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Washington Real Estate Practices Lesson 1: Real Estate Agency © 2013 Rockwell Publishing
Introduction Definitions Real estate profession is driven by agency relationships. Agent: Someone who has been authorized by another person to represent him in dealings with third parties. Principal: Person represented by an agent. © 2013 Rockwell Publishing
Before Acting as Real Estate Agent Before acting as a real estate agent, you must be licensed. Washington has two types of real estate licenses for individuals: managing broker license broker license © 2013 Rockwell Publishing
Before Acting as Real Estate Agent A managing broker performs real estate brokerage services for brokerage, under supervision of designated broker. Applicant for managing broker license must have been licensed broker for at least 3 of past 5 years. Applicant must also have completed additional real estate coursework and pass managing broker’s license examination. © 2013 Rockwell Publishing
Before Acting as Real Estate Agent A broker performs brokerage services for real estate firm, under supervision of designated or managing broker. Applicant for real estate broker license doesn’t need experience. But brokers licensed less than two years must receive heightened supervision from their designated or managing broker. © 2013 Rockwell Publishing
Before Acting as Real Estate Agent Each real estate firm must also be licensed. Firms are managed by a designated broker. Designated broker is a managing broker who is responsible for all firm activities. © 2013 Rockwell Publishing
Before Acting as Real Estate Agent A firm can establish branch offices under firm’s name. Each branch must have a managing broker to oversee branch activities. Designated broker supervises branch manager. © 2013 Rockwell Publishing
Before Acting as Real Estate Agent Affiliation with firm Factors to consider when choosing a firm: size specialty support services commission structure © 2013 Rockwell Publishing
Before Acting as Real Estate Agent Most real estate agents are considered independent contractors. The IRS generally considers someone an independent contractor if: she sets her own hours, and is paid by commission, not fixed salary © 2013 Rockwell Publishing
Before Acting as Real Estate Agent In a brokerage, most licensees are independent contractors. Non-licensed staff are usually employees. © 2013 Rockwell Publishing
Before Acting as Real Estate Agent Generally, independent contractors don’t receive employee benefits (health insurance, etc.), but the state does require brokerages to pay workers’ compensation insurance for all licensees. © 2013 Rockwell Publishing
Before Acting as Real Estate Agent Planning and budgeting Being a new agent can be financially draining. That first commission check can take a long time to arrive. Careful planning will help smooth the start of your career. © 2013 Rockwell Publishing
Before Acting as Real Estate Agent Planning and budgeting Approach your new real estate career as if you’re starting a new business—which is exactly what you’re doing. Since you will probably be an independent contractor paid by commission, you are essentially operating your own business under the umbrella of your brokerage. © 2013 Rockwell Publishing
Before Acting as Real Estate Agent Planning and budgeting You should prepare these materials long before making first cold call or listing presentation: business plan budget plan for building financial reserves list of start-up expenses © 2013 Rockwell Publishing
Summary Before Acting as Real Estate Agent Broker Managing broker Designated broker Brokerage affiliation Budgeting and planning © 2013 Rockwell Publishing
Real Estate Agency Law Agency disclosure Agents must give both parties disclosure statement stating which party they represent. Reduces: buyers’ confusion danger of undisclosed, inadvertent dual agency © 2013 Rockwell Publishing
Real Estate Agency Law Agent duties Until 1997, real estate agency relationships were governed by general agency law. Agents owed certain fiduciary duties to their principals. © 2013 Rockwell Publishing
Real Estate Agency Law Agent duties Fiduciary: person who occupies position of special trust in relation to another person. Fiduciary duties include: reasonable care and skill, obedience and good faith, accounting, loyalty, and disclosure of material facts. © 2013 Rockwell Publishing
Real Estate Agency Law Agent duties In 1997, the Real Estate Brokerage Relationships Act of Washington went into effect. Law replaced fiduciary duties with statutory duties. © 2013 Rockwell Publishing
