In 2013, the WRA Legal Hotline answered thousands of phone calls — the topics of which run literally from A to Z: everything from advertising to zoning. Somewhere in between, the most frequently visited topics include material adverse facts, inspection contingency, earnest money issues, buyer agency agreements, and of course, procuring cause. This month in “The Best of the Legal Hotline” column, we look at examples of the Legal Hotline “FAQs.”
Procuring cause
A broker is aware of a dispute as to who has procuring cause between two co-broke companies. Is the listing broker to retain the co-broke commission until an agreement is reached between those companies, pay out the co-broke to whichever company wrote the offer, or make his own determination?
The listing broker has options and must consider the interest of the parties in the transaction. The listing broker may choose to name one cooperating broker on the closing statement/HUD-1 and then disburse in accordance with that statement at closing. The listing broker may wish to adopt this strategy if the broker wants to ensure a smooth closing and if the named broker is actively working with the buyer. The listing broker may also make this choice if that broker is believed to be procuring cause.
The other broker who believes he is entitled to the co-broke commission can approach the other cooperating broker to try to work out something satisfactory to both brokers before or after closing. If the brokers cannot agree as to the entitlement and/or division of the selling commission, the dispute may be submitted to the local REALTOR® association for resolution by mediation or arbitration — if both brokers are association members. While the broker who receives the disputed money at closing is not required to hold those funds in escrow, it may be prudent for a broker to understand that under arbitration, he may have to pay that money to another broker and therefore should conduct himself accordingly to make sure he is able to do that in the event of an unfavorable arbitration decision.
The listing broker may consider it prudent to hold the cooperative commission until either the brokers contesting it submit their mutual written agreement as to the disbursement of this commission, or until an arbitration panel from the local REALTOR® association issues a decision resolving the dispute. In such a case, the listing broker would direct that the closing statement/HUD-1 simply show the commission as payable to the listing broker. The listing broker may inform the brokers of his intent to hold the money until they resolve the issue.
For further discussion of procuring cause, see the April 2010 Legal Update, “Cooperative Commissions and Procuring Cause,” at www.wra.org/LU1004 as well as the April 2004 Legal Update, “What is Procuring Cause?” at www.wra.org/LU0204.
Material adverse facts and home inspection reports
The seller had an accepted offer, and after the home inspection, the primary buyer and seller agreed to cancel the transaction. Now the seller and the listing broker have a copy of the home inspection report. Can the seller or the broker give a copy of the report to a second buyer?
Seller disclosure: Wis. Stat. § 709.035 requires sellers to amend the Real Estate Condition Report (RECR) prior to the acceptance of a contract when they obtain information or become aware of any condition that would change a response on the RECR. The seller may choose to attach a copy of the first buyer’s inspection report to the RECR, amend the RECR or draft a new RECR. It is the seller’s prerogative how to comply with Wis. Stat. § 709.035. If a new buyer is provided a copy of the first home inspection report, the new buyer should be advised that the first buyer’s RECR is given to provide information only. The statutes regulating home inspectors provide that the home inspector will not be liable to subsequent buyers for any errors or omissions contained in the first buyer’s home inspection report. The new buyer may be advised that he should have his own home inspection performed if he wants the home inspector to be liable to him for any oversights.
Broker disclosure: Depending on the content of the seller’s new or amended RECR, the listing agent or the buyer's agent may or may not have to make material adverse fact disclosures. If the licensee believes the RECR is inaccurate or incomplete, the licensee may have to disclose any items not properly reported on the RECR that are material adverse facts or information suggesting the possibility of material adverse facts. The broker should not however, without the primary buyer's and seller’s consent, provide a copy of the original home inspection report in order to avoid any possible confidentiality concerns. To assist with broker disclosure, the WRA-created Disclosure of Material Adverse Fact (WRA-DMAF) material adverse fact disclosure letter is available in zipForm.
More information about seller and licensee disclosure is available in the following Legal Updates:
- July 2002: “Duty to Disclose,” at www.wra.org/LU0207.
- October 2009: “Diligent Disclosure,” at www.wra.org/LU0910 This Legal Update includes a sample material adverse fact disclosure letter.
Earnest money
The seller does not want to return the earnest money. In this situation, what should the cooperating broker tell the buyer?
