Agency

Key Takeaways

• Agency is a relationship of authority: a principal gives an agent power to act on the principal's behalf with third parties, and acts inside that authority are treated as the principal's own.
• Agency is sorted by scope, from a universal agent who may act in all matters, to a general agent who handles a continuing range of business, to a special agent hired for one transaction.
• A broker who takes a listing is normally a special agent, because the authority covers one sale rather than the owner's whole business.
• In Washington, real estate agency is written into chapter 18.86 RCW, and RCW 18.86.110 makes those duties statutory duties rather than common law fiduciary duties.

What It Means

Three parties sit inside every agency question: the principal who hires, the agent who acts on the principal's behalf, and the third party on the other side of the deal. Authority runs one direction. The principal grants it, the agent exercises it, and what the agent does inside that authority is treated as the principal's own act. That is why agency law spends most of its words on duties, because the person carrying the risk is not the person doing the work.

Agency is sorted by how wide the authority runs. A universal agent may act for the principal in all matters, which is rare in real estate. A General Agent handles a continuing range of business, the way a property manager markets vacancies, signs leases, and orders repairs month after month. A Special Agent is hired for one transaction and the authority ends with it, which is where a broker taking a listing normally sits.

Agency is also separate from licensing. A license says what a person may legally do for pay. Agency says whose side that person is on, and it begins only when a principal authorizes the broker to act.

How It Works in Washington

Agency law is state law, so the version that binds a broker is the one where the property sits. In Washington, it is written into chapter 18.86 RCW, the Real Estate Brokerage Relationships Act, and it moves three things off the common law map.

First, the relationship is created between a real estate firm and a principal rather than between the individual broker and the client, and the firm must put it in a written services agreement before, or as soon as reasonably practical after, its appointed broker starts rendering brokerage services (RCW 18.86.020). A broker who renders those services for a buyer is that buyer's agent by default, unless the firm appointed the broker to represent the seller, appointed the broker as a limited dual agent, or the broker is the seller. Second, RCW 18.86.110 says the duties in the chapter are Statutory Duties and not fiduciary duties, and that the chapter supersedes the common law fiduciary duties an agent owed a principal. Third, Washington reverses the old imputed knowledge rule: under RCW 18.86.100, unless otherwise agreed in writing, a principal does not have knowledge or notice of facts known by the agent but not actually known by the principal.

Payment is not the trigger either. RCW 18.86.080 says an agreement to pay or the payment of compensation does not establish an Agency Relationship between the party who paid and the broker. For the scope difference in a management setting, see our post on why a general agent suits property owners.

Example

Hana owns a fourplex in Everett and a house in Renton, and she hires help for both. She signs a property management agreement with a firm to run the fourplex, which makes that firm a general agent: it markets vacancies, signs 12 month leases, and orders repairs up to $1,500 without calling her first.

For the Renton house she signs a listing services agreement at $612,000, which makes the listing firm a special agent for that one sale. A buyer offers $598,000. Her broker cannot accept it, because the authority Hana granted is to market the property and present offers, not to sell it for her. Hana counters at $605,000 and the buyer accepts, $7,000 under her asking price. Her listing offers the buyer's firm 2.5 percent, which is $15,125 on the $605,000 price. Paying that fee does not make the buyer's broker Hana's agent. The buyer's broker still represents the buyer, and Hana's broker still represents Hana.

Common Mistakes and Exam Traps

• Authority creates agency, not payment; RCW 18.86.080 says an agreement to pay or the payment of compensation does not establish an agency relationship.
• A special agent and a general agent differ by scope of authority, not by license level, and one broker can be either one on different jobs.
• Holding a real estate license does not make a person an agent, because agency starts when a principal authorizes the broker to act for them.
• In Washington, an answer that labels the broker's duties fiduciary duties is wrong; RCW 18.86.110 calls them statutory duties and supersedes the common law fiduciary duties.