A new era in the practice of real estate
by Glenn E. Crelin, Director
Washington Center for Real Estate Research, Washington State University
On January 1, 1997, the practice of real estate in Washington state takes on a new look, at least legally. For some real estate licensees, it will be business as usual. For others, it will be dramatically different. The common law of agency is being replaced by a new law which clarifies the duties of real estate agents to their clients.
Previously, most real estate licensees involved in any transaction worked for the seller. Accordingly, their duty was to protect the best interest of that seller at all times. Not surprisingly, a 1983 study by the Federal Trade Commission showed buyers did not know or understand this fact. They believed that a licensee who knew them, knew the details of their finances and did not know the seller was really looking out for their interest. In fact, that licensee was obligated to tell the seller about any pertinent information the customer volunteered to the licensee.
More recently, the practice of real estate has increased consumer protection. Mandatory disclosures of agency relationships and of known problems with the property are examples of consumer protection in Washington.
In addition to disclosures, the nature of relationships between licensees and buyers began to change. The industry slowly recognized that a licensee could represent the interests of a buyer, and still be paid a commission split by the seller. This required a change in MLS rules and disclosures to all parties. Buyer agency has been the prevailing practice in urban markets throughout the state for several years. Beginning in January, it will be presumed under law that the real estate licensee working with a buyer is that buyer's agent unless a different arrangement has been agreed to in writing.
The new law also clarifies other relationships. In the case of two licensees affiliated with the same broker, only the broker is a dual agent (representing both the seller and buyer), and each licensee solely represents his/her client, unless there is a written dual agency agreement which makes the individual salespeople dual agents. When a salesperson is working with a buyer on a property on which the salesperson took the sales listing, both the salesperson and the broker will be dual agents. Extreme caution must be used by all parties to ensure no client's interests are subordinated to the others'.
Under the new law all licensees, regardless of whom they represent, must:
Seller's agents, buyer's agents and dual agents have additional duties:
- Exercise skill and care;
- Deal honestly and in good faith;
- Present all written offers, including those which come in after a contract has been agreed to;
- Disclose all existing material facts (without requiring the licensee to initiate studies);
- Account for all monies;
- Provide a copy of the agency law before any agreements are signed; and
- Disclose agency relationships to all parties.
In addition to generating additional paperwork, the change in agency relationships will alter the way many real estate firms conduct business. For example, licensees have often shared information about sellers or buyers at sales meetings. Despite the good intention to generate traffic through a listing or to identify additional properties to show buyers, this could violate their obligation not to disclose confidential information.
- Be loyal to their client's interest;
- Disclose in a timely fashion any conflicts of interest;
- Advise the client to seek expert advise on matters beyond the real estate licensee expertise;
- Not to disclose any confidential information about the client; and
- Make a good faith effort to find a buyer/property subject to the client's specifications.
While the new legislation guarantees the buyer will have an advocate for their best interest, that advocate may have a little less information than in the past.