On March 2, 2016, Gov. Walker signed into law the WRA’s top legislative priority regarding Wisconsin Statute Chapter 452. Wis. Stat. Ch. 452 significantly impacts your daily real estate practice. The governor’s signature created 2015 Wis. Act 258, which makes numerous changes to this statute.
To assist you in understanding the changes, the WRA created the following information highlighting the most frequently asked questions as well as a resource for further information. A copy of the entire statute can be found at docs.legis.wisconsin.gov/statutes/statutes/452.
Agency
Were changes made to agency?
Yes and no. The agency disclosures made to consumers were modified to be more consumer-friendly. The three agency models remain the same and in the same order as before. However, the language was modified so the client could more readily grasp the concept of agency.
Check only one of the three below:
The same firm may represent me and the other party as long as the same agent is not representing us both. (multiple representation relationship with designated agency)
The same firm may represent me and the other party, but the firm must remain neutral regardless if one or more different agents are involved. (multiple representation relationship without designated agency)
The same firm cannot represent both me and the other party in the same transaction. (I reject multiple representation relationships) NOTE: All clients who are parties to this agency agreement consent to the selection checked above. You may modify this selection by written notice to the firm at any time. Your firm is required to disclose to you in your agency agreement the commission or fees that you may owe to your firm. If you have any questions about the commission or fees that you may owe based upon the type of agency relationship you select with your firm, you should ask your firm before signing the agency agreement.
Can clients now check the agency model rather than initial?
Yes. After hearing about the many difficulties licensees experience with obtaining electronic permissions for the agency model in a paperless transaction, the law now permits the client to check their selection rather than initial.
The language also acknowledges that if a box is checked, and more than one client is signing the agency agreement, that all the clients consented to the selection. The note immediately following the selection was slightly modified to include that acknowledgement.
Independent contractor status/safe harbor
What is the real estate agent independent contractor safe harbor?
Historically, real estate agents have been independent contractors rather than employees. Most individuals become real estate agents because they want to have freedom in their work and basically be their own small business owner. If they are designated as employees this impacts tax withholdings as well as the benefits required to be offered by the firm.
Recently, the concept of independent contractor status has been challenged more aggressively nationwide than in years past. In both Massachusetts and California, real estate agents challenged their classification as independent contractors, arguing they were employees of the real estate firm. Based on the heightened scrutiny of this issue, the National Association of REALTORS® encouraged states to evaluate their laws relating to the independent contractor status of real estate agents.
Wis. Stat. § 452.38 now provides for a safe harbor for real estate independent contractors consistent with federal IRS regulations (See 26 U.S. Code § 3508) if certain statutory tests are met:
- A written agreement has been entered into that provides the licensee shall not be treated as an employee for federal and state tax purposes.
- 75 percent or more of compensation paid by the firm to the licensee during a calendar year is directly related to the brokerage services performed by the licensee on behalf of the firm.
If the licensee meets the above test, then the licensee for all intents and purposes is an independent contractor.
Workers' compensation
The WRA pursued legislation touting three major changes to clarify and secure the status of agents that choose to be independent contractors:
- Change statutory labels by removing the reference to “employee” and “employer” and instead referring to firms and agents. Removing this antiquated terminology helps eliminate confusion as to the relationship between the firm and agent.
- Create a safe harbor for those that wish to be deemed independent contractors. Basically, if they meet the safe harbor test, then they are deemed independent contractors.
- Close any gaps where a court could look at the relationship in any manner other than as independent contractor relationship. This discussion brought us to workers’ compensation. The Department of Workforce Development (DWD) interpreted the relationship between a firm and the agent to be an employer/employee relationship because of the supervisory responsibilities of the firm. Due to this DWD interpretation, the firm was required to carry workers’ compensation insurance for its agents.
We were concerned that this interpretation by DWD could be looked at by a court as indicating an employee/employer relationship even if the agent met the newly created independent contractor safe harbor. Moreover, the DWD’s interpretation of an employee/employer relationship appears to be unique and inconsistent with other federal and state laws, such as the federal tax code and the Affordable Care Act, which treat the same agents as independent contractors.
Finally, this discussion was vetted through our public policy committee, board of directors and an internal member task force look. At the end of the day, they determined the independent contractor status needed to be protected and the requirement to carry workers’ compensation insurance for agents was counter-intuitive to that premise.
In July 2016, Wisconsin joins 29 other states in exempting real estate agents from workers’ compensation coverage.
