As 2018 comes to a close, the WRA Legal Hotline is on pace toward totaling almost 7,000 calls this year. This article includes some of the most frequent discussions on the hotline during 2018 as well as WRA resources related to those topics.
Inspection defects
The home inspection showed defects. Should the buyer give the seller a notice or an amendment?
If the buyer is in a “fix it or no deal” mode, this ultimatum must be given to the seller on a WB-41 Notice Relating to Offer to Purchase. As the offer language cautions, “A proposed amendment will not satisfy this notice requirement.” The notice of defects lists the defects to which the buyer objects, and this list must be accompanied by a copy of the inspection report.
On the other hand, an amendment is merely a proposal that the seller considers to revise the offer to address certain defects found during the inspection. If the buyer wants to have a credit against the purchase price or wants the seller to use a specific contractor or method for repairs instead of the “good and workmanlike manner” standard stated in the inspection contingency, the buyer must determine if the seller will agree by proposing an amendment. The seller may or may not agree to the buyer’s request.
If a notice of defects is not given and an amendment is not accepted by the specified deadline, the buyer will have accepted the property in its present condition.
Resources
For more information about the inspection contingency, see the WRA LegalTalks video series on home inspections at www.wra.org/LegalTalks/InspectionContingency.
To help explain choices to the buyer and seller and the potential outcomes of such choices, see the inspection flowchart at www.wra.org/InspectionFlowchart. Also see the various articles in the August 2016 Wisconsin Real Estate Magazine at www.wra.org/WREM/August2016 for more information about the inspection contingency.
Real estate condition report
Does the seller have to disclose the repaired "X" item on the real estate condition report (RECR)?
The seller’s disclosure responsibility on the RECR is to disclose defects: conditions that would have a significant adverse effect on the value of the property; significantly impair the health or safety of future occupants of the property; or if not repaired, removed or replaced, would significantly shorten or adversely affect the expected normal life of the premises. Whether the seller discloses information about a repaired property condition is decided by the seller or the seller’s attorney, not the agent. While sellers may believe that an item that has been repaired is no longer a defect, buyers’ attorneys will argue in court that all past and present defects should be revealed. Thus, sellers may benefit from more liability protection in the long run by disclosing corrected defects or by at least explaining the corrective measures taken in the RECR.
If a seller fails to disclose a defect, the licensee must timely disclose it in writing if it constitutes a material adverse fact.
Resources
To read more about the RECR, see the June 2018 Legal Update, “Revisions to the Real Estate Condition and Vacant Land Disclosure Reports — 2018,” at www.wra.org/LU1806 as well as “Extreme Disclosure Report Makeover,” in the June 2018 issue of Wisconsin Real Estate Magazine at www.wra.org/WREM/June18/RECR.
Licensee disclosure obligations
When must a licensee disclose a material adverse fact?
Licensees are required to make disclosure of all material adverse facts to all parties to the transaction. Regardless of how or when the broker becomes aware of the information, disclosures need to be made in writing in a timely manner. When a licensee is aware of facts that are materially inconsistent with or materially contradictory to the seller’s statements, the licensee must disclose this in writing in a timely manner to the parties. See REEB 24.07(6).
A material adverse fact is defined as information that (1) has a significant adverse affect on the value of the property; (2) significantly reduces the structural integrity of the property; (3) presents a significant health risk to the occupants of the property; or (4) is information that indicates that a party to the transaction is not able to or does not intend to meet their obligations under the contract, then the issue constitutes an adverse fact.
Resources
See Legal Update 02.07, “Duty to Disclose,” at www.wra.org/LU0207 and the October 2009 Legal Update, “Diligent Disclosure,” at www.wra.org/LU0910 for further discussion of seller and licensee disclosure obligations.
A sample material adverse fact disclosure letter is available in zipForm.
Earnest money
Can a broker disburse earnest money if one party or his attorney says to?
A broker may only disburse earnest money only with proper authority, as outlined in the offer to purchase and in Wis. Admin. Code § REEB 18.09, for example, a cancellation agreement and mutual release signed by all of the parties. The request of one party or the party’s attorney is not enough.
Resources
For further discussion about earnest money issues, see Legal Update 00.10, “Trust Account Basics,” at www.wra.org/LU0010 and the May 2014 Legal Update, “Revisions to Forms Use and Trust Account Rules,” at www.wra.org/LU1405. Also see § REEB 18.09 at docs.legis.wisconsin.gov/code/admin_code/reeb/18.pdf and review the WRA Legal Hottips regarding earnest money disbursement: visit www.wra.org/HottipSearch and choose “trust accounts.”
