This article is the first installment in a multi-part series updating you on the changes being made to Wisconsin Statute Chapter 452 — the statute that most directly impacts your daily practice of real estate.
AB 456/SB 375 gives Wis. Stat. Ch. 452 more than a face-lift. This bill attempts to clean up, modernize and clarify various issues impacting real estate practice. The bill has it all, from the creation of an independent contractor safe harbor to eliminating timeshare licensing, from reducing the statute of limitations of which real estate licensees can be sued to the deletion of real estate apprenticeships, and everything in between. This is a massive overhaul.
With each of my following magazine articles, I will update you on one or a group of changes within the bill. This article is addressing the more miscellaneous items.
Improving the disclosure of agency (check boxes, baby!)
While there are a number of terminology changes throughout the chapter, which will be discussed at length in a later article, the language relating to the selection and descriptions as to agency model choices received a consumer-friendly makeover.
When working on the Legal Hotline, I often hear how one of the biggest challenges when explaining agency to a client is trying to explain why the language doesn’t match the way the agent discussed what each model meant. Since the explanation of agency is included in the statute as a consumer protection element — and also included in the approved agency agreements, the disclosure or three agency models for that matter cannot be eliminated. However, we thought we could make the explanation more consumer-friendly. Therefore, while all three agency models are still in the disclosure to client discussion in the same order, they are explained slightly differently. Hopefully, better than before.
“CHECK ONLY ONE OF THE THREE BELOW:
________ The same firm may represent me and the other party as long as the same agent is not representing us both. (multiple representation relationship with designated agency.)
________ The same firm may represent me and the other party, but the firm must remain neutral regardless if one or more different agents are involved. (multiple representation relationship without designated agency.)
________The same firm cannot represent both me and the other party in the same transaction. (I reject multiple representation relationships.)
NOTE: All clients who are parties to this agency agreement consent to the selection checked above. You may modify this selection by written notice to the firm at any time. Your firm is required to disclose to you in your agency agreement the commission or fees that you may owe to your firm. If you have any questions about the commission or fees that you may owe based upon the type of agency relationship you select with your firm, you should ask your firm before signing the agency agreement.”
I also hear about the difficulties many licensees experience with obtaining electronic permissions for the agency model in a paperless transaction. The intent of the law remains the same with having the client express which agency model they want, while eliminating the logistical difficultly of trying to get the client to initial on the line electronically.
However, make no mistake, the consumer must still proactively select a model, and neither the firm nor the agent should pre-select a choice for the client just because there is a check box. Additionally, we wanted to make sure the form acknowledged that if a box is checked, and more than one client was signing the agency agreement, that all the clients consented to the selection. Therefore, the note immediately following the selection was slightly modified to include that acknowledgement.
As a refresher, here is a summary of the three agency models. First, the agency models are in the following format top to bottom in the agency agreement:
- Multiple representation with designated agency.
- Multiple representation without designated agency.
- Reject multiple representation.
There are two forms of multiple representation: designated agency and multiple representation without designated agency, which was formerly known as dual agency. For multiple representation to exist, the same real estate firm has to have the seller as a client and the buyer as a client. Therefore both the buyer and seller have to be entered into a buyer agency agreement and a listing contract, respectively, with the same real estate firm for multiple representation to occur. If two brokers are involved — one on the side of the buyer and the other on the side of the seller — multiple representation does not exist because there are two firms involved in the transaction, not one.
The challenge with this section of the agency agreement is the fact that the client has to look into the future and make a decision in the present as to whether he will allow the real estate firm he is signing an agreement with to represent another client who will participate in the same transaction. If the seller is okay with the concept of their real estate firm representing a client on the other side of their transaction, then the seller has narrowed the discussion down to the first two options and needs to simply choose between option 1 and 2.
Option 1: Multiple representation with designated agency: Both parties must agree to multiple representation with designated agency. Under designated agency, the same real estate firm may represent both parties, and because the firm has permission from both parties to participate in designated agency, each agent for the respective party may fully negotiate on behalf of their respective party. There must be two agents involved: one on behalf of each client, and again both clients must agree to option 1.
Basically designated agency allows each client to make an informed decision — as long as there are two agents involved in the transaction, one on each side and both parties agree, then the parties get the same services they would have if a different real estate firm were involved.
Option 2: Multiple representation without designated agency: Both parties again must agree to multiple representation. However, under multiple representation without designated agency, the real estate firm and its agents must go neutral in the transaction. Basically the licensees play the role of facilitators, paper pushers or referees throughout the entire transaction.
Option 2 may occur for a variety of reasons, such as a situation in which only one real estate agent is involved. Unless that one individual agent “kicks one side out” of the transaction to another agent within the same real estate firm, the agent must legally default to multiple representation without designated agency even though both parties agreed to option 1 because two agents must be present in order to offer designated agency. Another reason option 2 may occur is because the parties’ options “don’t match.” For example, the seller said option 1 in his listing agreement, and the buyer chose option 2 in his buyer agency agreement. In order to participate in designated agency, which is option 1, the agent must have permission from both clients. If the buyer in this example will not amend his agreement to agree to option 1, then the real estate firm and its agents must default to option 2.
