Revisions to Washington Agency Law (Effective Jan. 1, 2024)

By Carl A. Rubinstein | Related Practice: Real Estate

Governor Inslee signed Senate Bill 5191 into law on May 4, 2023, bringing about perhaps the biggest updates to Washington law on real estate brokerage agency relationships since Chapter 18.86 RCW was initially enacted in 1996. Taking effect on January 1, 2024, the new law focuses on four areas of brokerage agency law: (i) brokerage service agreements, and when they are required, (ii) dual agency, (iii) duties owed by brokers, and (iv) updated Law of Real Estate Agency pamphlet language.

As a reminder, while Chapter 18.86 RCW is written in terms of “buyers” and “sellers,” RCW 18.86.010 defines “seller” to include actual or prospective landlords, and “buyer” to include actual or prospective tenants.  Thus, all new requirements applicable to sellers and buyers of real property enacted in the new law are equally applicable to landlords and tenants, respectively, in real estate and lease transactions.

Brokerage Service Agreements:

Previously, Washington law only required brokers representing sellers to enter into a brokerage agreement.  As revised, Chapter 18.86 RCW now requires brokers representing buyers in a residential transaction to enter into a written brokerage service agreement as well.  Further, a broker must now enter into a brokerage service agreement “as soon as reasonably practical after...commencing rendering real estate brokers services.”  A definition of “Brokerage Service Agreement” was also added to the Chapter (see RCW 18.86.010(4)), and RCW 18.86.020 now lists certain elements that must be present for an agreement to be enforceable, including: (a) the term of the engagement (if representing a buyer the term cannot be shorter than 60 days), (b) the name of the broker, (c) whether the agency relationship is exclusive or nonexclusive (with the ability for a buyer to select between the two options), (d) whether the represented party consents to the broker acting as a limited dual agent (and if so, such consent must be initialed by the represented party), (e) whether the represented party consents to its broker and any supervising broker acting as a limited dual agent in a transaction where different brokers affiliated with the same firm represent different parties, (f) terms of compensation for the broker offered by a party or other brokerage firm (along with the represented party’s consent to compensation sharing between firms and parties, and to broker compensation by more than one party), and (g) for an agreement with a buyer, whether the broker agrees to show the buyer properties when there is no agreement or offer by a third party to pay compensation to the broker.

The revised law contains a notable exception to the new brokerage agreement requirement for buyers, whereby a brokerage agreement is not required if the buyer is only purchasing commercial real estate (or if a tenant is only leasing commercial lease estate, as applicable).  Commercial real estate is defined in RCW 60.42.005 as real property in Washington state that is not (a) one single-family residential unit or one multifamily structure with four or less residential units, (b) unimproved land where the maximum permitted development is one to four residential units, (c) real estate classified as farm and agricultural land or timberland, or (d) real property improved with single-family residential units such as condominiums, townhouses, timeshares, or stand-alone houses in a subdivision that may be legally sold, leased, or otherwise disposed of on a unit-by-unit basis.

Dual Agency:

The new law replaces all references to “dual agency” in Chapter 18.86 RCW with the new term “limited dual agency.”  Despite this change in terminology, the actual definition of a “limited dual agent” is largely unchanged from that of a “dual agent.”  As the name suggests, however, Washington lawmakers intend to place requirements on agents serving multiple parties in a transaction. 

First, and as mentioned above, Washington law now requires a represented party to initial his or her consent to a broker serving as a limited dual agent in the brokerage services agreement.  Second, Brokerage agreements must specifically state, and contain acknowledgement from the represented party, that a limited dual agent “may not advocate terms favorable to one principal to the detriment of the other principal.”  Third, the legislature added language to RCW 18.86.060 clarifying that where a transaction involves different brokers affiliated with the same firm, that firm’s designated broker and any managing brokers supervising brokers on both sides of the deal will be considered limited dual agents (and therefor subject to all applicable restrictions and disclosures).  Again, the represented party must consent to this type of arrangement (but no initial is required).  Finally, the pamphlet on The Law of Real Estate Agency has also been updated to reflect additional duties of a limited dual agent (discussed in more detail below).

Duties owed by Brokers:

As revised, RCW 18.86.030 now states that brokers owe the duties listed therein to all parties in the transaction (as opposed to only the party represented by the broker).  Duties owed by brokers are largely unchanged, except that brokers now owe a duty to disclose to all parties (a) who the broker represents, (b) whether the broker is serving as a limited dual agent, and (c) any terms of compensation for the broker offered or received by a broker or firm representing another party.

The Law of Real Estate Agency Pamphlet:

The new law contains required language for an updated Law of Real Estate Agency pamphlet.  The pamphlet has been revised to include the above-described updates to relevant law (including a description of exclusive and non-exclusive agency), and to describe the legal duties and obligations of the parties to a real estate transaction in terms more readily understandable to a common reader.  Additionally, Brokers must now provide the pamphlet to their clients “as soon as reasonably practical but before the party signs a services agreement,” and must obtain written acknowledgement of receipt of the pamphlet when provided.  Brokers must also provide the new pamphlet to any party not represented by a broker “before the party signs an offer or as soon as reasonably practical,” and must obtain written acknowledgement of receipt of the pamphlet when provided to such parties.

It is important to note that despite the exception to the requirement for a brokerage service agreement for a buyer purchasing commercial real estate (described above), a broker must still provide the updated Law of Real Estate Agency pamphlet to, and obtain acknowledgement of receipt from, a buyer of commercial real estate.  Likewise, a broker must provide the updated pamphlet and obtain acknowledgement of receipt from a tenant leasing commercial real estate, even if no brokerage agreement is required.  A version of the revised Law of Real Estate Agency Pamphlet prepared by the Commercial Brokers Association (CBA) can be found here.

We recommend that any brokerage service agreement entered into prior to January 1, 2024 that involves a term extending into 2024 be amended to reflect the above-described new requirements.

The revised law will take effect on January 1, 2024.  As of the date of publication of this post, the Washington State Legislature’s online code listing has not yet been updated to reflect the impending changes, but will likely be updated in early 2024. 

To learn more, please contact Carl Rubinstein of the Stokes Lawrence Real Estate Group at (206) 892-2116.