A potential buyer contacts an agent and is looking for a home to purchase in the area. The agent explains that the residential market is quite competitive right now and that some buyers are having a challenging time getting an accepted offer on a property. The potential buyer is moving for work and would prefer to purchase a home but ultimately needs a place to live in the area and will consider renting. The potential buyer will be in town for one week and has asked the agent to set up showings for homes fitting the potential buyer’s specifications but also asks the agent to set up showings for rental properties as a backup. The agent wants to make sure she gets paid for her work whether the buyer ends up purchasing or renting a home. How should the agent proceed?
Many agents are familiar with using the WB-36 Buyer Agency/Tenant Representation Agreement to work as a buyer’s agent for a client who is looking to purchase a home. This versatile form, however, also includes provisions for an agent to work as a tenant representative for a person who is looking for a rental property. The form also allows an agent to work as both a buyer’s agent and a tenant representative at the same time and potentially earn a commission regardless of whether the client ends up purchasing or renting a property. Given the competitive nature of the residential real estate market, an agent may wish to discuss the possibility of renting with a potential buyer in case the buyer is unable to find a property to purchase. The buyer and agent may then choose to enter into a WB-36 Buyer Agency/Tenant Representation Agreement, allowing the agent to act as both a buyer’s agent and tenant representative at the same time.
Using the wb-36 buyer agency/tenant representation agreement to represent a client as a buyer, a tenant or both
The first section of the WB-36 Buyer Agency/Tenant Representation Agreement explains that the Client, as defined on lines 188-189, gives the firm and its agents the exclusive right to act as Buyer’s Agent and/or Tenant’s Agent. The WB-36 Buyer Agency/Tenant Representation Agreement allows a firm and its agents to represent a client as a buyer, a tenant, or both to aid the client in finding a property that best suits their needs, regardless of whether it is a purchased property or a leased space. Agents who do commercial transactions may already be familiar with representing a person as a buyer and a tenant at the same time. Often in a commercial setting, the person seeking a property is more interested in finding the perfect location regardless of whether it is for sale or lease and may be willing to be a buyer or a tenant, depending on the terms being offered by the owner of that ideal property.
The scope of the firm’s authority to act on behalf of the client is outlined in the first lines of the WB-36 Buyer Agency/Tenant Representation Agreement. The firm may locate property or negotiate the acquisition of property on behalf of the client except for properties excluded under lines 17-32 or 264-279. The firm has no agency authority for those excluded properties. As such, the client can work with other agents with regard to those properties. However, with exception to the excluded properties, the client cannot enter into any other agency agreements during the term of the WB-36 Buyer Agency/Tenant Representation Agreement.
The next section, located at lines 7-10, is bolded and placed in a box for emphasis. The section explains that if the client has contact with an owner or another firm and its agents during the term of the WB-36 Buyer Agency/Tenant Representation Agreement, or has previously worked with an owner or another firm and its agents, then there is a risk to the client to pay compensation to the firm. When a client works directly with an owner or other firms, there is a chance that the firm cannot collect compensation from property owners or the owners’ agents. If this happens, the client must pay any uncollected amount to the firm.
Lines 7-10 of the WB-36 Buyer Agency/Tenant Representation Agreement
If Client has contact, or has had previous contact with an owner, a firm or its agents in locating and/or negotiating the acquisition of an Interest in Property and Client’s contact with those parties results in the Firm not collecting full compensation under this Agreement from the owner or the owner’s agent, Client shall be responsible to pay any uncollected amount.
