License law and the Code of Ethics set forth what may appear to be conflicting broker duties when considering what to disclose and what information needs to remain confidential. This “Best of the Legal Hotline” addresses the interplay when the broker’s duties collide with the party’s requests in some unique transaction situations. 

Disclose primary offer price vs. duty of confidentiality

An accepted offer is subject to the sale of the buyer’s property. Several showings have taken place of the seller’s property, and the seller wants the listing broker to disclose the terms of the accepted offer to other potential buyers. Can the broker, upon the seller’s direction, tell a buyer or a cooperating broker the price or other terms of an accepted offer? 

No. The listing broker cannot violate the duty of confidentiality to the first buyer. The buyer expects his offer terms to be confidential because the duty of confidentiality applies to all parties to a transaction. Therefore even if a client or customer directs the broker to disclose, the broker cannot share that information. With the seller’s permission, the listing broker may disclose the existence of the offer and the fact there is a bump clause, per the Wisconsin Administrative Code rules. See the complete text of § REEB 24.12(1) Confidentiality of Offers below.

Present first offer while awaiting open house 

The buyer attended a showing on Thursday afternoon. Knowing an open house was scheduled for Sunday, the buyer drafted an offer with an acceptance date of Saturday. The buyer immediately submitted the offer to the listing broker. Although the listing agent received the offer on Thursday, the broker did not disclose the offer to the seller. The broker instead waited to present it to the seller until Monday with other offers based on the open house. Is this ethical or legal? 

No. The listing broker cannot delay presentation of the first offer. Moreover, waiting until after the acceptance date passes denies the seller the opportunity to accept the buyer’s offer. Wis. Admin. Code § REEB 24.13(2)(b) states: “Licensees shall promptly present all written proposals received to the licensee's client or customer. Licensees shall not withhold any written proposal from presentation pending the party's action on a written proposal previously presented.” 

Additionally, Wis. Admin. Code § REEB 24.13(3)(a) states: “Licensees shall present all written proposals in an objective and unbiased manner to their principals. Licensees shall inform their principals of the advantages and disadvantages of all submitted written proposals.” 

Once timely presented, the seller may decide not to respond to the offer until after the open house. After the Saturday deadline, if the offer to purchase was rejected by the passage of time, the buyer or the seller can initiate a counter-offer to continue negotiations because the binding acceptance date lapsed. 

Disclosure of pending offers 

When is it in the seller's best interest to inform a cooperating agent of a pending offer? Is the listing broker under any obligation to disclose an unaccepted offer? Should all agents who show a property be told of an existing, not necessarily accepted, offer?

Whether disclosure is in the seller’s interest is not clear cut. It is unknown whether the existence of other offers will have a chilling effect on the buyer’s conduct or motivate the other potential buyer to draft an offer. Therefore it is up to the seller whether to disclose or not.

The Wisconsin Administrative Code and the REALTOR^® Code of Ethics regulate the sharing of information about pending offers on a property. Wis. Admin. Code § REEB 24.12(1) states, in relevant part, “A licensee may, but is not required to, disclose information known by the licensee regarding the existence of other offers on the property, the fact that a seller has accepted an offer, that the offer is subject to contingencies and that the offer is subject to a clause requiring removal of certain contingencies upon the occurrence of an event such as receipt, acceptance or conditional acceptance of another offer.” Therefore, unless the seller has required the broker to keep any information about offers on the property confidential, the agent may disclose the existence of other submitted or accepted offers. 

Standard of Practice 1-15 provides the broker will share information with the seller’s approval. See the complete text of Standard of Practice 1-15 below. Therefore, with the seller’s approval and prior to the acceptance of an offer to purchase, the agent shall disclose information about other offers to inquiring buyers and cooperating agents. If, however, the seller directs the agent not to disclose, the broker may document this fact and follow the instructions of the seller. A prudent broker will discuss with the seller at the time of the listing whether the seller wants the broker to disclose the existence of other offers. The listing then may be drafted to reflect the seller’s preference. 

Several prospective buyers, through the listing broker and through agents from other companies, have viewed a property. An agent from another company asked the listing broker to tell her when an offer is written on the property, presumably as an incentive for her buyer to act. Since that conversation, the listing agent wrote an offer as an agent of the seller. The seller has not yet reviewed or accepted that offer. Should the listing broker inform the other agent?

The broker should be aware that making agreements or giving promises to inform other brokers about other offers has the effect of creating a duty to inform the other broker. Such agreements should not be entered into unless consistent with the seller’s wishes.

Seller says leaky basement is confidential information

A property has been listed by multiple companies. The first listing agent is aware of a report regarding foundation problems, but the new listing agent has not provided any information about foundation problems and there is nothing in the seller's real estate condition report. The first listing broker is working with a potential buyer. And the buyer is considering writing an offer but is unaware of the foundation problems. How should the disclosure of the foundation be addressed?

All parties should understand that the disclosure duty of the broker — and any subsequent listing broker — is independent from that of the sellers. Each licensee engaging in real estate practice has a duty to inspect the property and make appropriate disclosures. Information about the property can come from sources other than the licensee’s observation of the property. For example, a home inspection report or an engineer’s report may contain information about the condition of the foundation. 

On some occasions, the seller may not disclose the information to a new listing broker in an attempt to hide or conceal the unfavorable property condition. On other occasions, the seller may say the information is confidential. Wis. Admin. Code § REEB 24.07(3) provides that licensees are practicing competently when they disclose information that suggests possible material adverse facts. 

A licensee’s obligation to clients and customers requires disclosure of material adverse facts, regardless of the directive of the client or customer. Although the sellers may request certain information remain confidential, the license law obligation to disclose trumps any such directive.
A sample material adverse fact disclosure letter is available in on page 26 of the October 2009 Legal Update, “Diligent Disclosure,” online at www.wra.org/LU0910 or on zipForm^®. 

Broker disclosure limitations vs. seller disclosure

A buyer’s agent wrote an offer, which included a bump clause, on a For Sale By Owner (FSBO) property. The offer was accepted. The seller then listed the property. The buyer’s agent later received a WB-41 Notice drafted by the new listing broker, which included specific terms of the accepted offer, such as the drafted date and the accepted date. 

Since those specific terms are included in the notice, the new listing agent presumably saw the original offer. Did the new listing agent violate license law by drafting the notice or by viewing the buyer’s confidential offer? If the new agent is also working with a secondary buyer who triggered the bump notice, does the secondary buyer have an unfair advantage?

The listing agent did not violate license law by drafting the bump notice or by simply viewing the buyer’s original offer to obtain the information necessary to provide the bump notice. Knowing the seller had been FSBO, the new listing broker would inquire about previous existing offers, and upon learning of the accepted offer, to market the property for secondary offers. The seller may share the terms of the offer or a copy of the offer with the new listing broker because sellers have no duty of confidentiality. 

If the new listing agent is working with the secondary buyer, the new listing agent would not be able to share the terms of the primary buyer’s offer with the secondary buyer because licensees owe the duty of confidentiality to all parties regardless of who drafted the original offer. If the listing agent shared the confidential terms of the primary buyer’s offer with the secondary buyer, the listing agent would violate the duty of confidentiality.

Because buyers and sellers do not have a duty of confidentiality, the seller can share the terms of any offer with any other person, including a new listing agent. In addition to sharing information with the new listing broker, it is also possible that the seller communicated terms of the primary to the secondary buyer.

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