Revised Law: Brokerage Service Agreements
Starting January 1st, 2024 we will see one of the biggest changes in our Washington State Real Estate Market since 25 years. By then it will be mandatory for any real estate agent who provides brokerage services to a buyer or tenant to enter into a Brokerage Service Agreement. Until then, this was never mandatory.
Why this change?
To understand better why we have these changes, we should look at the history. Until January 1st, 1998, any buyer in a real estate transaction was actually not represented by the their broker. The broker technically was still representing the seller. This needed to change since a lot of clients were confused that their broker did not have their best interest and didn't know in a lot of instances that their agent was representing the seller. In 1998 when the law became effective it meant that a broker who works with a buyer or tenant represents that buyer or tenant -- unless the broker is the listing agent, a seller's subagent, a dual agent, the seller personally or the parties agree otherwise.
This was a great change and gave a lot more protection to any prospective buyer out there. The buyers now had actual representation. However, the law is a bit skinny and doesn't provide a lot of transparency and consumer protection. Hence the new changes to the law.
What is changing?
In order to provide more transparency, consumer protection and to acknowledge the importance of buyer representation a brokerage service agreement shall be signed by both parties, before or a soon as possible after receiving brokerage services. The agreement will need to have some key items:
1. The term (duration) of the agreement; (Will this be a day, a month, 6 months, a year, etc.)
2. Name of the broker(s) appointed to act as an agent for the principal;
3. Whether the agency relationship is exclusive (which does not allow the principal to enter into an agency relationship with another firm during the term) or nonexclusive (which allows the principal to enter into an agency relationship with multiple firms at the same time);
4. Whether the principal consents to limited dual agency;
5. The terms of compensation;
6. In an agreement with a buyer, whether the broker agrees to show a property when there is no agreement or offer by any party or firm to pay compensation to the broker’s firm; and
7. Any other agreements.
It is important to understand your rights as a buyer here and what every line item means.
1. The term is pretty self-explanatory. How long are both parties committed to each other. In some cases, you just want to see one house or a few houses that day, and you are not ready for a long-term commitment, a shorter term would be a great option. Other times, you are looking at a long-term commitment, so that ana gent can actually learn what it is that you like and dislike and truly help you with your home buying experience.
When you are just starting out, it is ok if you start with a shorter term and get to know each other better until you are comfortable with a longer term.
2. The name of the broker who will be representing you. This is more important than it looks for the following reason, if you are represented by Agent 1, and he is not available. Agent 2 might be filling in for him, you will need to have agent 2 on the contract as well, otherwise agent 2 might not act in your best interest. Make sure that you ask your agent who their backup is in case they are not available and write that person’s name in the contract as well.
3. Exclusive or nonexclusive agreement. An exclusive agreement means that you cannot work in the same area and for the duration of the agreement with another agent. If you are looking to do so, then a nonexclusive agreement might be a better option for you.
4. A dual agent is one that represents a buyer and a seller at the same time. This is allowed in WA; however, an agent cannot disclose any vital information about each party to the other. It is hard to get actual representation this way. How this typically works is that the managing broker will appoint another agent to represent the other party, typically the one that entered into contract as the second. The buyer and the seller now have their own agent to represent them, and to make sure that everything happens in a fair manner.
5. The terms of compensation. This basically states how the buyer’s agent will get paid. There are many different ways on how a buyer’s agent receives payment. The most common way is that a seller pays the buyer’s agent directly, however this might not be the case in every home out there, please make sure to check who is responsible for what.
6. Establishes if an agent will show a home where the seller is not offering any commission to the buyer’s agent and if the buyer’s agent does show a home with no commission offered, if the agent has permission to negotiate a commission.
7. Any other agreements.
Please be aware that you are not stuck to an agent because of an agreement. You can fire your agent.
Until December 31st you will still receive the law of real estate agency, this is basically the full law printed out. Starting January 1st you will receive a Real Estate Brokerage in WA pamphlet. Which can be downloaded here: Real Estate Broker in WA
This pamphlet summarizes what needs to be in the agreement and summarizes the law.
Starting January 1st, as a buyer you will have more transparency and more protection. Since the law is new and we have never really worked with Brokerage Service Agreements, there will be a short time to try to figure it out. I believe that this change is a great change and one that is needed. At Pacific Wolf Realty, we always had the best interest of our clients at heart and never acted based on the amount of commission earned. We are in it for the long game and believe that a brokerage service agreement like this only supports our case.
Please contact us if you have any questions or if you are in need of buying/ selling a home.