Real Estate Agency Law Agent duties Under the law, agents owe two types of statutory duties: general duties owed to any party, and special duties owed only to agent’s principal. © 2013 Rockwell Publishing
Summary Real Estate Agency Law Agent Principal Fiduciary Agency disclosure law © 2013 Rockwell Publishing
Real Estate Agency Duties Duties owed to any party Agent owes following statutory duties to any party (not just principal): reasonable care and skill honesty and good faith presenting all written communications disclosing material facts accounting providing pamphlet on agency law disclosing existing agency relationships © 2013 Rockwell Publishing
Duties to Any Party Reasonable care and skill Agent owes duty of reasonable care and skill to all parties to transaction. Agent who causes harm because of negligence may be held liable for damage. © 2013 Rockwell Publishing
Duties to Any Party Honesty and good faith Under duty of honesty and good faith, agent may not: make inaccurate statements, or misrepresent facts about property or transaction. Includes unintentional as well as intentional misrepresentation. © 2013 Rockwell Publishing
Duties to Any Party Presenting written communications Agent must present all written communications to or from either party in a timely manner. Duty continues even after property is subject to an existing contract. © 2013 Rockwell Publishing
Duties to Any Party Disclosure of material facts Agent must disclose a material fact to a party if: licensee knows about it, and it is not apparent or readily ascertainable by the party. © 2013 Rockwell Publishing
Duties to Any Party Disclosure of material facts Material fact: information that has substantial negative impact on value of property, on party’s ability to perform, or on purpose of the transaction. Law specifically excludes certain facts from this definition. © 2013 Rockwell Publishing
Duties to Any Party Disclosure of material facts An agent does not have duty to disclose that property (or a neighboring property) was site of: violent crime suicide or other death drug- or gang-related activity political or religious activity other occurrence that doesn’t affect property condition or title to property © 2013 Rockwell Publishing
Duties to Any Party Disclosure of material facts Criminal activity is material fact if it affects the physical condition of the property. Example: illegal drug lab may leave dangerous chemical residues. If lab has been cleaned up and declared safe by qualified personnel, no disclosure required. © 2013 Rockwell Publishing
Duties to Any Party Disclosure of material facts In most cases, a material fact requiring disclosure would be a latent defect in the property. Latent defect: a problem that would not be discovered by ordinary inspection. © 2013 Rockwell Publishing
Duties to Any Party Disclosure of material facts Unlike other states, agents in Washington have no duty to: inspect the property investigate either party’s financial position independently verify statements made by either party or any reasonable source © 2013 Rockwell Publishing
Duties to Any Party Accounting Licensees must report to clients on a regular basis on the status of all entrusted funds. Trust funds: funds given to licensee by client for safe-keeping. © 2013 Rockwell Publishing
Duties to Any Party Agency law pamphlet Each party served by agent must receive pamphlet covering the Real Estate Brokerage Relationships Act. © 2013 Rockwell Publishing
Duties to Any Party Agency law pamphlet Party must receive pamphlet before: signing an agency agreement, signing an offer, consenting to dual agency, or waiving any agency rights, whichever comes first. © 2013 Rockwell Publishing
Duties to Any Party Agency disclosure Licensee must disclose in writing which party he represents in real estate transaction. Disclosure must be made before party signs offer. © 2013 Rockwell Publishing
Summary Duties to Any Party Reasonable care and skill Honesty and good faith Written communications Material facts Real estate agency law pamphlet Agency disclosure © 2013 Rockwell Publishing
Real Estate Agency Duties Duties owed to principal Agent owes principal five statutory duties: loyalty disclosing conflicts of interest confidentiality advising principal to seek expert advice good faith and continuous effort © 2013 Rockwell Publishing
Duties to Principal Loyalty Duty of loyalty is modified for dual agents. Dual agent must take no action that is harmful to either party’s interest. Dual agent cannot disclose one party’s negotiating position to the other party. © 2013 Rockwell Publishing
