This first installment in the “Day-to-Day Code of Ethics Matters” series looks at how the Code of Ethics Articles and Standards of Practice direct the services listing brokers provide to clients. REALTORS^® agree to abide by the Code of Ethics as an expression of the professionalism that sets them apart from other licensees.

List price and market value 

In some markets property values have stabilized or decreased, potentially placing sellers in a position where the list price for the property may result in proceeds less than what the seller needs to provide clear title. When listing such properties, the broker may be asked to compromise on the list price, listing the property at a price high enough to cover what the sellers owe. This price may fail to create interest or generate offers because it is too high given local market conditions. Standard of Practice 1-3 provides, “REALTORS^®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.” The broker’s obligation when listing and pricing the property is to be honest with the seller about market value and list the property at a price agreed upon with the seller that takes into account market conditions and the seller’s financial position.

If it is clear that when what the seller owes exceeds any price that the market will bring, it may be necessary to approach the listing as a short sale. In that situation, the broker may include a short sale addendum with the listing contract that authorizes the broker to disclose the potential for a short sale to buyers and work with the seller’s lien holders to facilitate a short sale. Alternatively, the broker may assist the potential seller by providing possible alternatives to a short sale. See the January 2007 Legal Update, “Avoiding Foreclosure,” at www.wra.org/LU0701, and the January 2008 Legal Update, “Short Sales – A Risky Business,” at www.wra.org/LU0801.

Offers of compensation 

The newly revised WB listing contracts contain the following provision: “Broker offers the following commission to cooperating brokers: _________________________________ (Exceptions if any): ________________________.” This provision is consistent with Standard of Practice 1-12, which provides that when entering into listing contracts, REALTORS^® must advise the seller/client about the REALTORS^®’ company policies regarding cooperation with other brokers and amount of compensation that will be offered to subagents and buyer’s agents. The blank line provided offers a great deal of flexibility as long as REALTORS^® think carefully about what they enter on the line. It may be as simple as, for example, a percentage of the sales price or a range. The key is to complete the provision in such a manner that the seller understands the company’s co-broke policies. More information about this new listing provision is available in the October 2007 Legal Update, “WB-1 Listing Contract – 2008 Revisions,” at www.wra.org/LU0710.

Cooperation and compensation 

Article 3 of the Code of Ethics provides that REALTORS^® shall cooperate with other brokers except where cooperation is not in the client’s best interest. Cooperation and compensation are distinct. Article 3 gives listing brokers direction regarding matters such as disclosure of variable rate commissions, accepted offers and access for showings.

Variable rate commissions 

A variable rate commission is defined by the model MLS rules as one in which the seller agrees to pay a specified commission if the property is sold by the listing broker without assistance and a different commission if the sale results through the efforts of a cooperating broker. A variable rate commission also occurs when a seller agrees to pay a specified commission if the property is sold by the listing broker, either with or without the assistance of a cooperating broker, and a different commission if the sale results solely through the efforts of the seller. Listing brokers have the affirmative obligation to disclose the existence of dual or variable rate commission arrangements to brokers seeking cooperation under Standard of Practice 3-4.

This disclosure of variable rate commission allow buyers working with cooperating brokers to make informed decisions about the seller’s commission obligations when negotiating the terms of their offer. Listing brokers are required, upon inquiry, to inform a cooperating broker what differential would result in a cooperative transaction versus a sale resulting solely from the seller’s or the listing broker’s efforts. The broker is not required to disclose the commission(s), just the difference. For example, if the listing provided for a 5-percent commission for an in-house transaction and 6-percent for a co-broke sale, the listing broker would be required to inform cooperating brokers that there is 1-percent differential.

Showing availability 

Often the Code of Ethics parallels Wisconsin license law. So it is with Standard of Practice 3-8, which provides, “REALTORS^® shall not misrepresent the availability of access to show or inspect a listed property.” These provisions are consistent with Wis. Admin. Code § RL 24.13, which obligates listing brokers to provide access for showings to all buyers and persons assisting buyers unless contrary to the specific written instructions of the seller. If a seller so directs, the listing broker may list persons the seller does not want to have access to the property in the Cooperation, Access to Property or Offer Presentation provision in the newly revised listing contracts.

Presentation of offers 

The Standard of Practice 1-6 obligation to submit offers and counter-offers objectively and as quickly as possible applies regardless if the listing broker is working with a local seller, asset manager, REO or relocation company. REALTORS^® cannot withhold one offer pending the resolution of another. The obligation to present offers and counter-offers continues until closing unless the seller has waived this obligation in writing per Standard of Practice 1-7.

Standard of Practice 1-7 also reminds REALTORS^® to recommend that sellers obtain legal advice before accepting any subsequent offer except for secondary offers or where acceptance is contingent on the termination of the existing offer. The importance of these provisions cannot be overlooked in situations where a seller has not obtained a fully executed cancellation agreement and mutual release from a prior buyer.

Disclosure of pending offers 

When a property is listed, REALTORS^® should discuss with the sellers whether they want the existence of submitted offers disclosed to buyers, and obtain the seller’s written authorization in the listing contract (or an amendment thereto) specifying whether the disclosure is authorized only when the broker is asked, or whether the broker should volunteer the information. Standard of Practice 1-15 provides, “REALTORS^®, in response to inquiries from buyers or cooperating brokers shall, with the sellers’ approval, divulge the existence of offers on the property. REALTORS^® shall also disclose whether offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating broker.” Therefore, with the seller’s approval and prior to the acceptance of an offer to purchase, the broker shall disclose information about other offers. Absent a seller’s directive ordering or prohibiting the listing broker’s disclosure of the existence of submitted offers, REALTORS^® have the discretion to choose whether to disclose the existence of submitted offers per Wis. Admin. Code § RL 24.12.

More information about Practice 1-15 is available in Legal Update 03.02, “Professional Standard Changes for 2003,” at www.wra.org/LU0302.

Disclosure of accepted offers 

License law, the Code of Ethics and MLS rules regulate the sharing of information about pending offers on a property. Wis. Admin. Code § RL 24.12(1) indicates, “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 another 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 information about other offers confidential, the broker may disclose the existence of other offers.

Standard of Practice 3-6 provides that REALTORS^® must disclose the existence of accepted offers to brokers seeking cooperation, including offers that are subject to contingencies, like a bump clause. Therefore, unless the seller has indicated that this information is confidential, per Wis. Stat. § 452.133(1)(d), the broker would disclose accepted offers according to the Code of Ethics. Any confidentiality directive should be in writing in the listing contract or an amendment thereto. 

Tracy Rucka is a Staff Attorney for the WRA.