In cases where the seller is a property owner who has vacated the property to seek employment or a lender (REO) who obtained the property in foreclosure, a broker who usually lists property for sale may be asked to provide property management services for the seller. The following Hotline questions and answers relate to the myriad different services licensees are asked to provide and how licensees may choose to respond to such requests. 

Keep in mind the scope of property management services may run the gambit from real estate brokerage services, including marketing the property for lease and negotiating the lease with the tenant, to physical maintenance services like changing light bulbs, mowing, raking or shoveling. The licensee must consider if the requested services are real estate brokerage or services independent from real estate brokerage and the brokerage company.

Two signs 

The broker just went to the listed property and there was another broker’s sign in the yard saying the property is listed for rent. How can there be two listing brokers? 

The sale and the lease of a property involve two separate interests in real estate. It is possible for the seller to enter into a listing for the sale of the property with one broker and a listing for the rental of the property with another broker. Because the offer to purchase provides that a buyer takes title to the property subject to the tenant’s rights, the seller may consider the impact on a potential sale when negotiating the terms of a lease or rental agreement with a prospective tenant.

The listing broker got a call from the seller who stated that she just rented her property on a year lease. The listing for sale expires shortly. Can the broker continue to market the property?

The existence of a lease does not change the broker’s obligations to market the property according to the terms of the listing contract. The broker may ask the seller for a copy of the lease to provide to any potential buyer. Any offer to purchase will need to be subject to the terms and conditions of the lease. It may be possible for the seller or the buyer to negotiate with the tenant to modify or shorten the lease, but that will be at the tenant’s discretion.

Given that the lease is for a year, a potential buyer may be subject to rental weatherization, depending on when the property sells. Rental weatherization compliance is triggered in cases where the buyer will not owner occupy the property within 60 days of the purchase. Therefore, if the tenant will remain in possession more than 60 days after closing, the property will be subject to rental weatherization. 

Easy cash flow? 

A seller has asked the listing agent about renting out his property until the seller can get it sold. What should the seller consider? What should the broker consider? 

Renting the property may not be the easy quick fix for cash flow that the seller envisions. The property owner will become a landlord subject to the requirements of Wis. Stat. chapter 704 and Wis. Admin. Code chapter ATCP 134. Property showings will require proper advance notice to the tenant. Any offer to purchase will need to be drafted subject to the tenant’s rights. The owner will find himself developing tenant selection criteria and obtaining credit reports to qualify potential tenants. The seller will also be wise to consult with his insurance provider about insurance coverage during the rental period,  and prepare a budget for repairs and maintenance if, for example, an appliance malfunctions while the property is rented.

The owner must also provide the federally-mandated LBP disclosures if the property is target housing. If a potential buyer identifies defects, any repairs would be subject to the LBP renovation rules for tenant occupied property. See the May 2010 Legal Update, “Lead Based Paint in Target Housing,” at www.wra.org/LU1005.

From the broker’s perspective, the first question is whether the broker wants to provide such services. If property management is not a service provided by the broker, the broker can evaluate whether he should expand into this arena of lease listings and property management services, taking into consideration the demands of  customer service, the risks of entering a new practice field, the rewards of profitability and the rigors of competent practice.

Office policy 

The agent is working with a seller who wants to rent her property while it is for sale. What can the agent do if the brokerage company does not offer property management or rental services? 

A licensee provides real estate brokerage services, whether for the sale or lease of property, on behalf of the brokerage company. The agent may see if the broker is willing to provide such services. If not, the agent may refer the seller to other brokers who provide property management or rental services. 

As another option, if the agent has a broker’s license, he or she may, with the broker’s consent, establish an independent practice for property management or leasing services. When an individual has a broker’s license and is working under another broker, Wis. Admin. Code § RL 17.03(1) permits the licensed individual to conduct some independent practice. The licensed individual must have the written consent of the employing broker and must avoid conflicts of interest. In addition, the licensed individual may not engage other licensees in this independent practice. Where a licensed individual conducts independent practice, care should be taken that all of the normal aspects of a brokerage are provided for. The brokerage company should have no responsibility for the independent practice if the licensed individual establishes the operation as clearly independent. For further information about independent practice, see the March 2008 Legal Update, “Running a Real Estate Office,” at www.wra.org/LU0803.  

