§18.3 THE BROKER AS AGENT
Prior to January 1, 1997, most of the duties of brokers owed to their employers were derived from the common law of agency. Effective January 1, 1997, the Washington State Legislature, responding in large part to concerns with the issue of undisclosed dual agency by brokers, adopted Chapter 18.86 RCW to address agency and duty issues. The industry even dubbed the new act "REASN" as a not-so-subtle reminder that the industry believed the courts were expanding agency rules beyond reason.
Although Chapter 18.86 RCW applies to all agency relationships entered into on and after January 1, 1997 (RCW 18.86.900), general agency principles are still relevant. RCW 18.86.110 provides, in relevant part:
This chapter supersedes only the duties of the parties under the common law, including fiduciary duties of an agent to a principal, to the extent inconsistent with this chapter. The common law continues to apply to the parties in all other respects. This chapter does not affect the duties of a licensee while engaging in the authorized or unauthorized practice of law as determined by the courts of this state (emphasis added).
Chapter 18.86 RCW does not supersede a claim against a licensee for violation of the Washington Consumer Protection Act, Chapter 19.86 RCW. Svendsen v. Stock, 143 Wn.2d 546, 23 P.3d 455 (2001); Bloor v. Fritz, 143 Wn.App. 718, 180 P.3d 805 (2008). The Svendsen and Bloor cases are discussed in greater detail in §§18.4(4), 18.4(6), and 18.5(4), below.
This section will briefly discuss general agency principles, the creation and termination of the agency relationship for brokers, subagency/ dual or assigned agency concepts, and the effect of the current statute. Sections 18.4 and 18.5 will then address the statutory and common law duties that flow from the creation of the agency relationship and the consequences of a breach of those duties.
(1) Definition and creation of agency relationship
Agency is the consensual relationship between two persons wherein one of them, the principal, empowers the other, the agent, to act, and the agent assumes to act. It is the fiduciary relationship that results from the manifestation of consent by the principal to another that the other shall act on the principal's behalf and subject to the principal's control, and consent by the agent so to act. Moss v. Vadman, 77 Wn.2d 396, 463 P.2d 159 (1969); RESTATEMENT (THIRD) OF AGENCY §1.01 (2006).
In the context of real estate brokerage, an agency relationship can be created only as described in Chapter 18.86 RCW or by written agreement. RCW 18.86.010(1). This is in derogation of common law, in which agency can be created expressly by oral or written agreement, Freeman v. Navarre, 47 Wn.2d 760, 289 P.2d 1015 (1955); from conduct or words, Rho Co. v. Dep't of Rev., 113 Wn.2d 561, 782 P.2d 986 (1989); from the nature of the parties' relationship and the principal's conduct, Schoonover v. Carpet World, Inc., 91 Wn.2d 173, 588 P.2d 729 (1978); or by the principal's ratification of the agent's acts, Smith v. Dalton, 58 Wn.App. 876, 795 P.2d 706 (1990). In the real estate field, written agency agreements are called listing or commission agreements, whereby the owner (principal) employs the broker (agent) to find buyers for the owner's property. More and more common are agreements in which a buyer employs a broker to find properties for the buyer to purchase (sometimes called "finder's agreements"). The presumption is that a licensee who performs services for a buyer is a buyer's agent unless
| (1) | licensee has entered into a written agency agreement with the seller, in which case the licensee is a seller's agent; | |
| (2) | licensee has entered into a subagency agreement with the seller's agent, in which case the licensee is a seller's agent; | |
| (3) | licensee has entered into a written agency agreement with both parties, in which case the licensee is a dual agent; | |
| (4) | licensee is the seller or one of the sellers; or | |
| (5) | parties agree otherwise in writing (e.g., they agree that the licensee will act as a facilitator) after the licensee has provided a pamphlet on the law of real estate agency in the form prescribed by RCW 18.86.120. (The duty to provide the pamphlet is discussed in §18.4, below). See RCW 18.86.030. |
RCW 18.86.020(1).