Can I still have employees in my firm?
Absolutely. The law does not dictate whether a firm has employees or independent contractors. If the firm hires employees, then the firm will be required to treat the individuals as such for taxes and benefits.
Can those employees be real estate agents?
Of course. Agents and firms always have the opportunity to enter into an employer/employee relationship. This law retains this option and ensures, for the most part, that the decision about which relationship to adopt should be made by the firm and agent, not by the court.
Can we still offer to carry workers’ compensation for our agents?
Yes. The law allows a firm to voluntarily offer workers’ compensation coverage to the agents associated with the firm.
What is the effective date of this change?
July 1, 2016.
Supervision
Have broker supervision responsibilities changed?
Yes. The supervision responsibilities by a real estate firm relating to their agents became a discussion during the statutory revisions due to a variety of reasons, including the creation of Wisconsin’s independent contractor safe harbor for real estate licensees. In addition, we looked at the current administrative code supervising requirements and quickly realized the terminology was antiquated and the obligations by the supervising broker almost impossible to meet under a standard of reasonableness.
Can you summarize those changes?
Broker supervision has existed in Wis. Admin. Code REEB 17 for decades. While the concept of supervision by a firm previously kept in the administrative code still remains, the supervision language has been modernized and placed in Wis. Stat. § 452.132.
Firm's obligation to agents
The firm must ensure the agents associated with the firm are:
- Supervised as to their brokerage services.
- Provided reasonable access to a supervising broker for consultation as to practice issues.
- Provided with a written statement of procedures under which they are to operate with respect to handling transactional paperwork and records (often this is accomplished by way of an office policy manual).
- Notified where a copy of the administrative code of the rules promulgated by the REEB as to conduct, ethical practice and licensee responsibilities (also often included by reference in the office policy manual).
- Confirm the agent holds a valid license before an agent becomes associated with a firm and at the beginning of each biennium.
Agent's role
The statute now requires the actions by the agent associated with the firm to better assist in the firm’s supervision and communication to the consumer as to potential concerns.
The agent:
- Must be responsible for discussing with the party with whom they are working or representing the error communicated to them by the supervising broker.
- Once the agent discusses this with the party, the party determines if they wish to request any changes to address the error.
- The agent must submit to the firm in a timely manner essentially all documents and records related to the brokerage services used or received by the licensee in the transaction. This would include documents drafted by the agent, cooperating agents, attorneys, sellers or relocation companies used or received in the transaction. There is not a definition of timely manner in the statute; therefore, the firm may choose to create an office policy as to the expectation of timely manner.
Can a firm still delegate supervising broker duties?
The statute continues the administrative code’s discussion on delegation of supervising broker. A firm that is a licensed business entity must delegate a supervising broker. For a nonlicensed business entity firm, if a delegation is not made, then supervision defaults to the firm, which basically means it falls to the licensed broker of the firm.
The statute also now confirms the delegation to supervise may be assigned to more than one broker.
When the delegation is made, it must be:
- In writing.
- Signed by or on behalf of the delegating firm.
- Identify the duty delegated.
- Signed by the broker to whom the delegation is made.
What is the role of the supervising broker now?
The supervising broker must review agency agreements, offers, leases, etc. executed and records relating to the transaction used by the licensee and submitted to the firm, including trust account records. The once unreasonable definition of “reasonable review” housed in Wis. Admin. Code § REEB 17.02(4g) has been altered.
The new statutory standard of review has been narrowed and clarified. Review by the supervising broker now involves:
- Confirmation that written disclosure to customer or client was given.
- Confirmation any applicable form approved by the board has been used.
- Forms have been completed by filing in the blanks in a manner consistent with the structure of the form.
- Communicate to the licensee any error in how the forms were completed that was:
- Apparent on the face of the document.
- Known to the supervising broker reviewing the document.
Dinger
Does this new law let us give legal advice and opinion?
No. This law statutorily confirms the Wisconsin Supreme Court’s 1961 decision of a real estate licensee’s ability to complete state-approved forms.
A 1961 decision by the Wisconsin Supreme Court, in Reynolds v. Dinger, 14 Wis. 2d 193 (1961), Court held that the completion of state-approved forms by Wisconsin real estate licensees was not an unauthorized practice of law. In 2008 the State Bar of Wisconsin successfully petitioned the Wisconsin Supreme Court to better define the “unauthorized practice of law.” The final draft of Supreme Court Rule (SCR) 23.02(2)(o)adopted by the Court in 2010 created a protection for real estate licensees to provide services authorized under Wisconsin Statute Chapter 452, unless a rule or published court case says otherwise.
