Washington Advanced Real Estate Law

Legal Environment of the Real Estate Brokerage

Upon completion of this section, you should be able to:

• Explain the role of a real estate broker, designated broker, managing broker and firm in the context of a real estate transaction
• Demonstrate an awareness of legal duties and obligations to the client and other parties involved
• Demonstrate an understanding of the sources and scope of the various regulations and laws that affect the operations of a real estate firm
• Differentiate between legal and ethical requirements affecting the real estate firm
• Describe policies that should be in place to guide compliance
• Identify the statutory duties created in the operation of a real estate firm

Roles of Brokers and Their Legal Duties and Obligations

Designated Broker
"Designated Broker" is the title of the person who is recognized by the state and the Multiple Listing Service (MLS) as the responsible member for brokerage transactions. This person is ultimately responsible for the actions of all brokers within the brokerage. This title may also include certain voting rights at the local MLS and the authorization to sign certain documents. When a broker leaves a brokerage, the designated broker is responsible for signing their license and returning it to the Department of Licensing in Olympia. There is only one designated broker per brokerage. Each branch office of a brokerage is required to have a branch manager. The nomenclature for this classification has not changed from the previous classification.

Managing Broker
"Managing Broker" is the title of a person who may be managing a brokerage or a branch office or of a broker who has the education to manage an office, even if he or she is currently not doing so. The managing broker is responsible for the supervision of their brokers and is responsible for the review of all transactions. The designated broker may also delegate further duties to the managing broker.

Branch Manager
A branch manager is responsible for the affiliates of a branch office. A brokerage must have more than one office to have a branch office; a brokerage with a single office is not considered a "branch." There is one designated broker for all of the branch offices, and there is one branch manager per branch office. A branch manager is usually considered a member (not a subscriber, as brokers are considered) by most Multiple Listing Services, and he or she has voting rights in the MLS. 

Like a designated broker, a branch manager has the duty and authority to:

• Supervise affiliated brokers
• Hire affiliates
• Terminate and "sign off" on brokers' real estate licenses
• Review all transactions

Broker
This term refers to all other licensees not listed above. The name used previously was "agent." All "agents" and brokers who renew their license after June 30, 2010, will need to complete a transitional course. This will enable them to acquire the title of "broker." Brokers will be required to take more coursework and clock hours prior to taking their real estate exam. A broker is an agent for the designated broker. All transactions and listings belong to the brokerage and not to the broker.
Note: Some of the educational requirements for brokers changed after June 30, 2009. You should keep current on these changes. Further information can be found at: http://www.dol.wa.gov/business/realestate/renews.html

The distinction between a client and a customer has to do with responsibility and agency.

Duties of a Broker to all Parties

In Washington, regardless of whether a broker is an agent, the broker owes to all parties they provide real estate brokerage services the following duties:

• To exercise reasonable skill and care.
• To deal honestly and in good faith.
• To present all written communications to and from either party.
• To disclose all existing material facts.
• To account in a timely manner for all money and property.
• To provide a pamphlet on the law of real estate agencies.
• Disclose who the broker represents.

Agency Duties Owed to Clients

When a broker is acting on behalf of a buyer, seller, or acting as a dual agent, the broker owes additional duties to their clients (principals). They are in addition to duties we just discussed that are owed to all parties.

 They are:

• Loyalty
• Disclosure of any conflicts of interest
• Advise they seek expert advice outside the broker's area of expertise
• Confidentiality

Loyalty

To be loyal means, taking no action that is adverse or detrimental to the client's interest in a transaction.

Conflicts of Interest

To timely disclose any conflicts of interest.

Expert Advice

To advise the client(s) to seek expert advice on matters relating to the transaction that are beyond the agent's expertise.

Confidentiality

Not to disclose any confidential information from or about the client(s), except under subpoena or court order, even after termination of the agency relationship. The duration of the confidentiality owed to the principal by a real estate broker does not have an expiration, it lasts forever.

