Buying By The New Rules -- Homebuyers May Find Themselves In A Bind If They Don't Pay Attention

In late January, after anxious months of house shopping in a tightening market, Jeff Swickard and Chris Hattasch finally won the home chase race. Their prize purchase was a West Seattle Cape Cod, circa 1928, with a water view.

A month later, just days before the deal was to close, came a surprise: a bill for a commission from a real estate agent who had not found them the house, who had not written up their offer, who in fact had had nothing to do with their purchase.

A $6,649.13 bill, to be exact, based solely on the price of the property she hadn't helped them buy.

"Our initial reaction," says Swickard, "was that this was a mistake."

But in fact he was mistaken. For Windermere agent Kim Knowles, who'd worked with Swickard and Hattasch for months and helped them make offers on two other houses, was holding them to a contract they'd signed with her.

Called a "buyer agency agreement," it's relatively new in the real estate industry. Although the pair later said they didn't understand its scope, the contract clearly and legally made Knowles their sole agent for any property they bought within a four-month time frame.

Nor did they understand, Swickard says now, how a state law that went into effect Jan. 1 protected their interests - and made signing the contract entirely optional.

Windermere is now suing Hattasch and Swickard. Knowles has declined to comment publicly while the case is pending.

Theirs is a position other buyers could find themselves in as the law takes home buying into new territory, says attorney and former state real-estate commissioner Alan Tonnon.

And as it does, the whole question of what kinds of contracts buyers should sign has created controversy within the industry itself.

A decade ago, everything was different. Buyers worked with any agent they wanted to without signing anything. They could work with two agents, five agents, simultaneously - then use their Uncle Max, who just happened to have a real estate license, to write the deal, thus denying the agent who found them the house their pay. Unethical yes; illegal, no.

What buyers may not have known, but what every agent did because it was standard industry practice, was that all agents were automatically working on behalf of sellers. This meant that no matter how close the rapport between agent and buyer, there legally was no such thing as a "buyer's agent," and anything the buyer told his or her own realtor could be passed along to the seller.

A few years ago, some agents decided to represent buyers solely. Variously viewed as pioneers or outlaws within the industry, they crafted their own "buyer's agency" contracts - agency meaning they were the homebuyer's agent, would write any offer and thus not lose out on a commission.

On Jan. 1, Washington officially recognized the buyer agency concept. New state law mandates that any agent who works with a purchaser is automatically that person's agent and thus is sworn, in the words of the law, "to be loyal to the buyer by taking no action that is adverse or detrimental to the buyer's interest in a transaction." The law does not change the fact that the seller still pays the commission.

Swickard and Hattasch worked with Knowles, whom they say they liked and trusted, throughout autumn. At one point, they say, she even gave them what they understood was a multiple listing book of properties for sale so they could search out homes, then call her.

When they met with her in November to make an offer on a Lake Union-area home, which they didn't get, they also signed an agreement that she'd represent them solely on that house. At about the same time they say they told her they were also shopping West Seattle, with an agent from Prudential Northwest Realty. This agent showed them numerous properties.

Then on Jan. 27 Knowles introduced them to a $240,000 home near Green Lake. "She said, `If you're going to make an offer you'd better do it now,' " Hattasch recalls.

They dropped everything to go to Knowles' office, even though Swickard says the timing was terrible for him. He said he had to go to the airport, then rush to his office for his first job evaluation by a boss who'd flown here just to see him. Swickard is in telecommunications sales.

According to court documents, they visited with a loan officer in Knowles' office and then with Knowles.

"It was such a whirlwind," Swickard says, "that I signed the papers blank," without reading them, and left.

Among the forms was a buyer agency agreement, only this one, instead of tying the pair to Knowles solely for this one house purchase, obligated them to her for a commission on any property they purchased anywhere in Washington over the next 120 days - whether they bought through her efforts or not.

It's the standard agreement Windermere agents can use. In court documents, the men both say Knowles did not explain it, didn't point out how it differed from the first agreement they'd signed, and that she did not give them an information pamphlet explaining the buyer agency law, as is legally required.

"If she'd said, `I'm your sole agent,' I'd remember that," says Hattasch, an engineer.

"And I wouldn't have agreed," adds Swickard. "What's important is that if we wanted an exclusive relationship with her, we should have all signed it the first day we started working together - not in the middle of frenzied buying."

After Swickard left, Hattasch says, he added his signature to the house purchase forms as they were being typed. In court documents, they say when they later checked their paperwork, they didn't find a copy of the buyer agency agreement.

Kim Knowles and her managing broker, Vincent Haugerud, have declined to comment. However, Windermere attorney John Demco says no forms were signed blank, nor were Swickard and Hattasch tricked into signing a buyer agency agreement.

"Did they read it? I don't know," Demco says. "Did they have the opportunity to read it? Yes. Did they have it in their possession after the deal? Yes, they did."

All would have gone smoothly had the Green Lake house met the buyers' inspection requirements, but it didn't and they rescinded their offer. Swickard says in court documents that he checked with Knowles that all the paperwork they'd signed was then void, and she assured him it was.

