Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - January 4, 2010 1.) Office Management - General Office Management E&O insurance is designed to provide comprehensive professional liability insurance coverage for real estate salespersons and brokers. In essence it’s malpractice insurance for the real estate professional. E&O insurance provides coverage for errors and omissions of real estate brokers and agents in providing advice or other services to their customers or clients. The insurance is intended to protect brokers and agents against liability claims or lawsuits for damages caused by errors (something they did) or omissions (something they failed to do). The agent should review the independent contractor agreement, office policy and the errors and omissions policy. The terms and conditions of these agreements hopefully will indicate the agent’s responsibility for insurance coverage and costs. The agent may work with the former broker or office manager to resolve coverage issues. There generally are two forms of E&O coverage typically held by real estate agents: claims made and tail coverage. Most E&O insurance policies cover claims made during the life of the policy, regardless of when the alleged injury occurred. The broker here may be requiring “tail coverage” which would protect the broker from a lawsuit concerning transactions involving the agent prior to the agent’s departure. Additionally, the agent may refer to the errors and omissions policy to determine what coverage is in place, what coverage is available and the costs there of. READ MORE ABOUT IT: 2.) Licensing Issues - Out-Of-State Property Negotiations QUESTION: Re: Out-of-state purchases. The agent is a buyer’s agent for someone who lives in Wisconsin. He has asked the agent if he can represent him in a large purchase of land in Wyoming. Can the agent do this? ANSWER: It has been the understanding of the WRA that a Wisconsin real estate license permits an individual to negotiate with another, for a commission, money or other thing of value, the sale, purchase, rental or exchange of an interest in real estate. Wisconsin, and 23 other states (including Minnesota), according to the National Association of REALTORS®, are classified as physical location states. That means that a licensee from another state may work on a transaction involving property in Wisconsin and receive commission as long as the licensee remains physically in the state where he or she is licensed. The licensee from another state may not visit the property in Wisconsin or negotiate face-to-face in Wisconsin. Each state's laws control the real estate license activities that occur within that state. To determine exactly what is permitted in a transaction involving a property located in another state requires an analysis of those laws. NAR's recent report regarding license portability can be reviewed regarding Wyoming law (see www.realtor.org/rmomag.NSF/pages/lawjuly05?OpenDocument). The licensee would be best served if his or her attorney reviewed Wyoming real estate license law and determined if the Wisconsin licensee’s participation in the contemplated transaction would be allowed under Wyoming law. If permitted under Wyoming law, all of the Wisconsin licensee's work in negotiating the sale must be conducted in Wisconsin. Out-of-state work (for example, showings) must be conducted by a Wyoming licensee if the broker is not also licensed in Wyoming. A recent unpublished Wisconsin Court of Appeals District IV decision has indicated that one would have to be licensed in the state where the property is located to engage in a transaction for the sale of the property (at least as it relates to Wisconsin and Iowa, the states that were involved in the case). The Court noted that the Iowa law that the parties presented to the Court did not relieve a broker working in a transaction for the purchase of an Iowa property from needing to have an Iowa real estate license, even if the Wisconsin broker’s actions might be allowed under Wisconsin law. READ MORE ABOUT IT: 3.) Commissions - Entitlement QUESTION: If an agent leaves a company and sends his or her license back into the state prior to a property closing, can the agent still be paid a commission? ANSWER: Licensees often ask how they may collect commissions on listings obtained and offers written while they were previously affiliated with a broker/employer. One key consideration may be whether the agent was licensed with a broker when the brokerage services that earned the commission were performed. In many cases, the entitlement to a commission after termination will depend upon the terms and conditions of the agent’s independent contractor agreement with the broker/employer or the office policy and procedures manual. The terminated agent may enforce these written agreements in court. If the previous broker/employer had no written agreements or policies, then the agent may need to prove the past practices of the broker/employer or the prevailing industry practice in court. Wis. Stat. § 452.19 permits a broker to pay referral fees and finders fees to other Wisconsin licensees as long as that person’s license is active and regardless of the fact that the person holds a salesperson’s license or an inactive license (rather than a broker’s license). The fact that the person is not currently employed by a broker is not relevant. Pursuant to Wis. Stat. § 452.14(3)(f), any commission or referral fee received by an employed salesperson (whether licensed as a broker or a salesperson) in connection with a real estate transaction may be received by the salesperson only from the salesperson's employing broker. A non-employed or inactive salesperson, however, can make a referral and receive a fee. 4.) Offer to Purchase - Signatures QUESTION: Apparently in this transaction, the agent permitted the girlfriend to sign the counter-offer on behalf of her boyfriend (both are named buyers in the offer to purchase). It is unclear whether or not there was an appropriate express authorization, as required under Wis. Stat. § 706.03(1m), from the boyfriend to the girlfriend (it appears that there was at least a verbal consent). Now the boyfriend no longer wants to buy the property and he is asserting that he never signed the counter-offer. The agent did not disclose to the listing agent that there may not have been proper authorization for the girlfriend to sign on behalf of the boyfriend. The sellers are currently considering their potential options against the buyers. What is the agent's potential exposure? ANSWER: It may be prudent for the agent to consult with her broker and legal counsel. Authority to sign for another should be given in writing, preferably notarized, with the fullest, most detailed as possible instructions from the party authorizing it. In executing documents, the signing party should comply with § 706.03(1m), which provides that the party's name (in this case, the boyfriend’s name) appear with an indication of the authority of the signing party (here, the girlfriend) - such as “[name of boyfriend] by [name of girlfriend], as authorized agent” or “[name of girlfriend] as agent on behalf of name of boyfriend]”). Whenever someone signs on behalf of another, care must be taken to establish the authority of the person who is signing to do so. 5.) Contract Issues & Forms - Approved Forms QUESTION: A builder constructed a duplex. He later converted the units to condominiums through a condominium declaration. A buyer seeks to purchase both units for their personal use and would be the sole member of the “association.” The broker presumes a WB-14 Residential Condominium Offer to Purchase should be used but could the WB-11 Residential Offer to Purchase be used for this purchase? ANSWER: A licensee should use whichever DRL-approved form best matches the transaction with the fewest number of changes or modifications. There is no right or wrong answer. It is a matter of the licensee's judgment as to what form best fits the individual circumstances. Obviously many condominium feature and documentation references would be missing if the WB-11 were used instead of the WB-14. Debbi Conrad |