Example: 

The listing broker knows that the lowest amount that the seller would be willing to accept is $729,000 for their home. During an open house, a potential buyer visits and asks the listing broker, "What is the lowest price that the seller will take for this home?" The broker replies that he represents the seller and that the person visiting the house should make a solid offer. This is a great example of effective representation and an example of confidentiality and acting in the best interest of a client.

Confidential information means information from or concerning a principal of a broker that:

• Was acquired by the broker during the course of an agency relationship with the principal;
• The principal reasonably expects to be kept confidential;
• The principal has not disclosed or authorized to be disclosed to third parties;
• If disclosed, would operate to the detriment of the principal; and
• The principal personally would not be obligated to disclose to the other party.

The real estate agency pamphlet which is required to be given to all parties who receive real estate brokerage services will contain the laws that explicitly codify everything we have just discussed under the requirements of the agency. It is important not only for you as a broker to be able to follow these laws, to have a thorough understanding of the laws, but also because you will most likely be answering questions from clients who will want to know the meaning of certain provisions in the law of agency pamphlet. The purpose of giving all clients the pamphlet and the clear disclosure of representation (who represents who) is aimed at transparency and clarity. The laws are designed to make the real estate profession and its required duties less esoteric and more public.

Example: 

Amy, a broker with ABC Realty, is the listing agent for the Browns. Because she has a listing agreement with the Browns, she has established an agency relationship with the Browns, as their broker. During an open house, the Smiths visit the home and want to buy it. Amy decides not to be a dual agent and to represent the Brown's solely. She writes up an offer, stating that she is representing the Browns and that the buyers are representing themselves. She further advises the Smiths to seek independent legal counsel before signing the contract. While Amy has supplied real estate services to the Smiths by writing up the offer, the Smiths are not her clients. They are her customers.

Sources and Scope of Regulations and Laws

The following federal agencies regulate the real estate industry and brokerage.

HUD
"Housing and Urban Development" (HUD) assist homeowners by developing regulations and acts. Some divisions within HUD include Home Improvement Branch, Single-Family Housing Program Development, Inspector General's Fraud Hotline, Office of Manufactured Housing Program, Office of Fair Housing and Equal Opportunity (FHEO) and the Office of RESPA and Interstate Land Sales. 

The following are links to some basic information, found on the HUD home page:

• Buy a home
• Avoid Foreclosure
• Find Rental assistance
• Apply for a Grant
• Talk to a Housing Counselor
• Get Involved in My Community
• File a Fair Housing Discrimination Complaint
• Making Homes Affordable
• HUD Implementation of the Recovery Act
• FHA
• Public and Indian Housing

Note: More information can be found at: http://portal.hud.gov/portal/page/portal/HUD/
RESPA

The Real Estate Settlement Procedures Act (RESPA) was first passed in 1974 and was established to protect consumers during residential real estate financing transactions. Its main purpose is to inform home buyers about the estimated and actual costs of settlement services (the fees and services involved in completing the lending transaction) and to eliminate unscrupulous practices that can increase the cost of settlement services, including kickbacks, unnecessary fees and referral fees for services provided by the affiliated companies. RESPA is regulated by HUD.

Note: Further information can be obtained at: http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm

Department of the Treasury

The Department of the Treasury oversees the Internal Revenue Service (IRS) with respect to property taxation.

The purpose of the United States Treasury's Financial Crimes Enforcement Network (FinCEN) is to protect national security, detect criminal activity and safeguard financial systems from abuse. The department investigates money laundering in real estate transactions. The following was taken from FinCEN's website:

"FinCEN was created in 1990 to support federal, state, local, and international law enforcement by analyzing the information required under the Bank Secrecy Act (BSA), one of the nation's most important tools in the fight against money laundering. The BSA's recordkeeping and reporting requirements establish a financial trail for investigators to follow as they track criminals, their activities and their assets. Over the years, FinCEN staff has developed its expertise in adding value to the information collected under the BSA by uncovering leads and exposing unknown pieces of information contained in the complexities of money laundering schemes.

Dirty money can take many routes-some complexes, some simple, but all increasingly inventive-the ultimate goal being to disguise its source. The money can move through banks, check cashers, money transmitters, businesses, casinos, and even be sent overseas to become clean, laundered money. The tools of the money launderer can range from complicated financial transactions, carried out through webs of wire transfers and networks of shell companies, to old-fashioned currency smuggling.

