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2024 Buyer Agency Law Changes: What Every Buyer Should Know
Maybe you’ve heard about the class action lawsuits in other states, or maybe you’ve clicked a link discussing how REALTORs® conspired to artificially inflate home prices through price fixing of commissions. What you probably haven’t seen is that in Washington our REALTORs® and our NWMLS have been actively working to make the real estate marketplace more transparent and consumer friendly since 2019. Through our requests of the legislature Real Estate Agency Law is changing on January 1, 2024. It will significantly affect how you, the consumer, engage a real estate broker among other things. If you’re thinking about buying a home in the Seattle area ever again, read this.
Washington was among the first states in the country to adopt buyer agency in the late 90’s. Before this ground-breaking consumer protection, all agents were considered agents of the seller; if a buyer was working with a real estate professional, that person wasn’t a “buyer’s broker” but rather a “sub-agent” for the seller. Under current law, all agents are agents for the buyer unless there’s an agreement to the contrary. An agency relationship is created the moment you ask, “how is the market?” or an agent hands you a business card. That means that almost immediately as a home buyer you have protections afforded to you by the law of our state. An agent only becomes an agent for the seller through written agreement.
Somewhere along the way (and there are lots of possible explanations for this, practical rather than nefarious), written agreements between buyers and their brokers were deemed unimportant. Very few practitioners have these agreements signed by their clients, even though they are encouraged to do so. The law automatically protects both parties and the seller sets the compensation, so it was a pretty natural path: focus on the other 1,000 things you need to educate the consumer on instead of discussing such gauche topics as how we generate revenue as business people. AKA: how we feed our families. AKA: what does buying a home truly cost.
The law is being updated to become even more consumer friendly and that means an important change: If you are a home buyer shopping for a home you must sign a “brokerage services agreement” with your broker after January 1, 2024. This agreement must discuss the fee that your broker will charge and where that money will come from. It’s a wonderfully positive change that we as Washington REALTORs® lobbied for in Olympia in January 2023 (our owner, Rachel Mehmedagic, was there!). REALTORs® asked for more regulation on themselves. This will take us to a higher level of professionalism, bring it on! If your broker doesn’t ask you to sign an agreement, they are not up to date on what is going on in their industry. Start shopping for a new broker.
The NWMLS has created a form for all members to use, but that is not the only form that you may be presented with. Be careful to read what you’re signing. Ask questions. Be a diligent consumer. Demand professionalism from your broker. We will rise to the occasion, we’re confident of this.
For more on what the NWMLS has done to stay ahead of the national conversation: https://www.nwmls.com/northwest-mlss-members-provide-buyers-and-sellers-with-choices-control-and-complete-transparency/. This is not the only change to Agency Law, just the one piece of what we wanted to discuss today. To read the new law: https://app.leg.wa.gov/rcw/default.aspx?cite=18.86 or see the line-item changes here.
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Neighborhoods | Market Reports | Our Team
We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative, and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.
2737 77th Ave SE, Mercer Island, WA 98040 | (206) 232-0446
mercerisland@windermere.com
© Copyright 2023, Windermere Real Estate/Mercer Island.
Why Taking Care of Your Buyer is Good for You Too
How you leave your home matters more than you think…
In our extreme seller’s market, today’s home buyers are paying top dollar (or beyond) for their home purchase, and like many people paying a premium, they expect to get what they pay for. As a result, they have little tolerance for adverse surprises. This has led to a significant uptick in post-closing claims.
One piece of advice we recommend to home sellers is to take good care of their buyer to leave a positive impression that makes them feel great about being the next owner your home. Aside from being the right thing to do, parting on good terms is likely to mitigate what could otherwise create headaches after the sale.
Here are a few suggestions for making sure your next home sale doesn’t leave you reaching for antacid weeks, months, or years down the road.
Disclose, disclose, disclose
Complete transparency is the best insurance policy
Let’s say you’ve had a [rodent, water intrusion, drainage, settling, lack of permits, etc.] issue in the past that you think is now resolved or shouldn’t matter. If you decide to say nothing, and buyer later has the same issue or hears about its history from neighbors or vendors, they will often perceive you as dishonest and put everything related to their home purchase through that filter. A few minor issues can quickly escalate into costly and avoidable litigation.
