the designated broker could delegate, to a managing broker, supervisory responsibility over the managing broker’s transaction coordinator. But what if the broker who is supported by a transaction coordinator is not licensed as a managing broker? Without a managing broker’s license, the broker may not supervise or exercise right of control over the licensed transaction coordinator in the performance of real estate brokerage services. The broker, who does not have a managing broker’s license, may not direct a licensed transaction coordinator in the provision of real estate brokerage services. In most cases, this means that a broker, unlicensed as a managing broker, cannot be supported by a licensed transaction coordinator unless that transaction coordinator is prohibited from providing real estate brokerage services.
Record Keeping.
The Washington Administrative Code requires firms to maintain, among other documents: An accurate, up-to-date log of all agreements or contracts for brokerages services submitted by the firm’s affiliated licensees; a legible copy of the transaction or contracts for brokerage services; and a transaction folder containing all agreements, receipts, contracts, documents, leases, closing statements and material correspondence for each real estate transaction. (WAC 308-124C-105.)
Compare Washington’s Administrative Code to some of the trends present in today’s industry.
When a transaction coordinator or team member is licensed to a different firm, who is keeping the required records for that transaction coordinator or broker? The designated broker for the firm to which the transaction coordinator or broker is licensed is required to maintain a transaction log and transaction folder for all real estate brokerage services performed by any broker licensed to the firm. Is that happening in situations where the transaction coordinator or broker/team member is licensed to a firm other than the firm to which the supported brokers are licensed? Moreover, is the firm that licenses the supported broker(s) maintaining proper records on all of the real estate brokerage services provided to the consumers who are in contract with the firm? If a consumer believes they have been damaged and files a complaint, will the Department of Licensing be able to access all of the relevant transaction log and transaction folder documents from the firm that was contracted to provide services to the consumer?
Agency.
Based on Agency Law and the statewide listing agreement, when a seller signs a listing agreement (Forms 1A or 1B), the seller forms an agency relationship only with the firm and the broker named on the face of the listing agreement. No other broker licensed to the firm, or licensed to any other firm, represents seller. Instead, every other broker represents buyer. (RCW 18386.020.) The party represented by a broker is entitled to all of the Agency Law duties owed by a broker to a represented party including, among other things, a duty of loyalty, a duty to maintain confidences and a duty to disclose conflicts of interest. (RCW 18386.040, .050 and .060.) Additionally, every broker must “ disclose in writing to all parties to whom the broker renders real estate brokerage services, before the party signs an offer in a real estate transaction handled by the broker, whether the broker represents the buyer, the seller, both parties, or neither party. The disclosure shall be set forth in a separate paragraph entitled “Agency Disclosure” in the agreement between the buyer and seller or in a separate writing entitled ‘Agency Disclosure.’” (RCW 18386.030.)
Compare Washington law to some of the trends present in today’s industry. When a transaction coordinator or a team member/broker supports the listing broker, whether they are licensed to the same firm as the supported broker or not, who does that transaction coordinator or team member represent? IF the transaction coordinator or team member is licensed to the same firm as the supported broker and IF the designated broker has made a separate appointment of agency to the transaction coordinator or team member (Form 1S is a good form to accomplish this goal), only then will the transaction coordinator or team member also represent the seller.
In any other set of facts, the transaction coordinator or team member will represent the buyer. This means that in a situation where the transaction coordinator or team member are licensed to a firm other than the supported listing broker’s firm, the transaction coordinator and team member represent the buyer. Additionally, the firm to which the transaction coordinator or team member are licensed also represent the buyer. The only way to change the agency of the transaction coordinator or team member who are licensed to another firm is for that firm to also enter a listing agreement with the seller, naming the transaction coordinator or team member an agent of the seller. If the transaction coordinator or team member (and his/her firm) represent the buyer but support a listing broker, are the listing firm and the listing broker properly shielding seller’s confidential information from the transaction coordinator and team member? Are the transaction coordinator and team member (and the firms to which they are licensed) giving the buyer the Agency Law duties owed to the represented buyer? If so, does this create a conflict for the listing firm that must be disclosed to seller?
Finally, have the transaction coordinator or team member properly disclosed their agency relationship in the “Agency Disclosure” provision of the purchase agreement? Form 42A is an addendum that creates space for the disclosure of additional brokers who provide real estate brokerage services to the parties in a transaction. Every broker involved in a transaction must disclose their agency relationship to the parties, in the purchase agreement. In too many situations, licensed transaction coordinators and licensed team members have failed to disclose their agency relationship to the parties, in transactions where the transaction coordinator or team member have provided real estate brokerage services.
Equally troublesome is a situation where a team leader has not been involved in a transaction but requires the brokers who actually represent a party to identify the team leader in the purchase agreement as an “agent” of the party. With this disclosure, the brokers who draft the purchase agreement and the team leader commit a misrepresentation of agency. If the team leader does not represent the party, it is a misrepresentation of agency to disclose that the team leader does represent a party. Moreover, this disclosure may create liability for the team leader. If a consumer is ultimately unhappy and files a claim against “the broker” who handled the transaction, the broker(s) named in the disclosure will be held to account for their provision of real estate brokerage services. How will the team leader prove delivery of real estate brokerage services with reasonable skill and care or honesty and good faith when the team leader never met or worked with the consumer or anybody else involved in the transaction?
It is important to remember that in every situation where a broker misrepresents their agency, the firm is also responsible. Recall that the designated broker of each firm is ultimately responsible for the delivery of all real estate brokerage services by all brokers licensed to the firm and also owes contractual obligations to all consumers with whom the firm is in contract.
Advertising.
The License Law prohibits false or deceptive advertising. (RCW 18.85.361.)
Compare Washington law to some of the trends present in today’s industry. In the situation just described, where a team leader takes credit for transactions not actually handled by the team leader, the motivation for this is often a desire to advertise that the team leader has handled X number of transactions. In advertising, the team leader will claim credit for all of the transactions in which the team leader’s name appears even though the team leader played no role in the actual transaction. Advertising experience with transactions that the team leader did not actually handle is false and deceptive advertising.
It is also false and deceptive advertising for a team to advertise that it can meet consumer needs in remote geographic locations when provision of services in those areas is dependent upon the team utilizing brokers when use of that broker will violate any of the laws already described in this article. If a team is using that broker, how is the broker introduced to the consumer? Is it disclosed that the broker is licensed to a different firm or does the broker give the consumer a business card that purports to identify broker as licensed to the same firm as the team? If so, that is false and deceptive advertising.
As lengthy as this article is, it does not describe all of the violations of state law present in many practices engaged in by teams and brokers who utilize the services of transaction coordinators. Brokers and firms should do a deep dive comparison of their practices to state law. All of the issues called out in this article are known to the Department of Licensing and many of them would be quickly revealed in a routine audit. Designated brokers, team leaders and every licensee is individually responsible for compliance with Washington law in the provision of real estate brokerage services and within the scope of their duties under the law.