Duties to Principal Conflicts of interest Agent must disclose any conflicts of interest. If agent represents seller, any relationship between agent and buyer must be disclosed. © 2013 Rockwell Publishing
Duties to Principal Conflicts of interest The agent must disclose if buyer is: friend relative business associate of agent company in which agent has an interest © 2013 Rockwell Publishing
Duties to Principal Confidentiality If principal gives agent confidential information, agent may not disclose that information to other parties. © 2013 Rockwell Publishing
Duties to Principal Confidentiality Confidential information: information from or concerning principal that: was acquired by licensee during agency relationship, principal reasonably expects to be kept confidential, principal has not disclosed, © 2013 Rockwell Publishing
Duties to Principal Confidentiality would be detrimental to principal if disclosed, and principal is not personally obligated to disclose to other party. © 2013 Rockwell Publishing
Duties to Principal Confidentiality Information given in confidence may be shared if it is: already matter of general knowledge, or material fact, such as latent defect of property. © 2013 Rockwell Publishing
Duties to Principal Confidentiality Confidential information about principal cannot be disclosed even after agency relationship terminates. © 2013 Rockwell Publishing
Duties to Principal Expert advice Agent must advise principal to seek expert advice in matters beyond agent’s expertise. For example, agent must advise principal to contact inspector to evaluate home’s structural soundness. © 2013 Rockwell Publishing
Duties to Principal Good faith and continuous effort Agent has duty to make good faith effort to fulfill terms of agency agreement. Seller’s agent must try to find buyer. Buyer’s agent must try to find suitable property. © 2013 Rockwell Publishing
Duties to Principal Good faith and continuous effort Once sales contract has been signed, seller’s agent doesn’t have to seek additional offers buyer’s agent doesn’t have to look for other properties Dual agent doesn’t have to show a property if there is no written commission agreement. © 2013 Rockwell Publishing
Summary Duties to Principal Loyalty Conflicts of interest Confidential information Expert advice Good faith and continuous effort © 2013 Rockwell Publishing
Legal Effects of Agency For third party, dealing with agent may be legal equivalent of dealing with principal. If principal authorizes agent to sign document or make promise, principal will be bound by agent’s signature or promise. © 2013 Rockwell Publishing
Legal Effects of Agency Vicarious liability Harm caused to third party by agent’s actions may create liability for principal. Vicarious liability: Injured person may sue principal as well as agent. If injured party prevails, both agent and principal will be liable for damages. © 2013 Rockwell Publishing
Vicarious Liability Real estate agency relationships Under Washington’s real estate agency law, seller or buyer generally can’t be held vicariously liable for harm caused by agent. © 2013 Rockwell Publishing
Vicarious Liability Exceptions There are exceptions to this general rule. Principal may be liable for agent’s actions if principal: authorized real estate agent’s actions, or approved them after the fact. © 2013 Rockwell Publishing
Vicarious Liability Under license law, designated brokers and managing brokers playing a supervisory role can be held vicariously liable for harm caused by licensees working under them. © 2013 Rockwell Publishing
Creating Agency Relationships Before 1997, real estate agency relationships could be formed in one of three ways: express agreement ratification estoppel Real Estate Brokerage Relationships Act changed the way agency relationships are created. © 2013 Rockwell Publishing
Creating Agency Relationships Express agreement Most agency relationships are created by written express agreement. Written listing agreement creates agency between brokerage and seller. © 2013 Rockwell Publishing
Creating Agency Relationships Performing brokerage services Under new law, agent who performs real estate brokerage services for buyer automatically becomes buyer’s agent. Brokerage services include showing buyer available properties, etc. © 2013 Rockwell Publishing
Creating Agency Relationships Performing brokerage services Automatic buyer agency doesn’t apply if agent has written agreement to the contrary, such as a: listing agreement with seller dual agency agreement with both parties subagency agreement with seller non-agency agreement © 2013 Rockwell Publishing