The statutory language of Wis. Stat. § 452.40 does not expand a Wisconsin licensee’s rights but, rather, statutorily provides for rights confirmed 50 years ago by the Wisconsin Supreme Court in Dinger and six years ago in SCR 23. Under this legislation, licensees are still not permitted to provide legal advice.
Statute of limitations
What is a statute of limitations?
Basically it’s the amount of time someone has to file a lawsuit or when criminal action can be taken against someone.
Before the creation of Wis. Stat. § 452.142, real estate licensees were vulnerable to litigation relating to a written contract for six years. Therefore, a real estate licensee, including their firm, could be sued based upon a listing, buyer agency agreement, or offer to purchase anytime within a six-year period after a closing on a transaction, or a listing or buyer agency agreement.
What is the statute of limitations under this new law for real estate licensees?
Two years.
When does the statute of limitations change take effect?
March 4, 2016.
Therefore as of March 4, 2016, any contract that closes or any listing or buyer agency that is entered into or any transaction that fails to close will have a two-year statute of limitation.
When does that two-year clock start?
Whichever of the following that applies occurs first:
- A transaction is completed or closed.
- An agency agreement is terminated.
- An unconsummated transaction is terminated or expires.
Can we reduce the two-year statute of limitations in our listing or buyer agency agreement to something shorter?
No. The statute specifically states that the period of limitation under this section may not be reduced by agreement.
Does this statute of limitations apply to everything?
No. Wis. Stat. § 452.142 does not include criminal activities, fraud, along with a few other specific items that licensees are not typically involved in when providing brokerage services. See Wis. Stat. § 893.93 Miscellaneous actions.
Wis. Stat. § 452.142 does specifically identify, Wis. Stat. § 100.18 advertising, Wis. Stat. § 893.43 action on a contract, Wis. Stat. § 893.52 action for injury and, Wis. Stat. § 893.57 intentional torts as having a two-year statute of limitations.
The two-year statute of limitations in Wis. Stat. § 452.142 applies, “concerning any act or omission of a firm or any licensee associated with the firm relating to brokerage services.”
The intent was to say the statute of limitations under Wis. Stat. § 452.142 will be 2 years relating to brokerage services. Brokerage services is a defined term in Wis. Stat. § 452.01(3e), which means any service that requires a broker license provided by a firm or any agent associated with the firm.
Therefore, the two-year statute of limitation under Wis. Stat. § 452.142 arguably does not apply to anything the licensee or firm are doing outside the scope of brokerage services.
Does a consumer only have two years to file a complaint with DSPS?
No. The clock for consumer complaints at DSPS never begins and therefore never stops.
Licensed business entity changes
Does the law change require a firm to have a business entity license?
No. The law continues to allow each individual to determine the best kind of license and structure based upon their respective business model. There are different kinds of licensees that may be issued by the DSPS — a Real Estate Business Entity, salesperson, broker and registered
timeshare — which will cease to exist at the end of 2016.
A real estate license may be obtained by individuals and/or business entities. This legislation provides clarification as to the permitted activities of licensed business entities and the licensed broker business representatives.
In order for a licensed business entity to exist, there must be at least one licensed broker willing to be documented with the DSPS as a business representative.
Can a licensed broker associated with a firm be a business representative for more than one licensed business entity?
Yes. Each licensed business entity must have at least one licensed broker to act as a business representative for the licensed business entity. While a licensed business entity may have more than one business representative for the licensed business entity, at least one of the business representatives must be a licensed broker. If a licensed broker is going to act as a business representative for more than one licensed business entity, then the broker must have express written consent of each licensed business entity to act as a business representative for each.
Example: Tom Moore, a licensed broker is a business representative for Darkhorse Real Estate LLC, which is a licensed business entity. Tom Moore is also the business representative for The Land Group, which is also a licensed business entity. Tom Moore may provide brokerage services for both Darkhorse Real Estate LLC and The Land Group as long as both businesses have given Tom written consent.
A number of people have more than one niche business in the real estate market, and many prefer to have each of those specialty businesses separately licensed, but the same licensed broker is the business representative for each. This clarification in law allows such a business model with certain elements being met.
Can a licensed business entity have another licensed business entity associated under
it?
Yes. For a variety of reasons last year the Legal Hotline was repeatedly asked if one license business entity could “hold” the license of another licensed business entity.
