Agency Law Revisions 2024
Since January 1, 2024,you have been required to deliver the Agency Law pamphlet to consumers and enter a brokerage services agreement with your client “as soon as reasonably practical. ”What does that mean? Why can’t the law create a simple deadline for delivery? Who determines when “as soon as reasonably practical” has arrived? What if the required action happens late? Who is confirming compliance? While this standard seems foreign and undefinable to many real estate brokers, the reasonableness standard is something you comply with every day, in a variety of ways.
“Reasonableness” as a standard of behavior is a doctrine created by the judiciary generations ago. It is now the litmus test for determining negligent conduct versus acceptable conduct. For example, as real estate brokers, you are required to provide real estate brokerage services with “reasonable” skill and care. Simply put, you must avoid negligence. You must deliver real estate brokerage services consistently with the manner in which a reasonably prudent real estate broker would deliver real estate brokerage services. What does that mean in any given set of circumstances? It means that your conduct in the factual setting will be compared to the conduct expected of a reasonably prudent real estate broker in that same factual setting. Did you do what is expected of a reasonably prudent (competent) broker?
When you drive, you are held to the standard of care of a reasonably prudent driver. When a jury considers an allegation that a driver engaged in negligence, the jury will be presented with all the factors at play in the driving environment such as weather, traffic, speed limits, darkness and other factors, and evaluate the driver’s actions in light of those circumstances. Did the driver react in a way that a reasonably prudent driver would be expected to react in the same situation? Neither a driver nor a real estate broker are required to act perfectly but both are required to conform to normal expectations of a person engaged in driving or real estate sales.
It is fair to ask, why was a “reasonableness” standard used to describe the due date of broker’s delivery of the pamphlet and entry into a brokerage services agreement rather than simply creating a deadline. The answer is simple. It is not possible to create a deadline that conforms to every fact pattern but a backup deadline is provided for delivery of the pamphlet.
The pamphlet must be delivered as soon as reasonably practical but in all cases, it must be delivered prior to a client entering an agency agreement and must be delivered to an unrepresented party before the party signs an offer (and if that is not possible, then as soon as reasonably practical thereafter).There is no backup deadline for entry into the brokerage services agreement. Instead, it must be entered “before” brokerage services are delivered but if not, then “as soon as reasonably practical ”after the delivery of real estate brokerage services.
It should be remembered that the goal of the legislation is to create an outcome where the pamphlet is delivered and the brokerage services agreement is entered at the outset of the relationship between broker and the consumer. This standard creates an urgency around entry into the services agreement. The standard originates with the concept that information will be delivered and the services agreement entered before services are delivered but if that is not possible, then as soon after services are delivered as practical.
Take for example, a scenario where a broker is holding an open house for another broker’s listing and a potential buyer enters the open house. When broker shows buyer around the house and discusses the availability of the home for purchase, broker is providing real estate brokerage services. It would not be realistic for broker to stop buyer at the door and require buyer to sign a buyer agency agreement. Instead, broker must provide the minimal brokerage services of consulting with buyer during demonstration of the home. If buyer then wants to look at other homes with broker or write an offer on the open house, broker must present buyer with a pamphlet and enter a brokerage services agreement with buyer before proceeding. This example also illustrates how the backup deadline for delivery of the pamphlet results in an early delivery of the pamphlet. Because the services agreement must be signed at the very beginning of the relationship between broker and the consumer and because the pamphlet must be delivered before the services agreement is entered, the pamphlet will always be delivered early in the relationship between broker and the consumer.
In the example just given, the broker holding the open house is not the listing broker. If broker were the listing broker, would that change anything about how the broker proceeded with respect to delivery of the pamphlet and entry into a buyer agency agreement? Perhaps. Acting as the seller’s exclusive agent and having a services agreement already in place with broker’s client, the seller, listing broker would welcome buyer into seller’s home and provide real estate brokerage services while advocating for buyer’s purchase of seller’s home. If buyer wanted to view other homes with the listing broker, then listing broker would do exactly as the non-listing broker did. Listing broker would give buyer an agency law pamphlet and enter a buyer agency agreement with buyer before showing buyer other homes.
However, if buyer wanted to purchase seller’s home and asked listing broker to write an offer for buyer, listing broker would not necessarily need to enter a services agreement with buyer. Listing broker would already have a services agreement with listing broker’s client, the seller. In fact, if listing broker entered a services agreement with buyer, listing broker would convert broker’s exclusive representation of seller into limited dual agency. With the consent of both parties, listing broker could become a limited dual agent if that was broker’s choice. However, broker could also write the offer for buyer, serving as seller’s exclusive agent. In that case, listing broker would deliver an agency law pamphlet to buyer, explaining to buyer that buyer is unrepresented in the transaction and that listing broker represents seller exclusively. If buyer wants to proceed, broker should advise buyer to seek independent representation but if buyer indicates that buyer wants listing broker to write buyer’s offer, then listing broker should proceed. Best practices dictate that listing broker follow that oral conversation with written confirmation of listing broker delivering the pamphlet, disclosing that buyer is unrepresented and advising buyer to get independent representation.
It is fair to say that until brokers and consumers become accustomed to Washington’s revised law and the requirement that brokers and buyers enter a services agreement before or as soon as reasonably practical after the provision of brokerage services, brokers and buyers will both be required to enter a buyer agency agreement before either may be comfortable doing so.
While there is no way around the timing of the requirement because it is required by law, there are ways to create a contract that achieve the goal of providing complete transparency to buyer regarding compensation issues while minimizing the burden of entering a long-term, exclusive contract. It may be that neither buyer nor broker want to enter along-term, exclusive contract before they’ve had a chance to work together and nothing in the law creates that requirement. In fact, the law anticipates negotiation around many contract terms including the duration of the contract, the exclusivity of the contract and the geographical area covered by the contract. This means that buyer and broker can enter a contract of very short duration, or commitment for services over a small geographical area, or that is non-exclusive but that still includes a full recitation of the compensation buyer will owe broker should buyer agree and move forward. By limiting any of those three issues, broker will likely remove much of the discomfort from entry into the agreement while still providing full disclosure of buyer’s financial obligations to broker should buyer choose to hire broker for the purpose of fulfilling the limited contract terms. If buyer and broker choose, after working together under the limited contract terms, to expand the scope of their agency agreement by increasing the length or area covered by the agreement or by converting the agreement from non-exclusive to exclusive, broker and buyer can amend their contract to include those new terms.
The old adage, “change is hard,” maybe true in this case. It will be difficult, at first, for some brokers and buyers to become accustomed to the requirement for entry into an agreement before broker provides substantive brokerage services. Once the requirement becomes routine, the difficulty will be forgotten and both broker and buyer will work together with a full understanding of the commitment each owes to the other. That is the goal of the legislation.
Annie Fitzsimmons, WR Legal Hotline Lawyer
This article originally appeared in the Special Winter 2024 issue of RE Magazine.