So it was with that belief, they say, that within days they bought their West Seattle home. Their Prudential Northwest agent had found the house; it was she who handled the deal and thus received the commission, paid by the seller.

Swickard and Hattasch say they wouldn't have bought using Prudential's services if they'd realized they still had a written agreement to work only with Knowles.

But they did, and Windermere went to court to force them to personally pay what would have been Knowles' commission had the sale gone to her.

Windermere Services co-president Maria Bunting says such suits aren't entered into lightly.

"I can absolutely assure you, because of the bad press of doing these, we wouldn't do this unless we felt there was a valid reason to do it," Bunting says. "If we believe that someone is purposefully trying to cheat (an agent) out of a commission we will sue. But if that isn't the case, we won't sue."

An out-of-court settlement is pending.

In hindsight, Swickard says that in signing blank forms without reading them, "I flunked the stupidity test so bad." He also says, "We are probably liable because we signed this, but there wasn't a meeting of the minds; we didn't agree to have (Knowles) as our sole agent."

However, state law clearly says a signed contract is a binding contract regardless of whether the signer read or understood it, states attorney Tonnon.

What buyers need to know

That's not the only thing homebuyers need to know to protect themselves. Other key points:

-- With the new buyer agency law, purchasers don't have to sign a formal agreement to have an agent work for them; if an agent is working with them, he or she is legally presumed to be working on their behalf - not the seller's. (However, it's still the seller who generally pays the sales commission.)

-- Buyers can work with more than one agent, so long as this doesn't violate any contracts they sign with them.

-- Agents have the right to refuse to work with buyers who won't sign an exclusive agreement. Realtors say this is common in a hot market where agents have numerous clients and want to focus on those who are most loyal and committed to buying.

-- It's not necessary to sign a buyer agency agreement to make an offer on a home.

-- There's no standard buyer agency agreement; they differ from real estate company to real estate company. And some firms rarely use them. Last year, all John L. Scott agents used them; now with the new state law in effect, only perhaps 20 percent do, estimates company attorney Doug Tingvall.

-- When people make an offer on a home, their agent is negotiating on their behalf. But when they sign an agency agreement, the agent is negotiating on his or her own contract. "I think sometimes buyers don't think of it in those terms, and they should," says attorney Chris Osborn, who represents the Northwest Multiple Listing Service.

-- Buyer agency agreements generally can be canceled either by the buyer or agent, but only in writing. (However in another local case, a small claims court judge ruled that a Seattle couple, who'd canceled their contract verbally, didn't have to pay a commission because the agent had stopped contacting them - and thus by her actions was no longer their agent when they bought a home four months later using another realtor.)

-- Buyers can negotiate the terms of the agency agreement; in fact Windermere's Bunting hopes they do, for such things as the length of the contract and the area it will cover.

"For example, if you're looking in both Bainbridge and Seattle, and decide you want a specialist in Bainbridge and a specialist in Seattle you can sign two buyer agency agreements" - each one exclusive to that area.

Windermere doesn't have a policy requiring purchasers to sign agency agreements, although "we do highly, highly recommend at some point in the relationship that they do sign something," Bunting says.

"What the buyer agency agreement does is clearly disclose to the agent and the buyers who is going to do what, when, and for how long. Without it, there can be a lot of misconceptions."

While buyers consider whether they want to sign such an agreement, some within the industry are wrestling with philosophical questions about how such agreements should be worded.

One is Mike Gain, an owner of Prudential Northwest Realty, the firm that sold Hattasch and Swigert their West Seattle home.

A 20-year industry veteran and former president of the Northwest Multiple Listing Service, Gain strongly believes in buyer agency agreements, but only those that obligate the buyer for "a property that was brought to their attention by the agent's efforts, that they purchase through that agent. That's the contract I think makes sense and is fair and equitable."

The contract the multiple listing service has crafted for the optional use of its members does not limit buyers to using one agent.

An exclusive agreement is unfair to buyers, Gain believes, because "many times the agent you meet first is not the one you'll ultimately end up buying from. And once you've signed that agreement, you're stuck with them for better or for worse, unless you give written notice."

Although Windermere's contract does provide exclusivity, buyers "don't ever have to sign an exclusive if they don't want to," Bunting states, adding "agents should in every case make people aware of what an exclusive means."

So what's the solution to avoiding possible pitfalls?

Coldwell Banker Bain agent Philip Matricardi, a strong supporter of these agency agreements, says it's buyer education.

"If (agents) took a little more time, a little more care and educated people up front, they wouldn't have these problems down the road."

Attorney Tonnon agrees, and suggests buyers - even those who've bought homes before - take a buyer-education class, such as the one sponsored by the nonprofit Washington State Housing Finance Commission.

"I really believe the average first-time buyer spends more time studying used cars than they spend studying and learning about houses," Tonnon says bluntly.

If they do approach home buying that way - or don't realize that a signed contract is a binding contract - they may pay a high price. ----------------------------------------------------------------- Free classes

Free homebuyer education classes, sponsored by the nonprofit Washington State Housing Finance Commission, cover many topics including buyer agency law. These classes are open to all, not just those who are low-income or first-time purchasers. For more information call 800-767-HOME.