Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - December 1, 2009 1.) Commissions - Incentives The seller may authorize the broker to advertise special financing and incentives on lines 19-20 of the 2008 WB-1 Residential Listing Contract. When discussing either buyer or broker incentives, it is in best interest of the broker to explain completely to the seller how incentives may be paid and to whom. The seller cannot directly pay the selling agent a bonus because any commission or fee paid for brokerage services must be paid to the agent’s employing broker, per Wis. Stat. § 452.14(3)(f). The amount the agent receives is subject to the terms of the independent contractor agreement between the agent and his or her employing broker. The broker may include information in the MLS regarding agent incentives offered by the seller. However, because the seller is not a member of the MLS, the broker making such offers in the MLS may be personally liable for the payment of the incentives because the MLS is for broker-to-broker offers of cooperation and compensation. If the seller wishes to offer incentives to the cooperating agent, a prudent broker would make sure that the listing contract provides for the seller reimbursing the listing broker or channeling this payment through the listing broker to the cooperating broker. The seller may authorize the broker to offer a bonus to the buyer; much like the seller may authorize the listing broker to advertise that various items of personal property are included in the list price of the listing and available for purchase. In both instances, the offer to purchase is the binding contract that represents the details of the bargain between the seller and the buyer. The free-standing freezer is not included in the deal unless it is listed as included in the offer. Similarly, when a seller is offering an incentive to a buyer, the terms of the incentive need to be stated in the offer to purchase to create the contractual obligation between the parties. When listing brokers advertise the seller’s incentive, such as in the remarks section of the MLS or in other promotional materials, they should specify that the seller is offering the incentive. This may help avoid liability in the event the seller reneges and help shield the broker from improper advertising claims. The offer should include the incentive as a contract provision between the buyer and the seller to make sure the lender and underwriter are fully informed and that there are no side deals that have not been disclosed to the secured lender. 2.) Agency - Miscellaneous Agency QUESTION: Another licensed broker is a party to a commercial transaction. Can he collect a commission since he is a member and partner of a property that will be put into a LLC? According to Wis. Admin. Code § RL 24.05(4), “A licensee acting as a principal in a real estate or business opportunity transaction shall not accept any commission” etc. ANSWER: Generally, under the laws of agency, a licensee can be either a principal or an agent in a transaction, but not both. 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. However, in this case, the purchaser of the properties is an LLC of which the broker happens to be a member. Because it is the LLC and not the broker that is purchasing the property, the broker can act as an agent of the LLC and collect a commission. However, pursuant to Wis. Admin. Code § RL 24.05(2), a licensee acting as an agent in a real estate transaction may not act in the transaction on the licensee’s own behalf, on behalf of the licensee's immediate family or firm or on behalf of any other organization or business entity in which the licensee has an interest without the prior written consent of all the parties in the transaction. This written consent may be obtained in the offer. 3.) Offer to Purchase - Miscellaneous QUESTION: An agent has a listing and the seller had an accepted offer that was subject to appraisal. The appraisal was too low and the buyers decided not to purchase the property. The agent had a second potential buyer for the same unit, but since it had an accepted offer on it, they wrote an offer with agent on a FSBO unit in the same complex. That unit is smaller and less updated. Can the agent share the appraisal on the larger unit with the second buyer with the intention of the buyer switching to the larger unit? ANSWER: Since the buyers are still under contract for the purchase of another condominium the appraisal should not be given. This could be interpreted as interference with another’s contract, which is a tort. A person who interferes with a contract may also be sued in civil court if damages can be proved. If the second buyer was released from the contract, it would still be unwise for the listing agent to provide a copy of the appraisal report because it may likely be considered a confidential transaction document under Wis. Stat. § 452.133(1)(d). Both the REALTOR® Code of Ethics and Wisconsin license law require brokers to maintain confidential information, including the price of another buyer’s offer. See Wis. Stat. § 452.133(1)(d), Wis. Admin. Code § RL 24.12(1), and Article 1 of the Code of Ethics. In addition, the appraisal was prepared for a specific client (the first buyer or that buyer’s lender) and appraisals generally cannot be simply reassigned to a second buyer. 4.) Listing Contracts - Change of Company Name QUESTION: Re: Possible merger with another company. Would the broker need to have all listings re-signed? ANSWER: The answers depend on how the “merger” is structured. When corporations are merged under Wis. Stat. §§ 180.1100-180.1161, the surviving business entity, generally speaking, acquires the obligations and the rights of the other merging business entities and no changes are needed. If ownership changes in a corporation (and in many partnerships), the entity stays intact and no changes are needed. But if the entity changes a partnership incorporates or one office sells out to another (except by statutory merger of corporations), then amendments to the listing contracts or new listing contracts are needed. 5.) Office Management - Termination QUESTION: An agent is trying to terminate her association with the company and the broker refuses to sign the termination papers. The agent had a signing bonus and an agreement to work for two years and a non-competition clause. The employing broker will not release the agent until the signing bonus is paid back. How to proceed? ANSWER: The DRL Form 766 Notice of Termination of Employment of Broker or Salesperson (online at http://drl.wi.gov/dept/forms/fm766.pdf) may be completed either by the agent or broker. However, the Department of Regulation and Licensing does not regulate agent-broker employment contracts. The agent may wish to work with legal counsel to review the terms and conditions of the independent contractor agreement and company policy, including the termination provisions. A covenant to not compete within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonable and necessary for the protection of the employer. The covenant must provide reasonable time and territorial restrictions, not be harsh or oppressive to the employee and not be contrary to public policy. Generally a covenant not to compete is not enforceable unless there is a substantial risk to the employer's relationship with clients and customers or with respect to confidential business information should the employee (or independent contractor) terminate the relationship with the employer. The covenant not to compete is used to prevent the unauthorized use of trade secrets or customer lists or in those instances where the employee's services are of a unique character. Whether or not a covenant to not compete will be enforceable in a real estate broker-sales associate relationship will turn on whether or not the sales associate is providing unique services (including services in a management capacity); whether or not there are trade secrets of the company that require protection; and/or whether or not there are customer/client lists of the company that require protection.
Debbi Conrad |