Short sales or foreclosures  

The seller has the property listed and the broker knows that it is a potential short sale. The listing has been in place for months and the seller believes the lender will soon start foreclosure proceedings. The seller asks the broker if he should vacate the property and try to rent it. Will this affect the foreclosure?   

First, before the property owner considers renting his property, he should review the terms and conditions of his mortgage. In some instances, renting the property may trigger a due-on-sale clause in the mortgage or a modification of the loan terms.

In addition, the seller should talk to his attorney about the implications of vacating or renting the property on the seller’s right of redemption in the pending foreclosure. Whether the owner remains in possession will have an effect on redemption periods. More information about the owner’s right to redeem is available in the March 2009 Wisconsin Real Estate Magazine article “Foreclosure: How Long to Redemption?” at www.wra.org/WREM/Mar09/Foreclosure.

In addition, the broker may need to disclose to the potential tenant that the property has a pending foreclosure action; this may be considered a material adverse fact. The mortgage foreclosure statutes have been recently amended to protect tenants when a property is in foreclosure. A detailed discussion is available in the May 2009 Wisconsin Real Estate Magazine article “New Law Protects Tenant’s Rights in Foreclosure” at www.wra.org/WREM/May09/TenantsRightsInForeclosure. The seller’s attorney can advise the seller on these matters, whereas the broker cannot engage in the unlicensed practice of law.

Winterizing properties 

The seller asks the listing agent to hire contractors to winterize the property.  What issues should the agent consider? 

At a minimum, the agent should have a written work order which identifies the listing agent as an agent of the owner, indicates that the work is being done on behalf of the owner, and emphasizes that all billings are the responsibility of the owner and should be put in the owner’s name. Information regarding the contractor’s insurance, bonding, etc., should be provided to the owner. Preferably the owner, and not the listing agent, will select the contractor to avoid later claims that the agent was negligent in the hiring of the contractor.

If the broker agrees to be an intermediary between the contractor and the seller, the broker should obtain written authorization from the seller to hire the contractors, including a disclaimer that the licensee is not responsible for any negligence by the contractor, and the contractor should be properly certified or licensed to engage in the service provided. The May 2004 Legal Update, “Avoiding Liability When Signing and Making Referrals,” available at www.wra.org/LU0405 contains both a sample Service Request form and an Authorization and Release from Liability form.

Rent-to-own 

An agent has a listing for the sale of a condominium unit. The seller wants the agent to draw up a rent-to-own contract. The agent is not sure how to do this. The offer would be a closing in 13 months. Does the agent prepare a lease and also have the buyer sign an offer to purchase?

The seller is asking the broker to provide two types of real estate brokerage services: to negotiate a lease and to negotiate an option for the possible sale of the condominium unit. If the broker currently has a listing for sale and not lease, the WB-37 Exclusive Listing Contract for Lease of Real Property may be used. The WB-37 is used when a property owner hires a real estate broker to lease the owner’s property  (assuming the owner and the broker don’t want a property management relationship) and is mandatory with respect to the lease of residential property.

There is no state-approved form for a rent-to-own situation. Before proceeding, the seller may be well-advised to review his or her mortgage and the condominium documents to determine if they allow the owner to rent the condominium unit.

The parties may structure their agreement in a variety of ways: a lease and an offer to purchase, a lease with an option, an offer with early occupancy or a land contract. The agent may offer these alternatives for the parties’ consideration. It will then be up to the parties to decide how to structure the transaction. The agent may refer to the July 2008 Legal Update, “Using Land Contract and Leases with Options,” available at www.wra.org/LU0807 for more information about lease options.

Tracy Rucka is Director of Professional Standards and Practices for the WRA.