Among other things, Chapter 18.86 RCW
| (1) | defines the relationships between real estate firms (defined as an entity conducting real estate brokerage services and licensed as a real estate firm) and the public; | |
| (2) | authorizes dual agency as long as certain statutory requirements of disclosure and consent are met, RCW 18.86.060; | |
| (3) | requires disclosure of each broker's representation, RCW 18.86.030(1)(g); | |
| (4) | defines and limits the duties of brokers generally, and those of seller's agents, buyer's agents, and dual agents specifically. The law "supersedes the fiduciary duties of an agent to a principal under the common law. The common law continues to apply to the parties in all other respects." RCW 18.86.110 Although practically speaking there may be little effect on litigation results, this is a significant modification of customary duties owed by agents and brokers that are created by statute and are not fiduciary duties; | |
| (5) | requires distribution of an informational pamphlet to all parties to whom the licensee renders "real estate brokerage services," which is a defined term, RCW 18.86.030(1)(f) see RCW 18.86.120; | |
| (6) | defines the duration of the agency relationship, RCW 18.86.070; | |
| (7) | limits the licensee's vicarious liability and imputed knowledge, RCW 18.86.090; and | |
| (8) | provides that any violation of the duties of the broker under RCW 18.86.030 constitutes a violation under RCW 18.85.361 and can be punished accordingly. |
(2) Authority of broker
The power of the agent depends upon the type of agency created. If the agency is a general one, the agent is authorized to do on behalf of his or her principal all acts that the principal might do on his or her own behalf. But see Bryant v. Bryant, 125 Wn.2d 113, 882 P.2d 169 (1994) (limiting the ability of an agent under a general power of attorney to gift a community interest in real estate without express authorization).
A "special" agency is one in which the scope of authority is specifically restricted. A real estate broker is generally a special agent in that the broker's duties are limited to offering property for sale and conveying offers to purchase. Larson v. Bear, 38 Wn.2d 485, 230 P.2d 610 (1951). The broker, for example, has no authority to bind the principal to a sale, unless the listing agreement specifically gives the broker that power. Peoples Nat'l Bank of Wash. v. Brown, 37 Wn.2d 49, 221 P.2d 530 (1950).
(3) Listing and commission agreements
In past practice, the written commission agreement appeared on the face of the purchase and sale agreement between the seller and purchaser. Formal listing or commission agreements have virtually replaced this practice. Revisions to state law include the requirement of a written commission agreement as a condition of dual agency. Most multiple listing associations, as well as most large brokerage houses, have form listing agreements. An example of such a form agreement is the Northwest Multiple Listing Service Form 1B, which is included on the CD that accompanies this deskbook as Form 18-1. Similarly, agents representing buyers use form agreements, two examples of which are NWMLS Forms 41A (Agency) and 41B (No Agency), both of which are also included on the CD as Forms 18-2 and 18-3, respectively. These forms are also available to members of the NWMLS.
(a) Statute of frauds
For a broker to enforce an agreement for a commission on the sale of property, the agreement must be in writing and signed by the person to be charged. RCW 19.36.010; RCW 18.86.080(7). This requirement does not extend to commissions for leasing property based upon an oral agreement, Sherwood B. Korssjoen, Inc. v. Heiman, 52 Wn.App. 843, 765 P.2d 301 (1988); nor to the sale of corporate stock, Bell v. Hegewald, 95 Wn.2d 686, 628 P.2d 1305 (1981), even though both brokerage activities require a license under Chapter 18.85 RCW. In Haskell v. Raugust, 49 Wn.App. 719, 745 P.2d 535 (1987), the court denied commissions to two brokers when there were no express or implied employment agreements between the two brokers and the seller of the property. Washington courts have sometimes distinguished between agreements for future services (e.g., listing agreements) and agreements for services already performed (e.g., the commission language customarily found in preprinted purchase and sale forms). See, e.g., Ctr. Invs., Inc. v. Penhallurick, 22 Wn.App. 846, 592 P.2d 685 (1979).
(b) Legal description
Prior to 1974, Washington courts held that the statute of frauds for brokerage commissions required that the writing contain a complete legal description of the property. This rule was replaced by the one enunciated in House v. Erwin, 83 Wn.2d 898, 524 P.2d 911 (1974).
In House, the seller and broker had undertaken substantial discussions over the property to be sold. The property was not visible due to winter conditions, but a map was given to the broker showing the location of the property. The broker also drew a map to scale from the legal description, and both maps were discussed. The broker informed the seller that the legal description did not include certain land that had been discussed. In addition, the broker did secure the actual legal description for the property and placed it in the agreement—an act that the lower court had found him authorized to do. There was no question in the minds of either the broker or the seller as to the identity of the...