FinCEN researches and analyzes this information and other critical forms of intelligence to support financial criminal investigations. The ability to link to a variety of databases provides FinCEN with one of the largest repositories of information available to law enforcement in the country. Safeguarding the privacy of the data it collects is an overriding responsibility of the agency and its employees-a responsibility that strongly imprints all of its data management functions, and indeed, all that the agency does.

FinCEN provides a networking process designed to facilitate information sharing between agencies with shared investigative interests."

Note: Further information can be obtained at: http://www.ustreas.gov/

U.S. Attorney General and the FBI
U.S. Attorney General: has the authority to enforce criminal or civil antitrust violations. Further information can be found at: http://www.usdoj.gov/ag/

FBI: Federal Bureau of Investigation - civil actions of antitrust violations may be investigated by the FBI. Information can be found at: http://www.fbi.gov/

Department of Justice
The Department of Justice (DOJ) administers the Americans with Disabilities Act (ADA) and has the authority to investigate criminal or civil antitrust violations.

The DOJ does a great job of explaining antitrust on its website:

"Antitrust laws protect competition. Free and open competition benefits consumers by ensuring lower prices and new and better products. In a freely competitive market, each competing business generally will try to attract consumers by cutting its prices and increasing the quality of its products or services. Competition and the profit opportunities it brings also stimulate businesses to find new, innovative and more efficient methods of production.

Consumers benefit from the competition through lower prices and better products and services. Companies that fail to understand or react to consumer needs may soon find themselves losing out in the competitive battle.

When competitors agree to fix prices, rig bids or allocate (divide up) customers, consumers lose the benefits of competition. The prices that result when competitors agree in these ways are artificially high; such prices do not accurately reflect cost and therefore distort the allocation of society's resources. The result is a loss not only to U.S. consumers and taxpayers but also to the U.S. economy.

When the competitive system is operating effectively, there is no need for government intrusion. The law recognizes that certain arrangements between firms--such as competitors cooperating to perform joint research and development projects--may benefit consumers by allowing the firms that have reached the agreement to compete more effectively against other firms. The law does not condemn all agreements between companies, only those that threaten to raise prices to consumers or to deprive them of new and better products.

But when competing firms get together to fix prices, to rig bids, to divide business between them or to make other anti competitive arrangements that provide no benefits to consumers, the government will act promptly to protect the interests of American consumers."

Note: Further information can be found at: http://www.usdoj.gov/

Federal Housing Authority

The Federal Housing Authority (FHA) insures loans and offers programs for buyers.

From their website:

• "The Federal Housing Administration, generally known as "FHA", provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934."

Note: Further information can be found at: http://www.hud.gov/offices/hsg/fhahistory.cfm

The Federal Housing Finance Agency

The Federal Housing Finance Agency was created to oversee Fannie Mae and Freddie Mac. From their website, the FHFA Mission:

• "Ensure that the housing GSEs operate in a safe and sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment."

Note: Further information can be found at: http://www.fhfa.gov/

Commission on Civil Rights, Fair Housing Civil Rights

Commissions on civil rights and fair housing civil rights are administered through HUD.

They make the following assurances on their website:

• "To investigate complaints alleging that citizens are being deprived of their right to vote by reason of their race, color, religion, sex, age, disability, or national origin, or by reason of fraudulent practices.
• "To study and collect information relating to discrimination or a denial of equal protection of the laws under the Constitution because of race, color, religion, sex, age, disability, or national origin, or in the administration of justice."
• To appraise federal laws and policies with respect to discrimination or denial of equal protection of the laws because of race, color, religion, sex, age, disability, or national origin, or in the administration of justice.
• To serve as a national clearinghouse for information in respect to discrimination or denial of equal protection of the laws because of race, color, religion, sex, age, disability, or national origin.
• To submit reports, findings, and recommendations to the President and Congress.
• To issue public service announcements to discourage discrimination or denial of equal protection of the laws."

Note: Further information can be found at: http://www.usccr.gov/