Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - February
11, 2008 1.) Listing Contracts - Seller Contact by Other
Brokers This would depend upon the circumstances of the second
listing. If a seller contacts a REALTOR® about taking a listing
upon expiration of the current listing, the second broker may provide
information and draft and execute a new listing to take effect upon the
expiration of the current listing. The Code of Ethics provides in
Standard of Practice 16-6 that, On the other hand, a licensee who coaches a seller about
how to terminate a listing or a buyer about how to terminate a buyer
agency agreement may be accused of license law and ethical violations
and sued in court for damages. Such conduct may be viewed as giving
legal advice in violation of Wis. Admin. Code § RL 24.06(1) and
Article 13 of the Code of Ethics. It also may be seen as interference
with the other broker's agency contract in violation of Article 16 of
the Code of Ethics. A person who interferes with a contract may also be
sued in civil court if damages can be proved. 2.) Commissions - Incentives QUESTION: Is buyer agency a flat fee with rebates to the buyer legal in Wisconsin? Can part or all of a buyer's agent's fee be rebated back to the buyer after or during closing? ANSWER: Buyer incentives are allowed in transactions, but be cautious about calling them "rebates." The most prudent way to accomplish what the agent is attempting to do may be to enter into a DRL-approved buyer agency agreement and indicate the desired compensation amount. Then, in either a separate document or a document attached to and incorporated into the buyer agency agreement, the agent and the buyer could enter into a buyer incentive agreement. Incentives may be offered to sellers or buyers to induce them to sell or purchase real estate. Seller or buyer incentives can be offered in any amount as cash or as personal property such as a home warranty plan, a savings bond, a gift certificate, an appliance or some other item. Such party incentives should be clearly documented in advance - prior to closing. The party should have a clear and thorough understanding of the terms and conditions of the incentive. This advance documentation of the party incentive establishes that the incentive is not a fee-splitting arrangement with a non-licensee, which would be illegal under Wisconsin law. In that agreement, which must be in writing and signed
prior to closing, the agent would agree to pay a certain dollar amount
to buyer at such time as a successful closing occurs. As the agent may
not pay commissions or fees to unlicensed parties, the agreement may
not in any way appear that is the case. 3.) Commissions - Referral Fees QUESTION: A new agent has been approached by a couple of companies that will compensate her with money if the company is referred and the client/customer buys. The first is a moving company that will pay a range of $25-$150 per referral. The move has to be delivered before the fee is payable. The second is a home warranty company that will pay $65.00 if a warranty is sold and paid for. Can the agent legally do this in the context of a transaction where the agent is providing brokerage services to a party? ANSWER: At minimum, disclosure and consent from the parties may be required. Wis. Admin. Code § RL 24.05(1) warns, "DUAL COMPENSATION. A licensee acting as an agent in a real estate or business opportunity transaction may not accept any fee or compensation related to the transaction from any person, other than the licensee's client, without prior written consent from all parties to the transaction." Wis. Admin. Code § RL 24.05(3) cautions, "REFERRAL OF SERVICES. A licensee acting as an agent in a real estate or business opportunity transaction may not recommend or suggest to a party to the transaction the services of another individual or entity from which the licensee may receive compensation for a referral or in which the licensee has an interest, other than referrals to other licensees for real estate services under s. 452.19, Stats., unless the licensee, prior to or at the time of the referral, discloses the fact that he or she may receive compensation for the referral or that he or she has an interest in the individual or entity providing the services." Section 8 of RESPA, which prohibits anyone from giving or accepting a fee, kickback or any thing of value in exchange for referrals of settlement service business related to a federally related mortgage loan. Section 8(a) of RESPA prohibits any person from giving or accepting any fee, kickback or thing of value, pursuant to any agreement or understanding, for the referral of settlement service business involving a federally related mort¬gage loan. RESPA Reg. X lists some of the real estate services that are defined as "settlement services," under Reg. X. These "settlement services" include any services related to: (1) the origination, processing or funding of a federally-related mortgage loan; (2) mortgage broker services such as counseling, taking applications, obtaining verifications and appraisals, lender-borrower communications, etc.; (3) title company services; (4) an attorney's legal services; (5) closing document preparation; (6) credit reports and appraisals; (7) property inspections; (8) conducting the settlement; (9) mortgage insurance; (10) hazard, flood or casualty insurance, and homeowner warranties; (11) mortgage life, disability or similar insurance; (12) real property taxes and assessments; and (13) real estate brokers and agents. Services that occur at or prior to the purchase of a home are typi¬cally considered settlement services. Anything listed on a HUD-1 form and paid for by the buyer or seller could be a settlement service, and the company providing it a settle¬ment service provider. Services that occur after closing usually are not considered settle¬ment services. This generally, but not always, includes moving com¬panies, gardeners, painters, interior decorators and home improvement contractors. While a mover may not be a settlement service provider under RESPA, the home warranty company likely would be classified as one, which would mean that the home warranty referral fee would appear to violate RESPA. READ MORE ABOUT IT: 4.) Commissions - Offers of Compensation QUESTION: If an agent submits an offer for a commercial building listed by a commercial broker, but the property is not on the MLS, is the agent eligible to receive a commission? ANSWER: If a property is not listed in the MLS, the cooperating broker will need to determine if there is an offer of compensation made by the listing broker to the cooperating company. An offer of compensation may be via the MLS, by policy letter or by a separate commission agreement negotiated on a transaction-by-transaction basis. It is prudent to have any commission agreement documented, in writing, including the terms and conditions of the offer of compensation and the standard of performance to earn the commission. READ MORE ABOUT IT: 5.) General Real Estate - Miscellaneous Issues QUESTION: Re: Property management. Does someone who collects rents for other people have to be licensed? ANSWER: Rental agents who merely show residential rental property, accept applications and provide information to prospective tenants are not regarded as within the definition of "broker." However, actual negotiations of lease terms or entry into a lease by the rental agent will be acts of real estate brokerage, and therefore require licensure. Unlicensed rental agents or managers must not be paid on a percentage of rentals (but rather on a salary basis); and must restrict activities to showing units, giving basic information, taking rental applications and accepting/receipting rental deposits in the form of checks (but not cash). READ MORE ABOUT IT:
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WB-1 Now Available This Wisconsin REALTORS® Association Best of the Legal Hotline service is provided for you by the WRA's Legal Affairs Department. The service should be considered a general statement of applicable legal principles. Given this format, it is impossible to fully address all potential legal issues which might apply in any particular situation. A determination of any individual's legal rights in a transaction can only be obtained after complete analysis of the law and its applicability to the particular fact situation. Please contact the WRA Legal Hotline if additional information is needed, or private counsel, if legal advice is needed. Thank you for using the Wisconsin REALTORS® Association Best of the Legal Hotline service. Debbi Conrad |