Agency Duties Objectives Upon completion of this section the student should be able to: 1. Demonstrate how to create a dual agency relationship by separately entering into an agency agreement with both the seller and the buyer in addition to complying with statutory requirements for disclosure. 2. Explain that brokers are required to perform all agency duties established by the agency law but brokers are not required to perform fiduciary duties. 3. Recognize that Washington courts seem to be in flux as to the status of seller disclosure versus caveat emptor and that it is more important than ever for buyers to be advised to conduct thorough inspections prior to purchasing. a. Douglas v. Visser 295 P 3d 800 (2013) and other published opinions. b. Agency law duty for brokers to disclose material facts actually known by broker: No duty to investigate, reasonable reliance. 4. Demonstrate the proper way to make referrals to third party vendors, both pursuant to RCW 18.86 and RCW 18.235.130 and to minimize the risk at the same time as providing competent referrals. a. Define the importance of making referrals when a subject matter exceeds the scope of a broker's license, that it is okay for a broker not to have all of the answers. 5. Recognize what constitutes proof of signatory authority for clients such as guardians, power of attorney, personal representatives and trustees.
How to Create a Dual Agency Relationship There were three important changes to Washington state agency law which took effect in July 2013: Ensuring that agency law terminology matched the 2010 real estate license law changes. Defining licensee duties listed in the agency law are statutory duties, not fiduciary. Defining when a licensee is a dual agent, seller s agent or buyer s agent. Being a Dual Agent In order to be a dual agent, representing both the buyer and seller, you must have two things: A signed agency agreement with the seller, which is typically addressed in your MLS listing agreement A signed buyer agency agreement with the buyer. If you do not have a signed buyer agency agreement then you solely represent the seller even though you may have been working with the buyer for an extended period of time. In a normal circumstance where a broker isn t representing the seller, a buyer's agency is created by default when you were working a buyer even though you did not have a signed buyer s agency agreement. However, when the broker represents the seller through a signed agency agreement, the agency relationship created through actions doesn t matter. It s important to have both elements in writing if you are acting as a dual agent. The law change which became effective July 2013 makes it clear: without a buyer s agency agreement, when you sell your own listing to the buyer you will solely represent the seller. As a solution moving forward you may want to: Have a discussion with the buyers at your original buyer s consultation if you are considering being a dual agent as a general practice. Use a buyer s agency agreement.
Ensure you have your own firm-approved protocol in place for when you need to obtain a signed Buyer s Agency Agreement before you show your listing. The following is a breakdown of the RCW 18.86.020 which was changed: Situation Licensee is the seller. In-house transactions where one licensee represents the seller and one licensee represents the buyer. In-house transactions where the managing broker manages both the seller's agent and the buyer's agent. Licensee performs brokerage services for a buyer and there is no agency agreement to represent the seller or the seller and buyer together. The real estate firm has a written agency agreement appointing the licensee to represent the seller. The licensee has a subagency agreement with the seller's licensee or firm. The real estate firm has a written agency agreement appointing the affiliated licensee to represent both parties. In which case The licensee is a seller s agent. The designated broker and the branch manager are dual agents. The designated broker and the branch manager are dual agents. The licensee is a buyer's agent. The licensee is a seller's agent. The licensee is a seller's agent. The licensee is a dual agent. Keep in mind dual agency can occur even when a broker sells a property listed by another broker if they work for the same firm. If a broker who represents a buyer makes an offer to purchase a property listed by the buyer s agent firm, the designated broker or appointed managing broker becomes the dual agent to both the buyer and seller. The listing agent represents and is the seller s agent. The buyer is represented by the buyer s agent. The firm s management become the dual agent to both the buyer and seller which must be disclosed to all parties.