Option 3: Reject multiple representation: If the client is uncomfortable with his real estate firm representing someone other than himself as a client in the transaction, the client has essentially skipped over the first two options and has chosen option 3. In option 3, often referred to as single agency, the party is basically saying, “I want to be the only client of your firm in my transaction.”
See the October 2010 Legal Update, “Agency Law Revisited,” at www.wra.org/LU1010 for a more in-depth discussion of agency, including some of the company business models that do not legally allow the real estate firm to participate in multiple representation.
Codifying unlicensed personal assistants
The newly created Wis. Stat. § 452.34 is greatly inspired by, and mostly codifying, Wis. Admin. Code § REEB 17.
“452.34 Unlicensed personal assistants.
(1) In this subsection, ‘unlicensed personal assistant’ means an individual, including an individual who is licensed under this chapter, who is employed only to provide services for which a license is not required under this chapter as provided in s. 452.03 (2).
(2) A licensee associated with a firm, prior to retaining an individual to serve as an unlicensed personal assistant, shall enter into a written agreement with the licensee’s firm, setting forth the duties of the unlicensed personal assistant, the manner in which the unlicensed personal assistant will be compensated for his or her services, and the responsibilities of the licensee and the firm with respect to supervision of the unlicensed personal assistant’s activities.
(3) (a) In this subsection, ‘open house’ means a showing of real estate open to the public for viewing without an individual appointment. (b) An unlicensed personal assistant may not assist a licensee at an open house for the sale of real estate or a business without the direct, on−premises supervision and presence of a licensee, and may not provide any services at an open house for which a license is required under this chapter.”
As a reminder, personal assistants may be licensed or unlicensed. While often equally helpful, unlicensed assistants are legally limited as to the duties they may provide.
Generally, an unlicensed assistant may only perform clerical and administrative duties and cannot provide services that require a license, such as hosting an open house; showing property; explaining a contract; or negotiating or agreeing to any commission, commission split, management fee or referral fee on behalf of another licensee and any other activity requiring a real estate license.
This section of Chapter 452 provides for ease of use the guidance as to unlicensed personal assistants in the statute as opposed to the administrative code.
Authority to retain documents electronically
Wis. Admin. Code § REEB 15.04 reminds brokers that they must retain documents relating to a transaction for three years. That rule requires retention of exact and complete copies of documents. However, while we have a real estate examining board (REEB) statement indicating electronic record retention is permissible, we wanted an explicit statement that says electronic record retention is permissible.
And even though REEB 15 is currently receiving the rule making treatment at the Department of Safety and Professional Services (DSPS) to include a statement authorizing electronic record retention, we thought it was beneficial to include in the statute a reference that record retention is permissible. The bill clearly states that records may be retained electronically.
Repeal of real estate apprenticeships
The language below was deleted from Wis. Stat. § 459.09(5). Due to the fact that the entry into real estate as a salesperson is not very oppressive, fewer individuals attempt to become an apprentice today and instead chose to obtain a salesperson license. In the last few years, less than a handful of people have attempted to become a real estate apprentice at the DSPS. Thus, with the concept of real estate apprenticeships becoming obsolete, the legislation removed the opportunity all together.
“(5) APPRENTICESHIPS. Any person who is a resident of this state and 18 years of age or over may, upon application filed in accordance with sub. (1), be indentured to a licensed resident broker in accordance with rules promulgated by the board. These rules shall be promulgated so as to protect the public and may limit the real estate sales and brokerage activity of the apprentice. The board may require an apprentice to take a preliminary examination covering general knowledge and may prescribe the character and extent of his or her work during apprenticeship. The board may issue a temporary salesperson’s permit to the individual for a period not to exceed one year upon payment of the fee under s. 440.05 (6). The temporary permit is not renewable.”
Slight tweak to the out-of-state licensee (OSL) provision
In 2013, Wis. Act 259 created Wis. Stat. § 452.137, affording a voluntary process for a Wisconsin real estate firm/broker to let an OSL real estate firm/broker and authorized agents of the OSL perform limited brokerage services in Wisconsin.
Originally this legislation was meant to apply to all property, including businesses. However, upon a closer review of the language in Wis. Stat. § 452.137, it was discovered that someone could try to argue that the OSL statute only applies to real estate, which was not the intent. Therefore, the application of Wis. Stat. § 452.137 was clarified as applying to all property in Wis. Stat. § 452.137(2)(b) 1. and 2.
“452.137 (2) (b) 1. Enter into a listing agreement concerning any property located in this state.
452.137 (2) (b) 2. For commission, money, or other thing of value, promote in this state the sale, exchange, purchase, option, rental, or leasing of any property located in this state, including by posting signs on the property.”
For more on the OSL legislation, see the following resources:
Look for more articles as to the changes made in the legislation impacting Wis. Stat. Ch. 452 in future publications of Wisconsin Real Estate Magazine. Please keep in mind the sample bill language could be slightly altered before its passage.
Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.