Take the same scenario but instead fully disclose the issue and any resolution that has occurred in your seller disclosure form (often referred to as Form 17). Now you have given the buyer an opportunity to evaluate any potential future risk. By disclosing a condition, the seller shifts the burden of investigation to the buyer. By remaining silent, a seller risks the appearance of concealment and a lawsuit. Think of it this way: disclose an issue and if the buyer accepts it, you move forward with no worries; fail to disclose and you could be looking over your shoulder for years. It is usually better to be over-insured than not insured at all. When something comes up after closing, buyer will be able to look back to your seller disclosure and see that you clearly disclosed the issue.
No house is perfect and when sellers claim there are no issues to explain, it sets off red flags for most buyers. Some sellers feel like disclosing every issue might make their home less valuable or attractive to buyers. In truth, you don’t want to sell to a buyer who would not have bought if they’d know the facts. It’s far better to find a buyer who is okay with existing issues and proceeds with a knowledgeable purchase than to live through months of emotional and financial drain resulting from post-closing claims.
Most buyers expect far more disclosure from the seller than the law requires. Sellers have a duty to disclose known defects or those that a prudent seller should have known. These can be related to physical condition or be things that affect the value or title. Sellers should consider disclosure to be a form of insurance. Instead of minimizing disclosures, a prudent seller will consider the property from the perspective of a buyer and then disclose what a buyer would want to know. Many of the conditions that lead to lawsuits would have been acceptable to the buyer if they had been disclosed in advance.
FORM 17 PROPERTY DISCLOSURE: Answer all questions accurately and include disclosure of anything the buyer may later perceive as an issue. Remember that by disclosing a condition, the seller shifts the burden of investigation to the buyer based on Washington court precedent. By remaining silent, a seller risks the appearance of concealment and a lawsuit.
SELLER PRE-INSPECTIONS: If you are providing a pre-inspection report to potential buyers, a more thorough report will offer your greater protection than a quick overview. If buyers can see overlooked items, they won’t trust the report, or you. While providing the report will likely protect you from most listed issues, if you have additional personal history with any issue, it should be detailed in your seller disclosure.
BIDS AND INVOICES: Frequently we hear stories about buyers seeking bids for a thought to be newly discovered issue only to hear from a vendor that they have been onsite before or even provided a bid. Savvy sellers will ensure that any issue they have received bids or invoices for is well documented in their disclosure and consider providing copies of recently obtained bids.
First impressions are lasting impressions
Leave the house the way you would want to find it
Sellers often ask how clean they need to leave a house or if they should repair the little dents and dings that often happen during a move out. Instead of think about the minimum requirement, consider thinking about how you would expect your home to be delivered if you were the buyer. Then think about the power of unexpected, pleasant surprises. Apartment managers, hotels, and merchandisers get this. Yet often in the hassle and craziness of our move out, we forget about the opportunity to create a great first impression that fosters good will down the road.
Your thoughtfulness doesn’t go unnoticed. Whether you need to pick up a package or mail that didn’t get forwarded, a family heirloom that was accidentally left in the attic, or otherwise connect with the buyer after the sale closes, having a positive relationship makes the process so much easier. We have found the best way to accomplish this is to plan ahead, before the moving chaos ensues, and engage pros where needed to ensure that you leave your home exactly the way you would want to find it.
MANUALS AND INSTRUCTIONS: Your home’s buyer will really appreciate having the manuals, notes and instructions that relate to how to operate the essential components of your home. It’s one of those things that is relatively easy for you assemble and invaluably resourceful for any buyer. Bonus points for sharing details about how to change codes, when garbage day is, and what’s planted in the yard.
KEYS, REMOTES AND ACCESSORIES: Our standard local purchase agreement requires delivery of all keys, remotes, and accessories on closing. If there are any locks that you do not have keys for, you should disclose that fact ahead of time or get them re-keyed for the buyer.
EXCLUDED ITEMS: If there is anything that appears attached or intended to be part of the real property and you wish to take with you, be sure to clarify this in your purchase agreement. Your broker can provide a complete list of items considered to convey with the property unless excluded. This avoids unhappy surprises and leaves everyone knowing what to expect.
