Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - May 12, 2008 1.) Agency - Multiple Representation A single agent cannot provide multiple representation with designated agency representation in a transaction so something will need to be changed with regard to the agency relationships if this transaction is to be pursued. There are several different ways that this situation might be resolved, depending upon the preferences of the clients and the agent. Some possible solutions include: 1) The buyer or seller (or both) may change his or her consent for representation to multiple representation without designated agency. By operation of law, when both parties have consented to multiple representation (either with or without designated agency) but neither or only one has selected the designated agency component, then the agency relationship for both parties is automatically deemed to be multiple representation without designated agency (dual agency) and the agent may not place the interest of any client ahead of the interest of any other client. 2) Another agent in the company may be brought in to represent either the buyer or the seller in the transaction so that everyone can proceed with the multiple representation with designated agency selected by both parties. 3) The buyer agency agreement may be modified to exclude the listed property from the agreement. The agent may then proceed to work for the seller as the listing agent, and the agent may provide services to the buyer as a subagent or the buyer may work with an attorney. 4) The listing contract may be modified to make the
buyer an exception to the listing and the agent then would work as a
buyer's agent. The agent may provide brokerage services to the seller
as a customer or the seller can work with an attorney. 2.) Offer to Purchase - Miscellaneous QUESTION: A broker has a condominium project listed. Several people have been through the condominium units multiple times and are showing interest, but they are not writing offers. Can the seller initiate an offer to the buyer? ANSWER: This is somewhat unusual because the seller typically
does not know what kind of provisions, contingencies and time frames a
buyer would want, but it can be done by modifying the WB-14 Residential
Condominium Offer to Purchase. First, change the title to Residential
Condominium Offer to "Sell." Change the language on the lines of the
beginning of the form to read, "The Seller, ______, offers to sell the
Property .." Then, in the offer or in an addendum to the offer, make it
clear that this is an "Offer to Sell" from the seller to the buyer. The
signature lines may be reversed because the seller instead of the buyer
will be signing first. Modify the acceptance lines at the end of the
form because it will be the buyer who hopefully accepts the offer. Even
if the offer to sell is countered by the buyer, at least the seller has
triggered some active negotiation on the units. 3.) Commissions - Referral Fees QUESTION: Re: Referral fees. Who is responsible for disclosing to the buyer and/or seller that a company will earn or pay a referral fee for real estate brokerage services? Is there a requirement that a disclosure be made to a buyer when that buyer is referred to a builder and the broker will receive a referral fee, and who is responsible for the disclosure? ANSWER: If the builder owns a lot which is sold in conjunction with a construction contract, the broker's agents need only make the normal agency disclosures, i.e. agents of builder/seller. If the buyer already has a lot and is just negotiating a construction contract, there is no rule requiring agents to disclose compensation from builder. It may still be recommended practice to make this disclosure in order to prevent the uncomfortable situation where the buyer later discovers from the builder that the agent was paid a fee. If the lot is being purchased from a separate seller in a transaction where the broker's agent is acting as a seller's agent and at the same time the construction contract is being negotiated, it could be argued the agent is being compensated by more than one party and must accordingly obtain the written consent of all parties Wis. Admin. Code § RL 24.05(1) would require disclosure and written consents if the term party, as used in that dual compensation rule, is interpreted to include the builder. If the agent refers the vacant lot purchaser to the builder, Wis. Admin. Code § RL 24.05(3) would also require disclosure when the referral was made that the agent may receive a referral fee. An agent cannot perform licensed activities for builder unless the builder is a broker - then the agent would need to terminate his work with the broker because he may only work for one broker. Read Wis. Admin. Code § RL 24.05 online at http://www.legis.state.wi.us/rsb/code/rl/rl024.pdf. 4.) Mortgage Banking/Finance - Fraud QUESTION: An agent wrote an offer on a condominium form for a town home and the FHA wants it changed to the correct form. It is the broker's understanding that in the rewritten offer, the agent should put that, "this offer replaces the offer to purchase dated________." What dates should be used - the original dates to match the original offer or the current dates? ANSWER: It would be fraud to rewrite and backdate the offer - it is representing things that simply are not true. Wis. Admin. Code § RL 24.085 states, "no licensee shall draft or use any document which the licensee knows falsely portrays an interest in real estate." The offer can be rewritten to specifically state that
the new offer supersedes and replaces the original offer for $_______,
dated ____, which is hereby cancelled and withdrawn. The replacement
offer must use the current dates, including the dates on the signature
lines. To do otherwise would be leading the parties down the road to
committing fraud, a fraud to which the broker would be a party. 5.) Offer to Purchase - Tax Proration QUESTION: When prorating taxes, is there a law that it should be prorated to the day before closing or to the day of the closing? The agent has seen it done both ways and the title company is questioning it. ANSWER: The offer to purchase is what dictates the proration formula that should be followed at closings. The WB-11 Residential Offer to Purchase, on Line 47, states, "any income, taxes or expenses shall accrue to Seller and be prorated through the day prior to closing" The offer has stated that closing prorations shall be made as of the date immediately preceding closing since the late 1990's. The proration date is the day immediately before closing because the Internal Revenue Code requires sellers to calculate their property tax prorations as of the day prior to closing, so the offer uses the same proration point, thus eliminating the need for sellers to do an extra set of prorations for tax purposes. Consumer Brochures Real estate transaction can be confusing and intimidating to those not familiar with all the issues. The WRA's Consumer Brochures provide convenient, consumer-friendly explanations of some of the hottest topics in real estate today. Brochure topics include: Predatory Lending, Buyer Agency, Your Rights as a Homebuyer or Seller, Lead Paint Disclosure, Seller Disclosure Law, Underground Storage Tanks, Environmental Issues Affecting Residential Real Estate and an Explanation of the State of Wisconsin WB-1 Residential Listing Contract and WB-11 Residential Offer to Purchase. For details on WRA consumer brochures visit http://www.wra.org/Products/results.asp?category=OTHER&token=~CON~. 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 |