Industry Evolution: A Better Future for Consumers & Brokers
This is the third and final article in a series considering industry developments affecting the Washington State Agency Law (RCW 18.86, the “Act”). As of the writing of this article, there is a bill amending the Act (the “Bill”), proposed by Washington REALTORS®, which unanimously passed both houses of the Washington Legislature. The Bill is awaiting the Governor’s signature. This article addresses the Bill and the changes to the Act that will result once the Bill is signed into law.
The theme of the Bill is transparency. The revisions to the Act suggested by the association will increase transparency for buyers with respect to the services and compensation of the buyer’s broker; increase transparency for buyers and sellers who work with a dual agent regarding the limitations of a dual agent’s advocacy; and improve understanding of brokerage relationships for consumers and brokers alike with a rewriting and simplification of the Agency Law pamphlet (the “Pamphlet”).
Increased Transparency Regarding Buyer Broker Services and Compensation.
Just as brokers currently negotiate with sellers for the services that are provided, the compensation the broker receives for those services, who will pay the compensation, and when the compensation is due; the Bill will afford buyers the same opportunity to engage in those negotiations with the buyer’s broker. The Bill includes a requirement that all brokers enter into a written “services agreement” with any party to whom broker provides real estate brokerage services, including buyers. The agreement must be entered before, or as soon as reasonably practical, after broker provides brokerage services 1.
Services agreements must include provisions comparable to those included in typical listing agreements. The agreement must address the term (duration) of the agreement; the name of the broker appointed as an agent for the principal; whether the agency relationship is exclusive or non-exclusive; whether the principal consents to the agent serving as a single-agent “limited” dual agent, which consent must be separately initialed by the principal and include an acknowledgment from the principal that a limited dual agent may not advocate terms favorable to one principal to the detriment of the other principal; and whether the principal consents to the firm’s designated broker and any managing broker responsible for the supervision of the broker appointed as an agent for the principal to act as a limited dual agent in a transaction in which different brokers affiliated with the same firm represent different parties. The agreement may also contain any other agreements between the parties, such as a description of the services to be provided.
One of the benefits of requiring a services agreement for buyers is to provide an occasion for conversation and negotiations between buyers and brokers regarding the services the buyer will receive and how the broker will be compensated for those services. This will afford the parties an opportunity to address the fact that the buyer’s broker may be compensated by the buyer, the seller, or both. Unless the buyer agrees to pay compensation to the buyer’s broker, the broker may be left to accept whatever the seller offers, if anything, or to negotiate with the seller for compensation as a part of the buyer’s offer. For example, buyer and broker can agree that broker will negotiate with seller for compensation or that buyer will compensate broker directly, giving buyer greater room for negotiation with seller around other issues. Or, the parties can agree that depending on the amount of compensation offered by a seller, broker will contribute a portion of broker’s compensation to assist buyer with closing costs or property improvements. Simply put, there will be no limits on the creativity brokers and buyers can employ to reach services and compensation terms that satisfy the objectives of each. Some of these options are already contained in the statewide buyer representation agreements (Statewide Forms 41 and 41A).
Consumer Consent to Limitations of Dual Agency.
While there are many examples of consumers being well served by a single-agent dual agent, there are also examples of consumers who do not understand the limitations of dual agency and believe that broker is their advocate, when in fact, the dual agent cannot advocate for either party in the transaction. It is also likely that many brokers do not fully appreciate the limitations of dual agency representation. The Bill will increase the likelihood that consumers and brokers are better informed as to the limitations inherent in dual agency, without restricting the opportunity for dual agency.
The Bill requires consumers to separately initial consent to single-agent dual agency in the services agreement (listing agreement or buyer agency agreement) before their broker can serve as a dual agent. Simultaneously, the Pamphlet will be rewritten to provide an understandable explanation of the actual limitations inherent in a dual agency relationship. As explained in article 2 of this series, a dual agent may take no action that is adverse or detrimental to the interests of either party, which means that a dual agent cannot advocate for either party. The services agreement and the Pamphlet will explain those limitations. If a consumer believes their interests in a transaction will be best served by a single-agent dual agent, then the consumer may consent to that representation.
Similarly, when two brokers licensed to the same firm each represent a different party to the transaction, the managing broker who supervises those brokers is a limited dual agent. While each broker can and should advocate on behalf of his or her principal, the supervising managing broker will be constrained through the supervision of the two brokers who each represent a different party to the transaction. The consumers involved will be made aware of and consent to the managing broker’s dual agency.
A New and Improved Pamphlet.
The Bill includes an improved and simplified Pamphlet that brokers will be required to distribute to consumers before the consumer signs a brokerage services agreement. The Pamphlet will explain many concepts and some new terms that a consumer will encounter during the process of shopping for real estate and working with a real estate broker. The Pamphlet will be written in language intended to be easily understood by more consumers. The current Pamphlet simply restates the statute as written and is not particularly helpful to inform consumers about how agency relationships function.
Of course, no informational document can address every question for every consumer, but the Pamphlet is designed to be an effective tool for brokers to explain agency relationships to consumers. The Pamphlet will assist in describing what the consumer should expect from a relationship with the broker and it will provide a springboard for conversations about services and compensation. The Pamphlet will help brokers explain the need for a services agreement and the concepts included within the services agreement. It is likely that consumers and brokers alike will gain a greater understanding of the expectations of their role in the transaction through a discussion around the concepts described in the Pamphlet.
When Will the Amended Act Take Effect?
The revised Act will take effect January 1, 2024. Between now and then, there will be many opportunities for education, including in-person, hybrid and on-line classes offered by Washington REALTORS® and other providers. Brokers are encouraged to take classes early to leave time to consider how their practices and conversations will change when the law changes. Updated forms (revised services agreements) and the Pamphlet will be available for review and discussion during the classes.
1. The bill provides for exceptions when a broker’s services are expressly limited to commercial property, as defined by RCW 60.42.005. This article only addresses residential brokerage services.
About Annie Fitzsimmons
Annie is the Washington REALTORS® Legal Hotline Lawyer. To ask Annie a Legal Hotline question or to access the Hotline Q&A database please visit warealtor.org/legal-hotline.