PROFESSIONAL-QUALITY CLEANING: While professional cleaning is not required by the purchase agreement, having your home professionally cleaned after moving out is a very considerate gesture. Hiring a pro to do this for you take the pressure off of you to come back and do a final cleaning yourself amongst the move out chaos.
ADDED TOUCHES: Some sellers take the time to write the buyer a personal note welcoming them to the home. This personal touch can often set the final tone for the transfer of your home and is well worth the effort.
Final thoughts
Taking care of your home’s buyer and leaving a good impression is priceless. So many times, it’s the little things that make all the difference. It not only makes you feel good, but it also makes them feel great about you and the home they’ve just spent sizable amount of money on. Like staging your home for sale to attract the highest and best offer, leaving your home in great condition, and with only happy surprises, will create the best possible post-closing experience for both you and the buyer.
Still have questions? Contact one of our knowledgeable brokers for assistance with selling your home.
Find a Home | Sell Your Home | Property Research
Neighborhoods | Market Reports | Our Team
We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative, and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.
2737 77th Ave SE, Mercer Island, WA 98040 | (206) 232-0446
mercerisland@windermere.com
© Copyright 2021 Windermere Mercer Island
What is FIRPTA Certification?
A complete overview on why you need to know about it…
If you are purchasing property from a non-US individual or entity, you may be required to withhold taxes under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), 26 U.S.C. 1445 (unless one of the exceptions in the Act applies). The seller must complete a certification to inform both you (the purchaser) and the closing agent (typically the escrow company) whether tax withholding is required.
The above law applies to foreign corporations, partnerships, trusts, estates and other foreign entities, as well as to foreign individuals. If the seller is a corporation, partnership, trust, estate or other entity, the terms “I” and “my” in the doc refer to the entity rather than an individual. A “real property interest” includes full or part ownership of land & any improvements; leaseholds; options to acquire any of the foregoing; and an interest in foreign corporations, partnerships, trusts or other entities holding U.S. real estate.
Under IRS code, the certification must include the property address, seller’s citizenship status, taxpayer identification number, and home address. Note that while the certification is delivered to the buyer prior to closing, social security numbers are not inserted until after the seller signs closing papers in order to prevent fraud.
Obtaining this completed certification is of critical importance because a home buyer can be personally liable for the full amount of FIRPTA withholding tax required to be withheld, plus penalties and interest. When a seller is a foreign person, the buyer and seller are advised to seek the guidance of an accountant or tax attorney to determine the best steps forward. Closing agents and real estate brokers are not qualified or permitted to provide tax advice or guidance.
What the FIRPTA Certification says about Required Withholding if the Seller is a Non-Resident Alien under IRS Guidelines
“If the seller is a non-resident alien, and has not obtained a release from the IRS, then the closing agent must withhold 15% of the amount realized from the sale and pay it to the IRS, unless the buyer certifies that the selected statement below is correct:
□ Amount Realized ($300,000 or less) and Family Residence= No Tax. (a) I certify that the total price that I am to pay for the property, including liabilities assumed and all other consideration to Seller, does not exceed $300,000; and (b) I certify that I or a member of my family* have definite plans to reside on the property for at least 50% of the time that the property is used by any person during each of the first two twelve-month periods following the date of this sale. If the buyer certifies these statements, there is no tax.
□ Amount Realized (more than $300,000, but not exceeding $1,000,000) and Family Residence= 10% Tax. (a) I certify that the total price that I am to pay for the property, including liabilities assumed and all other consideration to Seller, exceeds $300,000, but does not exceed $1,000,000; and (b) I certify that I or a member of my family* have definite plans to reside on the property for at least 50% of the time that the property is used by any person during each of the first two twelve-month periods following the date of this sale. If Buyer certifies these statements, then Closing Agent must withhold 10% of the amount realized from the sale and pay it to the IRS.
* (Defined in 11 U.S.C. 267(c)(4). It includes brothers, sisters, spouse, ancestors and lineal descendants).