Agency Duties vs. Fiduciary Duties The Washington agency law took effect in 1997. It created a list of specific statutory duties for real estate brokers. These duties replaced inconsistent common law duties. The reason for the change is the real estate broker can be involved as a seller's agent, a buyer's agent or a dual agent. Certain requirements of a fiduciary have been removed from the agency law for real estate. Before agency law took effect, real estate brokers were bound to perform fiduciary duties. These duties are the highest standard of conduct you could owe to your client including good faith, trust, confidence, candor, honesty and loyalty. Lawyers owe fiduciary duties to their clients without exception. The high standard of care includes eliminating the possibility of representing another party. It s the reason a lawyer will ask you who you are litigating against if you want to sue someone because they are prohibited from any conflict of interest. While statutory duties are not as high of a standard as fiduciary duties, there are many important obligations owed to clients and others in a transaction. Statutory requirements (laws created by the legislature) address dual agency and the duties a broker owes their client. As a broker, you are held to a standard that says you will take no action that is adverse or detrimental to either the buyer or the seller in the transaction. The statutory duties set an attainable standard of care that is protective of consumers and creates a level of conduct that real estate brokers can grasp and fulfill in day-to-day transactions. The agency law was critical, and in the Jackowski vs. Borchelt decision in 2012 it was of monumental importance to our industry. The Washington state Supreme Court opinion upheld real estate agency law. Providing clarification, here s an excerpt from the law: The duties under this chapter are statutory duties and not fiduciary duties. This chapter supersedes the fiduciary duties of an agent to a principal under the common law. Buyer Beware
Washington courts seem to be in flux (conflict) as to the status of seller disclosure versus caveat emptor (buyer beware). It means it is more important than ever for buyers to be advised to conduct thorough inspections prior to purchasing It has become apparent through Washington state court decisions that Washington is currently a buyer beware state when it comes to the purchase of residential real estate. This position has been clearly defined in a not so recent (Alejandre v. Bull, 2007), and a recent (Douglas v. Visser, 2013) court decision. The supposed purpose of Washington state Seller Disclosure Statement has been to disclose material facts regarding the property. A material fact is defined as a defect in the property that is not obvious or readily apparent, and would negatively affect a potential purchaser s decision to buy the property. Although the supposed purpose of the form was to protect buyers, the results achieved have been far from satisfactory. There are multiple reasons for this: It is expected that buyers do their own due diligence when purchasing a home. (from the Alejandre decision) Sellers are not required to disclose the degree of a problem. If buyers become aware of a material fact on their own, it becomes the buyer s obligation to investigate. (from the Alejandre decision) Seller s have no obligation to investigate material facts. Some think that the seller disclosure statement has created more problems than it has solved. Specifically, two problems: It creates a false sense of security for the buyers, making them feel the disclosure represents a true picture regarding the condition of the property. Most buyers believe that if the representations on the disclosure are inaccurate, or fraudulent, buyers would be able to take action against the seller. For the most part, state courts do not support this position. In both of the above cited cases, the court has made it clear that it is the buyer s obligation to prove diligence. It is not going to help the buyer to prove a seller s lack of diligence. Buyers have a duty to follow up on every defect that is found. If a defect is found by the buyer, and then it is discovered that the defect is far more extensive than the buyer thought, it will be felt by the court that the lack of diligence by the buyer was the cause of the eventual outcome, and the buyer will have no claim against the seller.
