Everyone has heard the expression “you can’t tell the players without a program” applied to a sporting event, but the same can be said of the agents and parties in a real estate transaction. The questions and answers in this Hotline article look to disclosing the agent’s relationship to the parties, when the agent acts as a party, and when other relationships are at play that would potentially make an agent or party less objective than would be expected in an arm’s length situation.

Disclosures of interest to other party – family relationship

If the selling agent is a buyer's broker, and the buyer he or she is representing is a close relative such as his brother and sister-in-law, does the agent still need to disclose the family relationship in the offer to purchase?

Licensees are required to obtain the written consent of the parties to the transaction when working with immediate family, according to Wis. Admin. Code § REEB 24.05(2) and the § REEB 17.01(3g) definition of “immediate family.” Written consent is obtained in the offer or other transaction contract. The fact that a licensee is a buyer’s agent does not waive this obligation.

“Immediate family” includes:

• Parents, stepparents, grandparents, foster parents, children, stepchildren, grandchildren, foster children, brothers and their spouses, sisters and their spouses, of a licensee or a licensee's spouse.
• The spouse of a licensee.
• Aunts and uncles, sons-in-law or daughters-in-law of a licensee or a licensee's spouse.

Disclosure of interest to other party — business interest

An agent wants to purchase property with the agent’s IRA as the buyer. He wants to receive commission either as a seller’s agent or a buyer’s agent acting on behalf of the IRA. Does the role the agent assumes affect the listing broker’s ability to pay the commission to the agent?

First of all, an agent acting as a real estate agent on behalf of the agent’s IRA must disclose this relationship, according to the Wis. Admin. Code § REEB 24.05(2) disclosure of interest rule. The licensee obtains the parties’ written consent in the offer to purchase, option, lease or other transaction contract to the relationship between the agent and his IRA. 

The listing broker may pay commission to the agent as a subagent or as a buyer’s agent. The agent may act as an agent of the seller because there is no specific rule or law against it, but it is not without risk. A subagent with an interest in the entity purchasing the property would appear to be asking for conflict of interest allegations if there is trouble in the transaction. A subagent owes customer-level duties to all persons in the transaction, and the subagent may not place his interests ahead of the interests of the seller or provide advice or opinions contrary to the interests of the seller, unless required by law, per Wis. Stat. § 452.133(4). This would be difficult to do when the agent has a substantial personal interest in the buyer. 

It would likely be much better if the agent would work as a buyer’s agent for his IRA. The § REEB 24.05(2) consent must still be obtained, but if the agent’s client is the buyer, then possible conflict of interest issues fade.

Disclosing buyer agency to listing broker or seller

Does a cooperating agent have to disclose he or she has now become a buyer’s agent at any time prior to submitting an offer or a second showing on a co-broke listing, or is that rule no longer in place?

A buyer’s agent is required to disclose buyer agency at the earlier of first contact with the seller or listing broker, a showing, or other negotiations, in those situations when the property is a one-to-four family residential property. This obligation is stated in Wis. Admin. Code § REEB 24.07(8)(a)(2): “Licensees acting as agents of potential buyers of real estate that is used or intended to be used principally for one to 4 family residential purposes, who are negotiating directly with the seller or who are aware that the owner of the real estate has granted a listing broker the exclusive right to sell, shall notify the seller or the listing broker, as applicable, of the licensee's buyer agency relationship at the earlier of all of the following:

• The first contact with the seller or the listing broker where information regarding the seller or transaction is being exchanged.
• A showing of the property.
• Any other negotiation with the seller or the listing broker.”

Licensee/party discloses status to other agent or party

An agent is purchasing a home for himself. Are any disclosures required before the offer is drafted? 

At times, parties and agents become confused or misled when a licensee calls about a property or attends an open house alone — the parties may assume that he or she is working on behalf of a client or customer. Wis. Admin. Code § REEB 24.05(5) requires that a licensee acting as a party rather than as an agent must disclose that status to the other party or the other party’s agent in writing. The licensee must disclose his license status and intent to act as a principal at the earliest of first contact with the other party or the other party’s agent, when there is an exchange of information about the other party or the transaction; a showing; or any other negotiation with the seller or listing broker. The rule ensures that the disclosure is made soon enough to put the other party on notice before inadvertent disclosures are made to the licensee/party.

Disclosure of interest when making referrals 

A local home painting business wants to pay a referral fee to agents who refer painting business to the company. Is this legal? 

Under RESPA, painters generally are not settlement service providers, so this particular type of referral is not subject to RESPA, provided the painting is not rendered as part of the closing and not paid for on the closing statement. If this referral to the painter is made in the context of a transaction, then the agent must follow the Wis. Admin. Code § REEB 24.05(1)(b) referral rule and disclose in writing that he or she may receive a fee from the painter. This disclosure must be made before or at the time of the referral. 

If the agent is not acting as a licensee and the referral occurs outside of a transaction, then it is not subject to license law. It may be prudent, however, to disclose the potential compensation in all cases to avoid any possibility that a transaction may later occur with the party. A disclosure made outside of a transaction need not be in writing, but an email or other writing would be recommended.

Broker disclosure to customers 

The buyer’s agent is working with a client who wants to purchase a FSBO property. What disclosures must be made, and what is a good way to secure seller payment of the buyer’s broker’s fee? 

The buyer’s agent must, upon first contact, disclose buyer agency to the unrepresented seller per Wis. Admin. Code § REEB 24.07(8)(a)(2). Prior to negotiations, the agent must provide the seller with a Broker Disclosure to Customers form, and for residential transactions, the agent must ask the seller to sign the form. The buyer may have the offer drafted to provide that the seller will pay the buyer’s broker’s fee. 

A divorcing couple has been ordered to sell their house as part of the divorce settlement, but the husband refuses to sign the listing contract. The property was listed for $350,000, but the husband wants it listed at $500,000. The wife reduced the price by $5,000. Does the listing agent need to contact the husband regarding the price reduction since he did not sign the listing contract?

The listing contract is between the broker and the wife. The husband is not a client and thus is not a decision-maker with respect to the list price. The agent, however, will have to speak with the husband later since the husband will have to sign the offer and other transaction documents. Before providing any brokerage services that would be considered negotiation, such as discussing an offer, the agent should provide a Broker Disclosure to Customers form to the husband. Because the husband is not a client, he is treated as a customer in this situation with regard to negotiation.

Resources

• October 2010 Legal Update, “Agency Law Revisited,” at www.wra.org/LU1010.
• June 2012 Legal Update, “REEB 24 Regulatory Revisions,” at www.wra.org/LU1206.