Under penalties of perjury, I declare that I have examined this Certification and to the best of my knowledge and belief both statements are true, correct and complete. I understand that this Certification may be disclosed to the IRS and that any false statement I have made here could be punished by fine, imprisonment or both.”
Exceptions from FIRPTA Withholding
The IRS lists eleven exceptions to FIRPTA withholding listed on the IRS website. Of these, there are three that are more typically seen in residential real estate transactions:
OWNER-OCCUPIED BUYER: Sales price is $300,000 or less, and the individual buyer or a member of their family has definite plans to reside in the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the sale.
NOT A FOREIGN SELLER: Seller signs a FIRPTA certification (form 22E) stating that the seller is not a foreign person.
WITHHOLDING CERTIFICATE: Before closing, seller obtains a withholding certificate from the IRS which reduces or eliminates the FIRPTA tax for the foreign person. The seller or transferor should also work with an accountant or tax attorney.
In most cases, the buyer or closing agent is the withholding agent. If you are the transferee/buyer, you must find out if the transferor is a foreign person by obtaining the FIRPTA Certification. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax. For cases in which a U.S. business entity such as a corporation or partnership disposes of a U.S. real property interest, the business entity itself is the withholding agent.
Delivery of the FIRPTA Certification is Required in NWMLS Purchase Agreements
Because this could be a significant aspect of a home purchase, our local MLS requires all sellers to disclose if they are a foreign person at the time of listing a property for sale. The seller’s real estate broker will also ask the seller to complete the FIRPTA Certification on a NWMLS Form 22E at that time.
The seller or their real estate broker must then deliver the completed NWMLS Form 22E (as part of the contract or separately to the closing agent) within 10 days after you have a mutually agreed upon contract. Failure to do so can create an out for the buyer.
The contract further requires seller to warrant their citizen status to buyer, provides instructions to the closing agent, and outlines the termination process in the event the FIRPTA Certification is not timely delivered.
“Seller Citizenship and FIRPTA. Seller warrants that the identification of Seller’s citizenship status for purposes of U.S. income taxation in Specific Term No. 14 is correct. Seller shall execute a certification (NWMLS Form 22E or equivalent) under the Foreign Investment in Real Property Tax Act (“FIRPTA”) and provide the certification to the Closing Agent within 10 days of mutual acceptance. If Seller is a foreign person for purposes of U.S. income taxation, and this transaction is not otherwise exempt from FIRPTA, Closing Agent is instructed to withhold and pay the required amount to the Internal Revenue Service.
If Seller fails to provide the FIRPTA certification to the Closing Agent within 10 days of mutual acceptance, Buyer may give notice that Buyer may terminate the Agreement at any time 3 days thereafter (the “Right to Terminate Notice”). If Seller has not earlier provided the FIRPTA certification to the Closing Agent, Buyer may give notice of termination of this Agreement (the “Termination Notice”) any time following 3 days after delivery of the Right to Terminate Notice. If Buyer gives the Termination Notice before Seller provides the FIRPTA certification to the Closing Agent, this Agreement is terminated and the Earnest Money shall be refunded to Buyer.”
Definitions and Resources Related to FIRPTA
The IRS provides a Definitions of Terms and Procedures Unique to FIRPTA web page with helpful information, including how executors of estates, partnerships, corporations, and spouses (where only one spouse is a foreign person) should proceed.
In addition, there is also Individual Taxpayer ID Guidance for Foreign Property Buyers/Sellers to provide documentation requirements for individuals seeking an ITIN.
If you are looking for information on Reporting and Paying Tax on U.S. Real Property Interests or general Real Estate Tax Center guidance, you’ll find it on the IRS.gov website as well.
Final Thoughts…
Obtaining FIRPTA Certification in your home purchase and, when your seller is a foreign person, verifying that any required withholding is made is an important step you can take to provide peace of mind. This article is provided solely to inform you of the need to be alert to this issue. It does not replace competent legal or tax advice. You should also seek the guidance of a qualified professional regarding your individual situation.
We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative, and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.
2737 77th Ave SE, Mercer Island, WA 98040 | (206) 232-0446
mercerisland@windermere.com
© Copyright 2021 Windermere Mercer Island