Buyer pays buyer’s firm
A buyer signs a WB-36 Buyer Agency/Tenant Representation Agreement with a firm on a Wednesday. That following Saturday, the buyer attends an open house hosted by the listing firm but is not accompanied by the buyer’s agent. The buyer insists that the listing agent draft an offer at the open house. The listing agent, being a conscientious professional, asks the buyer whether the buyer is working with an agent. The buyer indicates that the buyer is working with a buyer’s agent but insists the offer must be drafted right now. The listing agent encourages the buyer to contact the buyer’s agent for assistance. The buyer says, “There is no time! I need to submit an offer immediately.” The listing agent reminds the buyer that the buyer may be responsible to pay the buyer’s firm’s commission even though the buyer’s firm was not involved in the transaction. At the buyer’s urging, the listing agent proceeds to draft the offer, which the seller accepts. The transaction closes, and although the property was listed in the MLS with an offer of compensation to cooperating firms, the listing firm believes that the listing firm is procuring cause and does not pay the buyer’s firm the MLS offer of compensation. The buyer will be responsible to pay the buyer’s firm’s commission based on the terms of the WB-36 Buyer Agency/Tenant Representation Agreement even though the buyer’s firm was not involved in the buyer getting an accepted offer.
Listing firm pays buyer’s firm
A buyer signs a WB-36 Buyer Agency/Tenant Representation Agreement with a firm. The buyer and the buyer’s agent attend an open house by the listing firm. After attending the open house, the buyer decides to make an offer and has the buyer’s agent draft the offer. The seller accepts the offer, and the transaction closes. The listing firm entered the property in the MLS with an offer of 2.5% of the purchase price to cooperating firms. The buyer’s firm charges 3% commission. According to the terms of the WB-36 Buyer Agency/Tenant Representation Agreement, the buyer is responsible to pay for the commission of the buyer’s firm reduced by any amounts the buyer’s firm receives from the seller or the listing firm. Because the listing firm offers 2.5% of the purchase price to cooperating firms and the buyer’s firm was procuring cause in this transaction, the listing firm will pay 2.5% of the purchase price to the buyer’s firm, and the buyer will be responsible to pay the leftover 0.5% commission to the buyer’s firm.
Earning a commission as a buyer’s agent
The WB-36 Buyer Agency/Tenant Representation Agreement has separate compensation sections for purchase commission and lease commission. Purchase commission can be found on page 1 on lines 33-58. Lease commission can be found on page 6 on lines 280-305.
Headings and subsections outline the different parts of compensation. There is a blank section where commission can be stated and subsections explaining how commission is earned, when commission is due and payable, and how commission is calculated.
The subsection titled “Payment by Owner or Owner’s Agent” on lines 50-53 states that the firm can seek commission payment from the owner or the owner’s agent provided that all parties in the transaction give prior written consent. This means that the buyer only has to pay the commission amount that is not paid by the owner or the owner’s agent.
The blank lines at lines 35-36 are where the commission for purchase can be stated. The firm and the buyer can state whatever commissions or fees might apply.
According to lines 37-40, the commission is earned if the buyer, or any Person Acting on Behalf of the Buyer, acquires an Interest in Property or enters into an enforceable written contract to acquire an Interest in Property. Please note that Person Acting on Behalf of the Buyer and Interest in Property are specifically defined on page 4 of the WB-36 Buyer Agency/Tenant Representation Agreement. The firm earns a commission if the buyer acquires an Interest in Property during the term of the WB-36 Buyer Agency/Tenant Representation Agreement or during an extension of the term based on property protection created by the provisions on lines 219-229 and 252-257.
Once earned, per lines 41-42, the commission is due and payable at the earlier of closing or the date set for closing, even if the transaction does not close, unless otherwise agreed in writing.
The Commission Calculation subsection on lines 43-45 provides that a percentage commission will be based on the total consideration for a purchase or an option and on the fair market value if there is an exchange or effective change in ownership.
Lines 46-47 provide for other types of compensation and fees such as retainer fees, an hourly rate, an advancement payment or other compensation.
Person Acting on Behalf of Buyer
Betty Buyer signs the WB-36 Buyer Agency/Tenant Representation Agreement with a firm. Betty Buyer goes to see the property and decides she wants to purchase the property. She writes an offer, but the buyer instructs her agent to draft the offer in the name of Betty Buyers LLC instead of Betty Buyer herself. The seller accepts the offer. However, the commission of the buyer’s firm is still earned because Betty Buyers LLC constitutes as a “Person Acting on Behalf of Buyer.” This is because Betty Buyers LLC is a limited liability company affiliated with and owned by Betty Buyer.
