Washington REALTORS® Fight Off Bill to Limit Dual Agency
April 15, 2019
REALTORS® in Washington State helped kill a legislative proposal that would have prohibited commercial practitioners from engaging in dual agency transactions, even as the business practice comes under deeper scrutiny in the real estate industry.
The Washington REALTORS® association and the state chapter of the Building Owners and Managers Association took a stand against the bill—which sought to define conflicts of interest that would prevent commercial agents from serving in a dual agency capacity—arguing that lawmakers should not interfere in real estate pros’ client relationships. The bill would have required, for example, that all parties and their attorneys sign a conflict of interest waiver in dual agency transactions. Here’s how the bill would have defined a conflict of interest:
- When representation of one party would directly or indirectly harm the other party in the transaction.
- When there’s risk that a broker’s ability to represent one or more parties will be limited by the broker’s statutory duties.
- When the brokerage firm has a direct or indirect interest in property being considered by a buyer or lessee.
Arm Yourself With Knowledge
The bill, which was never brought to a vote in the Washington Senate, would have stipulated that if just one of the above conflicts existed, the listing agent or broker couldn’t represent the buyer. In other words, the bill sought to limit “in-house” transactions. Leaders at BOMA and Washington REALTORS®, along with commercial practitioners and real estate attorneys, testified before the Senate committee on how the added disclosure rules could be detrimental to the way real estate professionals conduct business.
Although the focus was on commercial sales, the bill’s wording could have had an impact on dual agency arrangements in residential sales as well, says Washington REALTORS® CEO Steve Francks. “This was a big victory and an important win for the industry,” he says. “It goes to the heart of how real estate is practiced in Washington. We’re glad that, as an organization, we were able to quickly react.”
The bill stemmed from the advocacy efforts of Hughes Morino, a tenant-focused commercial real estate services firm with offices in California, Washington, and New York. The brokerage championed a similar bill introduced in California last year, which also failed to come to a vote after facing opposition from the California Association of REALTORS® and other industry groups.
Dual agency has become a hot-button topic in real estate over the last few years. Critics argue there’s a direct conflict of interest whenever a brokerage represents both a buyer and seller, while supporters say the practice connects buyers and sellers faster and eliminates much of the time-consuming aspects of a transactions. According to notes from the Washington Senate committee that was considering the bill, supporters testified that “a landlord wants the highest rent possible, and the renter wants the lowest rent possible, which makes it very difficult for a dual agent to support both the buyer or renter and the landlord or seller.” Opponents argued that current laws already contain customer protections and that sometimes a change “can lead to more problems or confusion” or make transactions longer and more costly, Francks says.
Education Is Key
A dual agent is a brokerage that has entered into an agency relationship with both the buyer and the seller—or the landlord and the tenant—in a single transaction. Dual agencies can occur with two agents or with a single agent. In states where dual agency is legal, agents are required to inform both the buyer and seller about the potential disadvantages of such an agreement.
The National Association of REALTORS® doesn’t have a specific policy around dual agency, but it encourages members to act professionally and provide proper disclosure when working with consumers in a dual agency capacity. “We support initiatives to educate consumers and improve the consumer experience,” says NAR General Counsel Katie Johnson.
Real estate professionals are also educating lawmakers as a way to keep excessive regulation at bay. “Consumers should be allowed the choice to use a full-service firm,” industry leaders testified before the Senate committee. “This [bill] will increase the cost of using a full-service firm and make the process of procuring commercial real estate difficult and cumbersome.” Full-service firms carry out 95 percent of the commercial transactions in Washington’s three largest markets, industry leaders testified.
As in other states where dual agency is legal, informed consent provisions already exist under current Washington law. The statute requires a broker to inform both parties about dual agency arrangements and to also receive written consent. Francks says there have been few, if any, complaints or lawsuits against commercial brokers in dual agency relationships in the state since its the disclosure statute took effect in 1997. “That tells us things are working with the protections already in place,” Francks says.
Nevertheless, eight states—Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont—currently ban the practice, according to the Consumer Federation of America. In June 2018, the Real Estate Council of British Columbia banned dual agency outright, excluding only transactions that occur in remote locations where there are fewer agents. The British Columbia ban does not distinguish between residential and commercial real estate transactions.
However, for those who are in favor of dual agency, the REALTOR® successes in Washington and California demonstrate an important lesson: the value of banding together and working with your state REALTOR® association, which typically has strong relationships with lawmakers and can ensure members’ voices are heard on matters that could potentially impact their business, Francks says. “The takeaway for us from this experience is that having a connection with your REALTOR® association can be very effective,” Francks says. “It’s an important value of REALTOR® membership, whether you’re a residential or commercial practitioner.”
Updated: September 13, 2019