By Kary Krismer
Some attorneys file lawsuits against real estate brokers and firms without fully understanding the intricacies of the real estate brokerage industry. So here are some tips from an unlikely source, a real estate broker.1
Tip No. 1: Name the right defendants. A common mistake is naming incorrect parties in the complaint, sometimes due to not understanding the organization of real estate firms. A real estate firm is usually comprised of some combination of designated broker, branch manager, managing brokers and brokers. The firm likely has corporate or LLC ownership. Despite that, some complaints may only name the individual broker as a party, along with the franchisor for the firm such as “Keller Williams,” rather than the firm owner’s legal entity. Naming the proper defendants is important not only due to statute of limitations concerns, but also collection concerns if successful.
Accessing the Department of Licensing’s website, and perhaps that of the Secretary of State, may be necessary to identify the appropriate names of the firm, the designated broker and even the broker. The DOL website does not provide managing broker relationship information, likely because that is dependent on the facts of specific transactions.
Tip No. 2: Understand which entities and individuals have the responsibility for other brokers. It is possible the defendants in your complaint beyond the individual broker did not directly violate any duties owed to the client. Even so, a firm’s designated broker and possibly a branch manager are generally considered responsible for the behavior of other brokers within the firm.3 Managing brokers may be responsible for team members they supervise.4 After conducting discovery it may be determined that supervisory duties were breached because there was little or no supervision, either directly or indirectly.5 Whatever mistake the broker committed, discovery may demonstrate that responsible brokers saw this type of mistake many times before, either by the same broker or other brokers within the firm, without taking any corrective action.
Tip No. 3: Understand what duties the individual broker owed. A common mistake in drafting a complaint is claiming the broker violated fiduciary duties owed to the client. Real estate brokers do not owe fiduciary duties.6 Real estate brokers owe statutory duties under RCW 18.86.030-060.7
One of the duties a broker owes to clients is the duty to use “reasonable skill and care.”8 That duty gives rise to another very specific duty: The duty to complete standardized real estate forms to the standard of care of an attorney.9 Most real estate brokers do not fully understand the forms which they complete, and therefore they may create contracts which do not meet the required standard of care. There is also the chance that a broker will make a careless mistake, perhaps not filling in a check-box, or picking the wrong form. These and other mistakes may likely result in the broker being found to have violated their standard of care.
RCW 18.86.040 - .060 also require brokers to advise clients to seek expert advice on matters beyond their expertise. Some of the broker practices which became common in recent years probably created a multitude of potential violations in this area. Arguably most brokers should have advised their clients to consult with attorneys about the legal risks of buying without common contingency forms or buying a property without an inspection, using “non-refundable” earnest money, or selling where the buyer cannot do an inspection. To the extent they gave such advice themselves, they were possibly practicing law without a license, while simultaneously breaching the duty to recommend expert advice.10
Tip No. 4: Follow SB 5191/HB 1284 for enactment, because they may multiply the parties subject to suit. In what appears to be either a case of group false memory,11 or more likely a purposeful decision to throw individual brokers (and buyers) under the bus to protect large business entities,12 the real estate industry is supporting legislation in Olympia which would make the duties of good faith and reasonable skill and care be duties owed by brokers to all parties in a transaction, not merely their own clients.13 To analogize to the practice of law, it would be as if the Bar Association were pushing the legislature to create duties attorneys owe to both sides in litigation, not just their own clients.
If enacted this would create an opportunity for attorneys representing parties harmed by brokers in real estate transactions. It would also greatly increase the chance for a full recovery. Rather than merely suing their own broker and firm, injured consumers would very often be able to sue the other side’s broker and firm, or perhaps sue only the other side’s broker and firm if they do not want to sue their own broker. Adding such parties would increase settlement and collection options, and failing to raise claims against such parties might be malpractice if it were not possible to collect against the other entities.14
A simple hypothetical shows the possibilities. Buyer’s broker fails to attach a legal description to their client’s offer, and listing broker (failing to notice) has their seller accept the buyer’s offer. Twenty days later a change in Fed policy results in significant interest rate hikes. Buyer wants or needs to back out, but has no applicable contingencies. An attorney informs buyer that their contract is not enforceable due to Washington’s strict rules regarding the statute of frauds. Due to the effect of higher interest rate hikes on prices, seller later obtains $75,000 less for the property from a different buyer.
In this scenario, neither broker exercised reasonable skill and care. Without the legislation, the seller could only sue their own broker/firm for not noticing the buyer broker’s mistake. If the legislation were enacted, the seller could possibly also sue the buyer broker/firm for that mistake because the buyer broker would have owed a duty of care to the seller.15
Conclusion: In bringing a suit related to real estate brokerage activities, an attorney should determine the correct parties, consider all possible parties, and if not pleading specific duties, at least contemplate the specific duties breached when drafting the complaint. Attorneys should also follow the progress of S.B. 5191, which if enacted in current form would be effective starting in 2024.
The material above is the opinion of its author, not any other entity, and should not be considered legal advice to any particular person, attorney or entity. In addition to being a licensed but nonpracticing attorney, Kary Krismer is also a real estate managing broker with John L. Scott, Inc., in Renton. He may be contacted at kary@khouseagent.com.
1 Disclaimer: During my time practicing law I was only involved with one suit against brokers and my involvement began after the filing of the complaint. So, this is sort of like my experience with legislation: I have never drafted enacted legislation, but I have seen a lot of bad drafting.
3 RCW 18.85.201 and 18.85.275, the latter of which refers to 18.86.030.
4 An exception might be husband/wife teams, where DOL realizes that it is impossible for one spouse to control another spouse, and therefore does not require husband/wife teams to have a managing broker.
5 Brokers are required to turn in to the firm all contracts presented or received, even if not resulting in an accepted offer, so there typically would be a significant number of documents which might evidence past mistakes. Such documents should be requested in discovery if the claims pertain to contract drafting errors.
6 RCW 18.86.110.
7 It is also possible other non-statutory claims might exist, such as misrepresentation or fraud claims.
8 RCW 18.86.030(1)(a).
9 Cultum v. Heritage House Realtors, 103 Wn.2d623, 694 P.2d 630 (1985).
10 Altering standard forms or drafting custom language could also possibly violate both the duty to refer and the limited license granted by Cultum.
11 a/k/a The Mandela Effect, a situation where a group incorrectly remembers the past. The proponents of these bills claim RCW 18.86.030 was simply mis-drafted, and that they did not somehow notice what would have been an obvious error for over 20 years. That absurd suggestion is at best a false memory.
12 As discussed in The NWMLS Shakes Up Commissions—Again, Bar Bulletin, November, 2022, to limit brokerage and NWMLS exposure to class action litigation, listing forms were amended in a manner which increased the risk of litigation to sellers. 5191 and 1284 increase the risk of litigation to individual brokers, possibly to protect brokerages and the NWMLS. They also will force buyers into signing buyer agency agreements, again possibly to protect brokerages and the NWMLS.
13 The legislation also changes the term “dual agent” to “limited dual agent,” purportedly to let consumers know that a dual agent offers fewer services, but more likely because all agents will become dual agents to the extent that they owe duties to non-clients.
14 This should not apply to actions for facts prior to an effective date.
15 A similar scenario was presented to the proponents of S.B. 5191, and as of the submission date they have not indicated my analysis is incorrect. At this point it is uncertain how courts will interpret the amendments, but liability is a possible result.