Terminating Agency Relationships Once agency has been terminated, agent no longer represents principal. Agency relationship may be terminated by: actions of the parties, or operation of law. © 2013 Rockwell Publishing
Terminating Agency Relationships Termination by parties Since agency requires consent of both principal and agent, parties can end agency relationship at any time. © 2013 Rockwell Publishing
Terminating Agency Relationships Termination by parties Termination by the parties may occur by: mutual agreement revocation renunciation © 2013 Rockwell Publishing
Terminating Agency Relationships Termination by operation of law An agency relationship can also terminate by operation of law, without any action by principal or agent. © 2013 Rockwell Publishing
Terminating Agency Relationships Termination by operation of law Termination by operation of law may occur through: expiration fulfillment of purpose death or incapacity extinction of subject matter © 2013 Rockwell Publishing
Agency Disclosure Once agency relationship has been created, agent must disclose to each party which party she represents. © 2013 Rockwell Publishing
Agency Disclosure When disclosure required Disclosure must be made to buyer before buyer signs offer to purchase. Disclosure must be made to seller before seller signs offer to accept it. © 2013 Rockwell Publishing
Agency Disclosure Form of disclosure Washington law requires making the agency disclosure in writing. Most purchase and sale agreement forms contain necessary language. A nonstandard form may not (such as bank’s form for sale of bank-owned property). In this case, use a separate agency disclosure form. © 2013 Rockwell Publishing
Agency Disclosure Acting in accordance with disclosure Agent must act in accordance with disclosures made. If agent is seller’s agent, agent may not act like buyer’s agent. © 2013 Rockwell Publishing
Agency Disclosure Acting in accordance with disclosure If agent’s conduct is not consistent with disclosure, he may be subject to disciplinary action by DOL. © 2013 Rockwell Publishing
Agency Disclosure Acting in accordance with disclosure DOL disciplinary sanctions include: license suspension or revocation restriction and/or monitoring of activities fine of up to $5,000 per violation probation completion of relevant real estate course censure or reprimand © 2013 Rockwell Publishing
Agency Disclosure Acting as a principal Agent acting as principal in transaction must disclose that he is: licensed in WA as a real estate agent, purchasing/selling property for agent’s benefit, and intending to make a profit. © 2013 Rockwell Publishing
Agency Disclosure Acting as a principal Agent acting as principal should not act as agent for other party. Agent should recommend that other party seek independent legal advice and appraisal. © 2013 Rockwell Publishing
Summary Agency Relationships/Agency Disclosure Vicarious liability Creation of agency Termination of agency Inadvertent dual agency Agency disclosure requirements © 2013 Rockwell Publishing
Types of Agency Relationships Four types of real estate agency relationships in Washington: seller agency buyer agency dual agency non-agency © 2013 Rockwell Publishing
Types of Agency Relationships Seller agency Before 1997, the majority of real estate agents in Washington acted as sellers’ agents. Under old rules, the agent who found a buyer automatically represented the seller. Selling agent was subagent of principal (seller). © 2013 Rockwell Publishing
Types of Agency Relationships Seller agency Under current agency law, agent only represents seller if agent is listing agent. © 2013 Rockwell Publishing
Seller Agency Duties owed to seller Listing agent in transaction represents the seller. Seller’s agent owes seller the five statutory agency duties owed to principal. © 2013 Rockwell Publishing
Seller Agency Duty owed to buyer Seller’s agent owes duty of honesty and good faith to buyer as well. Seller’s agent should disclose latent defects and answer buyer’s questions honestly. © 2013 Rockwell Publishing
Seller Agency Must be loyal to seller Seller’s agent should not: give buyer advice on how much to offer for listed property put buyer’s interests above seller’s interests in any way disclose seller’s confidential information to buyer © 2013 Rockwell Publishing
Seller Agency Services to buyer Seller’s agent may provide certain services to buyer without violating duties to seller: discussing buyer’s housing needs disclosing information and answering questions about property discussing financing alternatives © 2013 Rockwell Publishing