Lines 208-212 PERSON ACTING ON BEHALF OF BUYER: “Person Acting on Behalf of Buyer” means any person joined in interest with Buyer, or otherwise acting on behalf of Buyer, including but not limited to Buyer’s immediate family, agents, employees, directors, managers, members, officers, owners, partners, incorporators and organizers, as well as any and all corporations, partnerships, limited liability companies, trusts or other entities controlled by, affiliated with or owned by Buyer in whole or in part whether created before or after expiration of this Agreement.
Earning a commission as a tenant’s representative
A firm can also earn commission as a tenant representative. The lease commission section can be found on lines 280-305 of the WB-36 Buyer Agency/Tenant Representation Agreement. In Wisconsin, working as a tenant representative is far more common in commercial real estate transactions than it is in residential. In many larger cities including Chicago, Seattle, San Francisco and New York, it is common for a tenant to engage a tenant representative to assist the tenant in finding a residential property to rent. Real estate firms in those larger markets often have a whole division of the company related to residential rentals with services ranging from landlord representation, tenant representation and property management.
The lease commission subsections delineate what is the commission, how the firm earns commission, and when it is due and payable.
The subsection titled “Payment by Owner or Owner’s Agent” on lines 296-299 provides that the firm may seek commission payment from the owner or the owner’s agent provided that all parties to the transaction give prior written consent. The Tenant only has to pay any remaining balance if the owner or owner’s agent does not pay the full amount due. Given that a residential rental property in Wisconsin may not be listed in the MLS with an offer of compensation to cooperating firms or may not even be listed with a real estate firm at all, it is important for an agent engaging in tenant representation to discuss the tenant’s responsibility for compensation unless it can be negotiated that the landlord or listing firm — if the property is listed — will contribute toward a firm’s commission earned as a tenant representative.
The blank lines at lines 281-282 are where the firm states the commission on a rental or lease transaction. Lines 283-284 provide that commission be calculated based on total rent for the Rental Agreement, unless stated otherwise. Note that Rental Agreement is defined on lines 230-232.
Under the Commission Earned subsection on lines 285-288, commission is earned if the Tenant, or any Person Acting on Behalf of Tenant, acquires an Interest in Property or enters into an enforceable Rental Agreement, at any terms and rent acceptable to owner and Tenant, regardless of the rent range. Tenant and Person Acting on Behalf of Tenant are specifically defined on lines 233-234 and 213-217, respectively.
A firm earns commission if the Interest in Property is acquired during the term of the WB-36 Buyer Agency/Tenant Representation Agreement or during an extension of the term.
Per lines 289-295, commission is due and payable upon execution of the Rental Agreement; at the commencement of the Rental Agreement term, even if the Tenant does not take occupancy, unless otherwise agreed in writing; or one-half upon execution of the Rental Agreement and one-half upon occupancy.
Lines 300-303 provide an opportunity to state other compensation such as retainer fees, an hourly rate, an advancement payment or other compensation. The Tenant Qualifications subsection states that the Tenant agrees to pay any credit report fees or background check fees charged by the owner or the owner’s agent.
The WB-36 Buyer Agency/Tenant Representation Agreement allows agents to work both as a buyer’s agent for a client looking to purchase a home and as a tenant representative for a client looking to lease a property. Under the WB-36 Buyer Agency/Tenant Representation Agreement, an agent can represent a client as a buyer, a tenant, or both. This way, an agent can earn commission whether a client buys or rents a property. The versatility of the WB-36 Buyer Agency/Tenant Representation Agreement provides flexibility for both agents and clients in a competitive real estate market.
Jennifer Lindsley is Staff Attorney and Director of Training for the WRA. Wendy Hoang is a legal intern for the WRA.