Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - August 11,
2008 1.) Offer to Purchase - Presentation Fee splitting by real estate licensees with non-licensees is illegal. Wis. Stat. § 452.19 limits the payment of referral fees, finder fees and commission splits to Wisconsin licensees or persons lawfully and regularly engaged in real estate brokerage in another state. Neither a commission nor a referral fee may be paid to someone who does not hold a current real estate license. Party incentives, however, may be offered by a real estate licensee to sellers or buyers to induce them to sell or purchase real estate. Such incentives must be clearly documented in advance - prior to closing. The party must have a clear and thorough understanding of the incentive's terms and conditions. This advance documentation is necessary to establish that the incentive is not a fee-splitting arrangement with a non-licensee, which would be illegal under Wisconsin law. According to Wis. Admin. Code § RL 24.13(1), a
licensee shall not refuse to draft or present an offer to the owner
unless the terms of the offer would be contrary to the specific
instructions of the seller. Also, Wis. Admin. Code § RL
24.13(2)(b) requiring licensees to promptly present all offers received
to the seller. Licensees are not allowed to make decisions for their
clients and customers or to act on behalf of a party without prior
consultation and instruction. 2.) Offer to Purchase - Licensed Purchasers QUESTION: An agent is personally purchasing a cabin. What language needs to be put in the offer to collect a commission? ANSWER: Under the law of agency, the agent is prohibited from competing with the principal. A licensee can be either a principal or an agent in a transaction, but conflicts of interest occur when a licensee tries to be both. When acting as a buyer of real estate, the licensee is a principal in the transaction and not the agent for anyone. Therefore, the buyer/licensee cannot collect a commission from the seller because the buyer/licensee cannot perform services on behalf of the seller with undivided loyalty when the licensee has his or her own interest as the buyer at stake. It is also inconsistent for a buyer/licensee to act as his or her own agent and collect a commission for representing oneself. Instead, a buyer/licensee can negotiate a buyer's incentive to be paid by the listing broker or the seller. This incentive can be for the amount of the co-broke commission which would otherwise be paid to the selling broker in the transaction. The buyer's incentive should be properly documented in writing before closing, preferably before the offer to purchase is executed. An incentive from the listing broker should be documented in a separate letter or memo because it is a separate agreement between the licensee/buyer and the listing broker. Under the DRL's interpretation of Wis. Admin. Code § RL 24.05(4), the seller also must consent in writing to this incentive no later than the time that the offer is accepted, so a recitation in the offer regarding the incentive from the listing broker to the licensee/buyer may be the most efficient way to meet this requirement and avoid any possible DRL enforcement actions. There is no "secret" form or language for the incentive agreement. However, the agreement should identify the parties and the transaction, and indicate how the incentive is earned, when it is paid and who will pay it. For example, an incentive agreement might provide, "As an inducement to Aaron Agent to purchase the property at 123 Main Street, Anytown, Wisconsin, XYZ Realty, Inc., promises to pay to Aaron Agent an incentive in the amount of $3,000 at the time of closing provided the closing occurs on or before December 31, 2009." 3.) Commissions - Procuring Cause QUESTION: The broker was a buyer's agent and wrote an offer on another broker's listing. It was stated in the contract that the buyer agency commission would be paid directly to buyer's broker by the seller. The listing office did not pay commission and is questioning procuring cause. Is this an arbitrable matter? ANSWER: Article 17 of the Code of Ethics provides that certain contractual and non-contractual disputes are subject to arbitration. Standard of Practice 17-4(5) provides for arbitration in the following situation: Where a buyer's agent is compensated by the seller, and not the listing broker, and as a result the listing broker reduces the commission owed by the seller, if the listing broker claims to be the procuring cause of the sale the arbitration will be between the listing broker and the buyer's agent for the amount of the listing broker's reduction of commission. This Standard of Practice was adopted so that arbitration could not be circumvented in situations where there is a question of procuring cause between the listing broker and buyer's agent and the offer provides that the seller pay the buyer's agent directly. At the closing, per the terms of the offer, the seller
should pay the buyer's agent or risk breach of contract. After the
closing the listing broker may file arbitration naming the buyer's
agent/broker as the respondent. The listing agent in such a scenario
will have the burden of proof to show that the listing broker was the
procuring cause of the sale. 4.) Offer to Purchase - Financing Contingency QUESTION: The seller has an offer on an investment property. The financing commitment was due last Friday, August 1, 2008, and the listing office has not yet received a loan commitment from the selling agent. At this point, is the financing contingency removed, and the sale continues? Or is this a dead offer? The property is being shown to another interested buyer. ANSWER: Lines 171-172 of the WB-11 Residential Offer to Purchase
provide, "SELLER TERMINATION RIGHTS: If Buyer does not make timely
delivery of said commitment, Seller may terminate this Offer if Seller
delivers a written notice of termination to Buyer prior to Seller's
actual receipt of a copy of Buyer's written loan commitment." The buyer
will continue to have a grace period - the buyer can still submit a
loan commitment that will be considered timely as long as the seller
does not first deliver a notice of termination to the buyer. Therefore,
the financing contingency is not removed and the offer is still alive. 5.) Offer to Purchase - Cancellation and Mutual Release QUESTION: The agent is working with an expired contract of sale and the earnest money was to be given back to the buyer. The cancellation agreement and mutual release (CAMR) form was delivered to the seller, who verbally agreed to sign it. However, the seller has died due to an accident. What should be done with the earnest money? ANSWER: Even under these very tragic circumstances, the earnest money disbursement provisions of the offer to purchase and Wis. Admin. Code § RL 18.09 must be followed. It may be appropriate to wait to determine if the deceased had, in fact, signed the CAMR but had failed to deliver it back. Alternatively, it would appear that the daughter, as the personal representative for the estate, would be authorized to sign the CAMR at the appropriate time. Once the CAMR is received, it may be prudent to note in the transaction file the series of events that have taken place that gave rise to the daughter executing the CAMR document rather than the seller herself. Debbi Conrad |