Seller Agency Services to buyer furnishing copies of documents that might affect property explaining negotiating and closing processes © 2013 Rockwell Publishing
Seller Agency Previous relationship with buyer If seller’s agent has previous relationship with buyer, conflicts of interest may arise. Agent should: remind buyer of her agency status and where her loyalty lies, tell buyer if he shares confidential information with her, she must disclose it to seller, and recommend buyer work with another agent. © 2013 Rockwell Publishing
Buyer Agency A buyer is automatically represented by the agent the buyer is working with, unless there is a written agreement to the contrary. Buyer’s agents owe agency duties to buyers rather than sellers. © 2013 Rockwell Publishing
Buyer Agency Benefits Benefits of buyer agency include: loyalty and protection of confidential information, objective advice on price and condition of homes, help with negotiation, and access to more properties (such as foreclosures and FSBOs). © 2013 Rockwell Publishing
Buyer Agency Written agreement Buyer agency can be automatically created through agency law. It may also be created through a written buyer agency agreement. © 2013 Rockwell Publishing
Buyer Agency Buyer agency agreement will: authorize brokerage to represent buyer state that dual agency will be created if brokerage also represents seller describe buyer’s agent’s authority limit scope of buyer’s agent’s responsibilities detail promises buyer makes to buyer’s agent © 2013 Rockwell Publishing
Buyer Agency Compensation Buyer’s agent typically compensated with portion of commission paid to seller’s agent. Even though payment comes from seller, buyer’s agent still represents buyer. © 2013 Rockwell Publishing
Buyer Agency Buyer-paid fee Buyer’s agent and buyer may agree to buyer- paid fee instead. May be: hourly fee percentage fee flat fee © 2013 Rockwell Publishing
Buyer Agency Buyer-paid fee Usually used only if property search is expanded beyond MLS (for instance, to include FSBOs). Agent may insist on getting part of fee up front, through nonrefundable retainer. © 2013 Rockwell Publishing
Summary Seller and Buyer Agency Establishing seller agency Advantages of seller agency Establishing buyer agency Advantages of buyer agency Compensation of buyer’s agent © 2013 Rockwell Publishing
Dual Agency Dual agency occurs when agent represents both buyer and seller in same transaction. Dual agent owes agency duties to both parties. Because interests of both parties often conflict, WA law imposes duty to refrain from acting to detriment of either party. © 2013 Rockwell Publishing
Dual Agency Before disclosure laws Before agency disclosure laws were passed, dual agency relationships were often created inadvertently. Seller’s agent would give advice to buyer, who assumed seller’s agent represented his interests. Created undisclosed inadvertent dual agency. © 2013 Rockwell Publishing
Dual Agency In-house transactions Today, most dual agencies occur in in-house transactions. In-house transaction: when agent representing buyer and agent representing seller both work for same brokerage. © 2013 Rockwell Publishing
Dual Agency Written consent required Dual agency legal in Washington only with written consent of both parties. Most listing agreements and buyer’s agency agreements allow parties to agree in advance to dual agency in in- house transaction. Separate dual agency disclosure forms also available for obtaining consent. © 2013 Rockwell Publishing
Non-Agency Person may be involved in transaction without forming agency relationship with either party. Known as facilitator or intermediary, and compensated through finder’s fee. © 2013 Rockwell Publishing
Non-Agency No agency duties owed Facilitator does not owe agency duties to either party, but still owes general duties a licensee owes to any party, such as: disclosure reasonable care and skill honesty and good faith © 2013 Rockwell Publishing
Subagency Only real estate brokerage has a direct agency relationship with a buyer or seller. A broker, for example, is the agent of the brokerage and subagent of the client. Subagent: an “agent of an agent.” © 2013 Rockwell Publishing
Subagency Although the client works directly with a broker, the client signs an agency agreement with the brokerage firm. Strictly speaking, the brokerage firm is the client's agent. The broker is the brokerage firm's agent and the client's subagent. © 2013 Rockwell Publishing
Summary Dual Agency, Non-agency, Subagency Dual agency Written consent to dual agency Non-agency Intermediary Subagent © 2013 Rockwell Publishing
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