Counter-offers
Can a buyer or seller counter an expired or rejected offer?
A counter-offer may be used if the prior offer or counter-offer has expired or was rejected. A party that writes a counter-offer and does not have it accepted may write a new counter-offer. Each-counter offer is a new offer that incorporates the unchanged terms of the original offer and the new terms in the counter-offer. A counter-offer acts as a rejection of the prior offer or counter-offer.
For further information about counter-offers, see pages 14-16 of the February 2013 Legal Update, “Contract Law Drafting Pointers,” at www.wra.org/LU1302 and pages 6-7 of the November 2001 Legal Update, “Best of the Legal Hotline — Offer to Purchase Issues,” at www.wra.org/LU0111.
Listing protection
When is a buyer eligible for listing protection?
According to the extension of listing provisions of a listing contract, there are multiple ways a buyer may be protected. Buyers are automatically protected when they submit a written offer to purchase or when they view the property or negotiate directly with the seller. The listing broker must notify the seller of the buyer’s name in a timely manner if, during the term of the listing, the buyer attended an individual showing or negotiated with a broker. As defined in the listing, negotiation occurs when a buyer communicates with agents regarding any potential terms upon which the buyer acquired an interest in the property.
Resources
To read more about listing protection, see the July 2018 Legal Update, “Protected Commissions: Protected Buyers and Protected Commission,” at www.wra.org/LU1807 as well as “The Best of the Legal Hotline: Listing Protection and Protected Buyers,” in the November 2018 issue of Wisconsin Real Estate Magazine at www.wra.org/WREM/Nov18/Hotline.
Procuring cause
Am I procuring cause?
Procuring cause looks at who caused the successful transaction to come about and determines whether a cooperating broker is entitled to the compensation offered by the listing broker in the MLS. A procuring cause analysis examines all of the facts and circumstances and the events occurring during the term of the listing contract, focusing on the time frame beginning with the buyer’s introduction to the property and ending with an accepted offer to purchase.
You are not automatically procuring cause just because you first showed the property, wrote the offer or because you are a buyer’s agent. The question is whether the broker was part of the causal series of events, without a break in continuity, that resulted in the successful transaction.
Resources
To read more about procuring cause, see the April 2018 Legal Update, “Procuring Cause 101: Understanding the Basics,” at www.wra.org/LU1804. Also review the WRA Legal Hottips regarding procuring cause: visit www.wra.org/HottipSearch and choose “commissions/compensation.”
Commissions
Can a real estate licensee receive commission when the licensee buys a property as the named buyer?
No. A real estate licensee earns a commission when he or she provides real estate brokerage services as an agent for another person. According to the definition of agent, an agent provides a service for another; a licensee buyer cannot represent oneself as an agent. When a licensee is a buyer, that licensee is the principal in a transaction — not an agent — therefore, a commission is not earned. A buyer/licensee may, however, negotiate a buyer’s incentive to be paid by the listing broker or the seller.
Learn more about disclosing licensee status when acting as a principal in a transaction in “Remembering to Disclose Your License Status,” in the November 2018 issue of Wisconsin Real Estate Magazine at www.wra.org/WREM/Nov18/DiscloseLicense.
Can a real estate licensee receive a commission when the licensee is providing brokerage services for an entity, such as an LLC, in which the licensee has an ownership interest?
Yes. The legal entity is separate from the licensee as an individual, therefore, the licensee may provide brokerage services and earn any offered commission. The licensee must make proper disclosure of interest and obtain necessary consent per REEB 24.05. Any time a real estate licensee is considering the purchase of real property, the licensee should read and follow company policies and procedures.
Resources
Read more information about commissions in “The Best of the Legal Hotline: Personal Sales & Purchases,” in the March 2004 Wisconsin Real Estate Magazine at www.wra.org/WREM/Mar04/Hotline. That article includes sample language that could be used to request an incentive from either the listing broker or the seller.
Also see pages 6-11 of the June 2012 Legal Update, “REEB 24 Regulatory Reforms,” at www.wra.org/LU1206 for other similar examples and pages 12-13 of the March 2008 Legal Update, “Running a Real Estate Office,” at www.wra.org/LU0803.
Tracy Rucka is Director of Professional Standards and Practices for the WRA.