I am filled with optimism on our local real estate front as I hear the rumblings of Sellers preparing their homes for sale. Buyers await in anticipation!
Speaking of Buyers and as promised, I wanted to inform my readers, clients, and friends about our new Washington State Law surrounding Buyer Agency. It’s really not a dry subject, rather a huge improvement to the real estate industry here in Washington –  long overdue guidelines for the way we do business. Yes – it’s now the law to have a Service Agreement signed between Buyers and Agent/Brokers prior to them advising you. This has always been the case with Sellers. We are the 17th state to adopt the law and because of class action lawsuits in other states and with other Real Estate companies, we’ve joined the force. It is expected that eventually this will become a standard of practice nationally. These changes went into effect January 1, 2024. What to expect…

Transparency

One criticism of the real estate industry as a whole for many years has been lack of transparency. Buyers and Sellers have often been left in the dark as it pertains to representation, the duties of their Broker when providing representation, and a Broker’s compensation. In a nutshell, these new changes are specifically designed to clarify the details for all parties across the board.

Written Service Agreements for All

If you’ve sold a home with a real estate Broker you may be well aware that a listing agreement, outlining the terms of service, the duration of the listing, and the compensation you agree to pay, is required before a home can be officially listed and advertised for sale. With a listing agreement, you create a contractual relationship with your Broker and you have a basis for understanding the duties and responsibilities they have to you and what you can expect in return.

Doesn’t it seem strange that a listing agreement is required for a Broker to represent a Seller, but to this point, no agreement has been required for a Broker to represent a Buyer? Doesn’t a Buyer deserve to have the same degree of clarity as to what they hire a Broker to do for them? Shouldn’t a Buyer have the same right to discuss and agree to the Buyer Broker’s compensation for these services?
The answer is “yes” and the legislature acted. Beginning January 1, 2024, written Service Agreements are required to be executed “as soon as reasonably practicable” when you engage a real estate Broker. I believe that understanding the terms and carefully interviewing and choosing the right Buyer Broker can mean the difference in owning a home or not while seeking the terms that work for you as a Buyer.

What Does this Mean?

If you’re a Buyer shopping for a home, whether seriously or casually, when you ask a Broker to show you homes, give personalized market expertise, or represent you by writing an offer, that Broker will be required to execute a service agreement with you before engaging in services. You will also have the opportunity to discuss the Broker’s compensation and fully understand how that compensation is to be paid. (Please note, the required agreement can be exclusive or non exclusive, which means if you’re not ready to commit to working exclusively with that Broker, you can request a non-exclusive agreement.)

If you’re a Seller beginning the listing prep process with a Listing Broker, you’ll be required to execute an agreement even if the listing is many months down the road.

Isn’t all of the Broker compensation required to be paid by the Seller?

This is probably the most common misconception. The answer “no”. In Washington, the listing agreements specify compensation paid to the listing Broker, and in a separate paragraph, the seller MAY offer compensation to a Buyer Broker. The Seller does not have to offer compensation to a Buyer Broker and though this rule has been in place here for many years, it just was never really discussed.

In practice, the vast majority of Sellers in Washington offer to provide some level of compensation to Buyer Brokers in a transaction. Buyers are required to pay large down-payments and closing costs, therefore, it can be difficult for Buyers to have the additional cash to pay their Brokers. Certain types of loans, such as VA and FHA do not allow Buyers to pay their Brokers directly. As a result, Broker compensation is usually built into the price paid by the Buyer for the home and the net sale price the Seller will accept. A Seller desires to sell, so to attract Buyers to their home, making an offer of compensation to the Buyer Broker is likely to continue. What is changing with the new laws and service agreements is the transparency surrounding the compensation discussion.

Unfortunately, many states have not recognized the importance of this type of “decoupled” listing agreement, and is therefore a contributing cause to major class action lawsuits you may have heard about in the news. Because Washington has been far ahead of the industry, none of the Washington MLS’s, Washington Association of Realtors, nor specific brokerages have been brought into these suits. We intend to keep it that way!

Limited Dual Agency

The final important piece of the new legislation adds transparency surrounding dual agency. Dual Agency is when one individual Broker is representing both the Buyer and the Seller in a transaction. The new law clarifies that in this situation we will now be considered a “Limited Dual Agent” and all parties must separately acknowledge in writing that they agree to this type of representation. Why? When a Broker is a Dual Agent (now a Limited Dual Agent), they are no longer able to advocate directly for either party. Essentially that Broker is now just a facilitator, therefore the Seller and Buyer need to fully understand the limitation of the Broker’s duties and have the choice as to how to proceed. Good thing? Bad Thing? I would say different for each case but worth a discussion with your Broker and based on the property as well as the parties involved.

Conclusion – The future is bright and it benefits all of US!

Contracts that need signatures offer opportunities for discussion and clarity! If this seems like an awful lot to digest I’m happy to unpack it with you by answering all of your questions and address concerns. I myself have spent multiple days discussing, learning, and even providing input to the NWMLS on contracts before they were finalized and went to print. I am seizing this change which takes the professionalism and services we provide to a much needed level. We’re evolving as an industry and before the early 1990’s Buyer’s had no legal representation. 😳 We’ve come a long way!