Escrow Memorandum #03-02 ES

DATE: August 8, 2003

TO: All Escrow Agent Licensees, and Interested Parties

FROM: Whittier Johnson, Program Manager

SUBJECT: Changes in Real Estate Commission

The Department of Financial Institutions (DFI) offers the following alert regarding the proper way to address situations when real estate commissions in a purchase transaction are changed.   An Escrow Agent is responsible for effecting and closing escrow agreements between principal parties.  This includes preparing or accepting agreements among or from the principal parties.  This alert addresses changes in 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 and seller, the agreement often includes a commission amount for real estate broker(s).  Those commission amounts, typically outlined on documents called disbursement forms, may be modified at a later date.  If they are modified, the escrow agent must be careful to make certain the change is treated properly.

Here are some important considerations:

• DFI views a real estate commission change as a “material change” in the terms of the transaction as referenced in WAC 208-680D-040.  This means it must be done in writing and must be agreed to and signed by all parties to the agreement.
  
  
• Escrow Agents must make certain the party paying the commissions approves the change in commission.

• In many cases the disbursement forms 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 must be documented, agreed upon, and signed by all parties.  After agreement, the Escrow Agent will include the changes in the updated disbursement form and submit it to the parties prior to closing.

• Because agreement among the parties is not a certainty, the Escrow Agent should stand ready to have the parties interplead the contested funds.

The Department of Financial Institutions will look for proper development and use of commission disbursement forms as part of escrow instructions in our regularly scheduled examinations of Escrow Licensees. We hope this alert will help Escrow Agents comply. If you have questions about this or other examination or compliance matters feel free to call the Department of Financial Institutions at 360-902-8700.

Sincerely,

Whittier Johnson
Program Manager