Brokers have clear instruction when it comes to disclosure of material facts. Listing and selling brokers do carry the burden of agency loyalty to their client. But it is clearly stated they must disclose all material facts in addition to being honest to all parties in a transaction. For brokers who represent the seller, there is no duty to investigate the property. The listing broker may reasonably rely on information provided by the seller. That is assuming the information provided by the seller is reasonable assuming the knowledge and intelligence expected of a licensed real estate broker. If a broker has no personal knowledge regarding a specific property other than the information provided by the seller, the broker must read the disclosure carefully to determine that it is accurate based on the broker's own general real estate knowledge, or personal knowledge of the property. If a listing broker is or becomes aware of a material fact regarding the property, that fact must be disclosed to the buyer or any future buyer, as long as the agent is personally involved in that transaction. Whether a seller agrees or not, material facts must be disclosed in writing to all buyers as long as the broker is involved in that transaction. Listing brokers have no obligation to encourage buyers to investigate the condition of a property. For brokers who represent the buyer, since the courts are ruling that it s buyer beware it is wise to encourage buyers to investigate the condition of a property. In addition, buyer representatives should discuss how inaccurate information given on a disclosure statement doesn t mean they would be able to win a court case. Like the seller representative, buyer representatives must disclose the existence of material facts regarding a property if they have knowledge of that material fact. The disclosure must be made in writing. They have no duty to investigate, but buyer representatives have an obligation to read the seller disclosure statement in order to determine if it is complete, and if it is accurate based on the knowledge of the buyer representative. Buyer representatives could possibly know more about a property than the seller representative or the seller. Referring 3 rd Party Vendors COPYRIGHT REALESTATESCHOOL.ORG CURRENT ISSUES IN WASHINGTON RESIDENTIAL REAL ESTATE (CORE) 20
As a broker, you will make a lot referrals because a particular question or activity is outside your area of expertise. Doing so is part of the duties of a broker to their clients. When making referrals you can never refer your clients to any individual that does not have the required licensure for the job. As a result, real estate licensees must be cautious when referring 3 rd party vendors to their clients. A licensee should never refer a client to a 3 rd party vendor, unless they are certain that the vendor is not only licensed, but is properly licensed to do business in the state of Washington. The department of licensing provides a place to look up businesses and professional licenses at http://www.dol.wa.gov/business/checkstatus.html Example: John s clients wanted to do a loan modification or refinance. John, a real estate broker with ABC Realty, referred his client to Joe, a real estate broker with XYZ Investments. He claimed to be an expert at loan modification and refinance. Joe was not licensed with the Department of Financial Institutions to do refinances or loan modifications. He was also not exempt from being licensed with the DFI. John should have checked this out before making the referral. This referral has the potential of putting John, his brokerage as well as Joe and his firm at serious legal risk. Example: Kate, a real estate broker with XYZ Realty referred her clients to Best Short Sale Experts LLC. Her clients wanted to do a short sale on the property they owned and Kate felt that she did not have the knowledge or expertise to do a short sale. Best Sale Experts LLC was not licensed to do real estate transactions in Washington. Kate should have checked this out before making the referral. Again, this referral could have serious legal implications. Example: Real estate broker Sarah, recommended her brother Paul, of XYZ Electric Company, to her clients who needed some electrical work done. Sarah knew that Paul was not licensed as an electrical contractor. She could be charged with unprofessional conduct as she was aiding or abetting an unlicensed person to practice or operate a business or profession when a license is required. RCW 18.235 provides a list of activities that constitute unprofessional conduct one of which is: Aiding or abetting an unlicensed person to practice or operate a business or profession when a license is required. COPYRIGHT REALESTATESCHOOL.ORG CURRENT ISSUES IN WASHINGTON RESIDENTIAL REAL ESTATE (CORE) 21
Note: Check to see if a person who is performing a service possesses the required licensure in Washington state. Also, suggest resources where the client can verify this information. This helps ensure that no miscommunication exists. Signatory Authority Whenever a person is signing real estate documents on behalf of an entity, the real estate broker must request legal proof of authorization to sign. It is important the person signing a real estate document has the legal authority to sign. Common situations might include: Guardians Power of Attorney Personal Representatives of an estate Trustees Corporations and LLC s The proof of signatory authority should be available from the court of jurisdiction or from a notarized document such as a Power of Attorney. Brokers should copy the files and include them in the real estate transaction file. The proof of signatory authority varies with certain situations. Such as: Guardian: copy of letters of guardianship. Power of Attorney: copy of the power of attorney document. Trustee: copy of the trust agreement or an abstract of the trust agreement identifying the trustee, trustor (creator of the trust) and beneficiary. Personal Representative: copy of letters testamentary or letters of administration. Corporations and LLC s: copy of company bylaws or a resolution by the board of director COPYRIGHT REALESTATESCHOOL.ORG CURRENT ISSUES IN WASHINGTON RESIDENTIAL REAL ESTATE (CORE) 22
COPYRIGHT REALESTATESCHOOL.ORG CURRENT ISSUES IN WASHINGTON RESIDENTIAL REAL ESTATE (CORE) 23