Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - December 7, 2009 IRS News on the Homebuyer Tax Credits The Worker, Homeownership, and Business Assistance Act of 2009 extended the deadline for qualifying home purchases from Nov. 30, 2009 to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010 to settle on the purchase. The first-time homebuyer credit remains at $8,000, and the new $6,500 credit for a “long-time resident” applies to buyers who have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new primary residence. Some of the important new features of the amended credit program include:
The IRS also now has a YouTube video about the credits. The latest IRS guidelines and a link to the video appear @ http://www.irs.gov/newsroom/article/0,,id=215791,00.html?portlet=7.
1.) Commissions - Incentives 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 incentives must be clearly documented in advance – prior to closing. The party should have a clear and thorough understanding of the incentive’s terms and conditions. This advance documentation is needed to establish that the incentive is not a fee-splitting arrangement with a non-licensee, which would be illegal under Wisconsin law. Standard of Practice 12-3 of the REALTOR® Code of Ethics, provides that: “REALTORS® shall be careful at all times to present a true picture in their advertising and representations to the public. ...” Standard of Practice 12-3 states “The offering of premiums, prizes, merchandise discounts or other inducements to list, sell, purchase, or lease is not, in itself, unethical even if receipt of the benefit is contingent on listing, selling, purchasing, or leasing through the REALTOR® making the offer. However, REALTORS® must exercise care and candor in any such advertising or other public or private representations so that any party interested in receiving or otherwise benefiting from the offer will have clear, thorough, advance understanding of all the terms and conditions of the offer. ...” This standard assumes the omission of even one detail may cause the advertisement to present less than a true picture. This may be disputable should someone bring an ethics complaint concerning an ad for party incentives that does not contain every detail – the issue will be whether there is a true picture of the offered incentive in the ad. An ad that states, “see broker for details,” however, is like a red flag waving in the face of a competitor who closely reads by the Standards of Practice – it may be seen as an admission that less than a true picture has been disclosed in the ad. The broker may also consider any implications of giving cash back to a buyer or a buyer incentive with regard to the buyer’s ability to qualify for and obtain financing. Incentives would need to be disclosed to the buyer’s lender/underwriter to avoid claims of mortgage fraud. Finally an MLS broker offering buyer incentives may consider possible procuring cause issues that could arise: a cooperative broker drafting the offer may or may not turn out be the procuring cause of the sale. If he or she does not receive a commission, a new source of funds for the party incentive must be found. 2.) Offer to Purchase - Amendments QUESTION: The seller has an offer on his property written by a co-broke selling broker. The offer is for a short sale transaction that was made contingent on lender approval, which was obtained, but the property appraised for less that the offered amount. The listing broker went back to the seller’s lender to request approval of a lower price for the short sale. The co-broke selling broker wants to use a counter-offer to change the price to match the lower appraised amount. The listing broker wants to use an amendment to reduce the purchase price to match the appraised value. Or should this offer be made null and void and an entirely new offer be written? ANSWER: Once there is an accepted offer, the amendment is the proper form to use to modify any of the terms and conditions of the offer. An amendment may be used to increase or decrease the purchase price if the buyer and seller agree. Acceptance and binding acceptance are defined in the 1999 WB-11 Residential Offer to Purchase at lines 17-21. An offer is accepted even if it is subject to contingencies for home sale, inspection or short sale lender approval. A counter-offer is used when the parties are still negotiating the terms and conditions of a contract, before acceptance and binding acceptance. Alternately, a new offer could be drafted presuming it is not being done as part of a fraudulent scheme. If a new offer is used the brokers may need to address property condition disclosures, new timelines, etc. The listing agent should check with the seller's lender to see if an amendment will impact the short sale approval process and timeline. 3.) Commissions - Miscellaneous Commission Issues QUESTION: One of broker's agents moved out of the state and left her business with another agent in the office, including a listing. The listing expired and the list of protected buyers was submitted in a timely manner. The property was listed by another agent in another office of the same company. That agent subsequently sold the property to one of the protected buyers. They are saying that because the agent who originally listed the property left the state they do not have to relinquish the commission that was paid. Please advise. ANSWER: Listings belong to the brokers/companies, not to the agents of brokers who sign the listing contract on behalf of the broker. Whether or not the individual agent who signed the listing contract is still with the company, a list of protected buyers protects those buyers for the broker/company. In this case, the property was listed with another office of the same company, but with its own separate broker. Unless there is some company policy to the contrary, the broker would still be entitled to the commission on the sale because of the protected status of the buyer. At that point, company policy, independent contractor agreements and other relevant agreements may need to be reviewed to determine which agent or agents within the company should be compensated. 4.) Offer to Purchase - Closing Issues QUESTION: A buyer wants to move some personal belongings and vehicles onto the property he intends to purchase before closing. How to document this to protect all parties, including the agents? ANSWER: An amendment should be prepared and signed by all parties giving the buyer the right to pre-closing occupancy for the vehicles and belongings, addressing whether or not there will be an “occupancy charge” and providing what should happen if the transaction doesn’t close. The parties may wish to use a WRA Addendum O to the Offer to Purchase – Occupancy Agreement for this purpose. 5.) Offer to Purchase - Earnest Money; Trust Accounts - Earnest Money QUESTION: The parties have a deal that fell apart. The parties can't decide what to do about the earnest money. How to proceed? ANSWER: The listing broker cannot unilaterally decide to disburse the earnest money to the seller or to the buyer. The broker may violate Wis. Admin. Code Chapter RL 18 for disbursement without authority. While it is natural to want to help the side that “deserves” it, the disbursement of earnest money and other trust funds from a real estate trust account is controlled by rules that do not concern themselves with who is right or wrong, but rather establish a procedure that gives everyone a fair chance to make a claim on the funds. Wis. Admin. Code § RL 18.09(1) & (2) establish the rules allowing a broker to disburse the funds. Funds may be disbursed, for example, upon agreement of the parties in the form of a WB-45 Cancellation Agreement and Mutual Release or provisions in an accepted offer specifically authorizing disbursement of earnest money in certain circumstances. Wis. Admin. Code § 18.09(2) establishes procedures for giving advance notice to the parties prior to a disbursement that may be in dispute. The rules are fairly mechanical and do not give the broker the right to decide who deserves to receive funds. Pursuant to lines 247-271 of the WB-11 Residential Offer to Purchase (1999), the listing broker is to do nothing with the earnest money for 60 days after the scheduled closing date unless the parties reach a written agreement for the disbursement of the earnest money. The listing broker may wish to write a memorandum or letter to the buyer and seller and their respective attorneys, if any, pointing out lines 247-271 and explaining that this is how the earnest money disbursement must be handled. It is then up to the parties to work out their differences by negotiation or by going to small claims court. According to the offer to purchase, once 60 days after the scheduled closing date have passed, the listing broker may choose to initiate a small claims action or seek an impartial attorney’s written opinion as to who should receive the earnest money. The broker may deduct up to $250 from the earnest money for the legal fees involved in either of these alternatives. The broker also may continue to do nothing and allow the parties to find a way to resolve the earnest money dispute themselves or through their attorneys.
Debbi Conrad |