Agency relationship

Key Takeaways

• In Washington an agency relationship is created between a real estate firm and a principal, and the firm appoints an individual broker to act as the agent (RCW 18.86.010).
• A broker who renders real estate brokerage services for a buyer is the buyer's agent unless the firm appointed that broker to the seller, appointed the broker as a limited dual agent, or the broker is the seller (RCW 18.86.020).
• The services agreement is written, and it must state the term, name the appointed broker, say whether the relationship is exclusive or nonexclusive, and carry separately initialed consent to limited dual agency.
• An agency relationship ends at the earliest of completion, expiration of the agreed term, mutual agreement, or notice from either party, but the duty to account and the duty of confidentiality survive it (RCW 18.86.070).

What It Means

An agency relationship answers one question in a transaction: who does this firm represent? Washington builds it between the real estate firm and the principal, and the firm appoints one of its brokers to act as the agent for that principal. The appointment carries along the firm's designated broker and any managing broker responsible for supervising that broker, but it does not sweep in every licensee in the office.

Principal reaches further than it first appears. A principal is a buyer or a seller who has an agency relationship with a broker, and the statute's buyer includes an actual or prospective tenant in a rental or lease transaction while its seller includes an actual or prospective landlord. Leasing and property management run inside the same framework as a house sale.

The relationship is what turns the duties owed to everyone into representation. Once it exists, the appointed broker owes that principal loyalty, timely disclosure of conflicts of interest, advice to seek expert help on matters beyond the broker's expertise, and confidentiality. Without it, a person being helped is a Customer who is still owed honesty and known material facts, and nothing more.

How It Works in Washington

Washington puts the creation of the relationship on paper. Under RCW 18.86.020, a firm must enter into a services agreement with the principal before, or as soon as reasonably practical after, its appointed broker commences rendering real estate brokerage services. A Written Services Agreement must state the term, with a default term of 60 days when the principal is a buyer and the option of a longer one; name the broker appointed as agent; state whether the relationship is exclusive or nonexclusive, with checkbox options for a buyer; and record whether the principal consents to that broker acting as a limited dual agent. That consent is separately initialed and includes an acknowledgment that a Limited Dual Agency arrangement may not advocate terms favorable to one principal to the detriment of the other. A second consent covers the firm's designated broker and supervising managing brokers acting as limited dual agents when different brokers of the same firm represent different parties. One carve out: no services agreement is required when a broker acts as a buyer's agent solely for commercial real estate.

Two disclosure duties ride along. RCW 18.86.030(1)(f) requires the broker to provide the pamphlet prescribed by RCW 18.86.120, titled Real Estate Brokerage in Washington, and obtain an acknowledgment of receipt before the party signs a services agreement. RCW 18.86.030(1)(g) requires a written statement of whether the broker represents the buyer, the seller, or both as a limited dual agent, set out in a separate paragraph titled Agency Disclosure, before the parties reach mutual agreement. The relationship then runs until the earliest of the events listed in RCW 18.86.070. Our guide to Washington's written services agreements walks through the form itself.

Example

Wes calls a Renton firm about a townhouse. Before he tours anything, the firm has him sign a buyer services agreement: 120 days rather than the 60 day default, the exclusive box checked, and the limited dual agency paragraph separately initialed. The firm appoints Corinne as his broker, so the agency relationship runs between the firm and Wes, with Corinne as the appointed agent and Wes as the Principal.

Corinne writes an offer of $529,000 on a townhouse listed at $539,000, and the parties settle at $534,000, which is $5,000 under the asking price. The listing offers the buyer's firm 2.5 percent, so $13,350 on the $534,000 price, disclosed in writing before mutual agreement. Along the way Wes tells Corinne he could stretch to $560,000 if he had to. She never repeats it. Six weeks later the sale closes and the relationship ends by completion of performance, and her duty to account for the earnest money and her duty to keep that $560,000 ceiling confidential both outlive it.

Common Mistakes and Exam Traps

• The agency relationship runs between the firm and the principal, so an answer that attaches it only to the individual broker misreads RCW 18.86.010.
• A services agreement is written by definition, so an oral promise to represent someone does not satisfy RCW 18.86.020.
• The 60 day term is a default for buyer agreements rather than a ceiling, and the parties may agree to a longer term.
• Termination ends the representation but not every duty, because the duty to account and the duty of confidentiality survive under RCW 18.86.070.