Washington State Department of Financial Institutions

Escrow Memorandum #03-01 ES

DATE: January 7, 2003

TO: All Escrow Agent Licensees, and Interested Parties

FROM: Whittier Johnson, Program Manager

SUBJECT: Changes in Real Estate Commission

An Escrow Agent is responsible for effecting and closing escrow agreements between principal parties. This includes preparing or accepting escrow instructions among or from the principal parties.This interpretive letter addresses changes in the escrow instructions regarding real estate commissions, outlining the Department of Financial Institutions view on the matter.

When an Escrow Agent receives or finalizes an agreement and prepares instructions effectuating the agreement between a buyer of new construction and a builder, and the agreement includes a commission amount for real estate broker(s), those commission amounts may be modified at a later date.  Such a modification is, in the view of the Department of Financial Institutions (DFI), a “material change” in the terms of the transaction as referenced in WAC 208-680D-040 and must be done in writing and must be agreed to and signed by all parties to the agreement.

In many cases the escrow instructions will make reference to terms in a real estate listing agreement. This real estate listing agreement, usually outlining the commission to go to the listing agent and the selling agent, can and should be included as a part of the escrow instructions. Changes to the commission sharing arrangement between listing agent and selling agent or between the home construction company and the real estate agents must be documented, agreed upon, and signed by all parties. After agreement, the Escrow Agent will include the changes in the instructions and submit the modified instructions to the parties prior to closing.

The Department of Financial Institutions will look for proper development and use of escrow instructions in this context as part of regularly scheduled examinations of Escrow Licensees.