The broker may, per the buyer’s request, draft a Cancellation Agreement and Mutual Release (CAMR) requesting the earnest money. If the seller refuses to agree to the CAMR, the broker may suggest other alternatives for the buyer to consider, including:
The buyer may attempt an additional CAMR to receive or split the earnest money.
The buyer may ask the listing broker to use the process in the offer that allows the listing broker to seek a third-party attorney opinion regarding the disbursement of the earnest money. See lines 369-394 of the WB-11 Residential Offer to Purchase for more.
The buyer may be referred to an attorney for legal advice and a suggestion for the best strategy.
The buyer may file a small claims action. The Wisconsin Guide to Small Claims Court is available online at www.wicourts.gov/publications/guides/smallclaimsguide.htm.
For further discussion of earnest money issues, see the October 2000 Legal Update, “Trust Account Basics,” at www.wra.org/LU00.10 and the fall 2011 WRA Broker Supervision Newsletter, “Trust Accounts: Are You Prepared for an Audit?” at www.wra.org/bsnfall11.
Email delivery
There remains much confusion about the difference between Addendum D and the Consent for Use of Electronic Documents. At times, brokers receive offers with both forms, one form, or no form. The broker heard that the Addendum D is no longer required but it is still listed as active in zipForm. Please clarify.
The WRA Addendum D is used to modify any contract that does not include the email delivery language. The Consent for Use of Electronic Documents and Signatures in Consumer Real Estate Transactions (Consent for Use) contains the disclosure information that must be delivered electronically to a consumer and the consent language required under federal law when consumers use electronic documents, signatures and delivery in important transactions.
The updated offers (residential, residential condominium, vacant land and commercial) eliminate the need to use Addendum D, but do not eliminate the federal law requirement for electronic consent from consumers who are parties. Brokers must obtain this consent electronically; either by use of the Consent for Use or by use of electronic consent built into zipLogix Digital Ink, or some other electronic consent complying with federal law. If brokers use the Consent for Use, the form must make a round trip from agent to consumer and back again electronically. To implement email delivery of documents and the use of electronic documents as well as electronic signatures in transactions involving consumers, the following must occur:
Step 1: Consumer consent must be obtained electronically via email or on a website. The Consent for Use form, available at www.wra.org/eCommerce, when used electronically allows consumers to demonstrate they can receive, save and send documents electronically and to consent electronically to the use of electronic documents, electronic signatures and email delivery. The Consent for Use form does not need to accompany the offer.
Step 2: The parties authorize electronic delivery and identify the email address(es) for use in their contract(s). In the revised offers, an Addendum D is no longer needed. For listing contracts, buyer agency agreements and offers that have not been updated, an Addendum D — or other provisions authorizing electronic documents and email delivery — will be needed. Once electronic consent has been obtained from the consumer, the listing contract, buyer agency agreement or the offer if it has not been revised may be modified via Addendum D to allow email delivery.
For a step-by-step example of how to achieve the electronic consent, see the June 2010 Wisconsin Real Estate Magazine article, “Behind the Curtain: E-Commerce and E-Sign Exposed” at www.wra.org/WREM/Jun10/Ecommerce and the July 2011 Wisconsin Real Estate Magazine article, “10 Things You Should Know about Email Delivery” at www.wra.org/WREM/Jul11/10Things.
Buyer agency
If a broker has a buyer agency and the buyer wants to purchase a property where the listing company is offering less co-broke commission than the buyer agency fee, may the buyer ask the seller to pay the difference?
Yes, a buyer’s broker may ethically suggest or recommend that the buyer ask the seller to pay some or all of the buyer’s broker’s fee pursuant to Article 16 of the Code of Ethics and NAR Case Interpretation #16-17. The buyer may condition the offer upon the seller paying the buyer’s broker’s fee on behalf of the buyer, as a seller’s expense at closing. The buyer’s broker must have been authorized by the buyer and seller to collect the fee from the seller per Wis. Admin. Code § REEB 24.05(1)(a): “A licensee acting as an agent in a real estate or business opportunity transaction may not accept any fee or compensation related to the transaction from any person, other than the licensee’s client, principal broker, or broker-employer without prior written consent from all parties to the transaction.” The WB-36 Buyer Agency Agreement thus must authorize the buyer’s broker to accept compensation from the owner/seller.
More information about modifying an MLS offer of compensation, see the following issues of the Legal Update:
Tracy Rucka is Director of Professional Standards and Practices for the WRA.