Example: Darkhorse Real Estate LLC, which is a licensed business entity, may have The Land Group LLC, which is also a licensed business entity, associated with Darkhorse Real Estate LLC. This scenario may exist for a number of reasons. For example, The Land Group may have been licensed because the individual associated with The Land Group, LLC is a broker, and his attorney and/or CPA encouraged him to have a licensed business entity for liability and tax purposes.
As long as Darkhorse Real Estate LLC allows The Land Group LLC to be associated with The Darkhorse Real Estate LLC, the law will clearly allow a licensed business entity to have one or more licensed business entities associated with its licensed business entity.
Can a salesperson have a licensed business entity?
No. The law maintains a salesperson is not permitted to have a business entity license unless the salesperson can get a licensed broker to act as the business representative for the business entity.
If the salesperson had licensed broker who agreed to act as the business representative for the licensed business entity, the licensed broker also takes the responsibility for the acts of the licensed business entity.
Independent practice
What real estate activities can a licensed broker who is associated with a firm participate in outside of the firm?
It depends. The law codifies the current authorization under Wis. Admin. Code Chapter REEB 17 as to the limited ability of licensed brokers to provide independent practice under their own license. See Wis. Stat. § 452.30.
The law now more clearly states that a broker who is associated with a firm may engage in independent real estate practice in his or her own name or under a licensed business entity.
If a broker associated with a firm would like to participate independently from the firm, there are a few requirements that must be met:
- The broker must obtain written approval from each firm the broker is associated with.
- The broker must avoid conflict of interest with each firm the broker is associated with.
- If the firm allows the broker to practice independently, the broker must notify the DSPS of the name under which the broker will be engaging in independent practice.
The law clarifies that a licensed salesperson are not permitted to participate in independent practice.
Example: Tom Moore is a licensed broker associated with Darkhorse Real Estate LLC Darkhorse Real Estate LLC, which is a licensed business entity. Tom Moore approached his supervising broker at Darkhorse Real Estate LLC about opening up his own property management company. Darkhorse Real Estate LLC does not provide property management services and gave Tom written permission to practice independently as a property management company. Tom will decide if he is going to act under this own name or if he will act under a newly created or existing licensed business entity. This scenario could get more complicated if Tom is also a business representative for Darkhorse Real Estate LLC. And for these reasons, the law will now recognize all of these unique situations.
Can a salesperson participate in independent practice?
No. Salespersons are not permitted to participate in independent practice. Furthermore, Per Wis. Stat. § 452.30(7), a salesperson may only be associated with one firm any given time and may not engage in independent practice and may only engage in real estate practice when associated with a firm.
Unlicensed business assistants
Did the law change what unlicensed personal assistants can do?
No. The statute, rather than administrative code includes the discussion as to the activities of unlicensed personal assistants. See Wis. Stat. § 452.34.
As a reminder, personal assistants may be licensed or unlicensed. Unlicensed assistants are legally limited as to the duties they may provide.
Generally, an unlicensed assistant may only perform clerical and administrative duties and cannot provide services that require a license, such as hosting an open house; showing property; explaining a contract; or negotiating or agreeing to any commission, commission split, management fee or referral fee on behalf of another licensee and any other activity requiring a real estate license.
This section of Chapter 452 provides for ease of use the guidance as to unlicensed personal assistants in the statute as opposed to the administrative code.
Elimination of timeshare license
Is there no longer a timeshare license?
As of December 2016, there will no longer be a timeshare license.
If a person wishes to sell a timeshare they will either have to be a licensed salesperson associated with a broker or a licensed broker.
In addition, the law permits employees of developers (defined in Wis. Stat. § 707.02(11)) to engage in time-share interests and exempt developers and their employees from broker license requirements.
Wis. Stat. Chapter § 707 regulates the timeshare industry and creates numerous consumer protections as to specific language that must be contained in an offer, penalties for violating the law and provides a consumer complaint process at the Department of Agriculture, Trade and
Consumer Protection. Until this section of the law is effective, complaints may also currently be filed with the Real Estate Examining Board (REEB) because the individual is registered as a timeshare salesperson.
Effective dates
What are the effective dates of the legislation?
- Statute of Limitations – March 4, 2016
- Workers' Compensation – July 1, 2016
- Independent Contractor Safe Harbor – July 1, 2016
- Timeshare License Elimination – December 15, 2016
Resources
WB-1 resources
Chapter 452 resources
Information last updated on June 22, 2016.