Effective January 1, 2015, a new voluntary option will exist in Wisconsin permitting a Wisconsin broker to allow an out-of-state (OSL) broker to provide limited brokerage services in Wisconsin. Newly created Wisconsin Statute § 452.137 affords the opportunity for Wisconsin listing companies to either enter into a referral arrangement with the OSL or enter into a cooperative agreement with the OSL. The intent of the new law is to keep the Wisconsin broker at the helm of the transaction while offering flexibility as to process to the Wisconsin listing broker.
Before the law change, Wisconsin law included no specific legislative structure for brokerage services performed by OSLs in Wisconsin. It was the position of the Department of Safety and Professional Services (DSPS) that Wisconsin was a physical location state — meaning as long as an OSL stayed in their respective state, they could provide brokerage services on a Wisconsin property.
However over time, it was evident that OSLs started coming to and practicing in Wisconsin. The impact of OSLs coming into Wisconsin created serious transaction issues because OSLs were unfamiliar with Wisconsin transactions. In addition, Wisconsin consumers were often having to incur additional costs for attorney review because non-Wisconsin forms were being utilized by the OSL; these forms included contract provisions that placed Wisconsin consumers at serious contractual risk such as earnest money held by the OSL and contract jurisdiction in another state. Additionally, the OSLs faced very little consequences legally when returning to their home state, which created jurisdictional issues for the DSPS. Wisconsin brokers were placed in the precarious position of being confronted with OSLs with buyers who wanted to purchase the Wisconsin broker’s listings.
As of January 1, 2015, Wisconsin will join 26 other states by becoming a cooperative state. As previously mentioned, the new OSL legislation allows Wisconsin brokers to enter into a cooperative agreement with the OSL. This is a voluntary opportunity.
Basics of § 452.137
- The law applies to all types of transactions, including residential, commercial, farm or vacant land.
- The law applies only to your company’s listings — not any other company. For example, Lamont Realty, a Wisconsin brokerage company, can only enter into a cooperative agreement with an OSL for Lamont Realty’s listings, not another company’s.
- It is the decision of the Wisconsin broker as to whether they want to enter into a cooperative or referral agreement.
- This law does NOT apply to buyer agency agreements.
- A separate cooperative form must be entered into for each transaction. A Wisconsin broker cannot have a blanket form for use with all OSLs. For example, Wisconsin-based Lamont Realty cannot have one OSL cooperative agreement with The Land Group, an Illinois broker.
- If the Wisconsin broker chooses to enter into a cooperative agreement, then:
- The Wisconsin broker must use the WB cooperative form created by the Wisconsin Real Estate Examining Board (REEB).
- The cooperative agreement will lay out the agreement between the broker and the OSL.
- The OSL must agree to comply with Wisconsin law and be subject to discipline by the REEB.
- The OSL must agree that all earnest money and client funds will be held by the Wisconsin broker and agree that Wisconsin law is the jurisdiction for all disputes between the brokers.
- The law clarifies what the OSL is not allowed to do in Wisconsin.
- Clear penalties are placed into the law.
The cooperative form
This form will be created by the REEB and therefore will be a WB form. Statutorily the form must include the following minimum information:
- Establish the terms of cooperation between the out-of state broker, any out-of-state salesperson, and the Wisconsin-licensed broker.
- Establish the terms of the out-of-state broker's compensation.
- Provide that all client funds, as defined in § 452.13 (1) (a), received by the out-of-state broker and Wisconsin-licensed broker in connection with a transaction subject to the cooperative agreement, be deposited in a trust account maintained by the Wisconsin-licensed broker.
The REEB-created form may also include topics such as: a place to allocate license numbers; attestation that the OSL will follow Wisconsin law and be subject to REEB discipline as well as activities permitted by the OSL such as showings, writing offers to purchase and using Wisconsin forms; which agents are permitted to participate; and proof of E&O insurance.
Although the law is effective January 1, 2015, the WB form unfortunately will not be available due to a technical drafting error. The WRA is working on legislation to correct the error. In addition, the REEB will be simultaneously working on an emergency rule as well to repair the issue. The first process to pass, legislation or the administrative rule, will trigger the REEB’s ability to create the form. Therefore, the form will likely be available in the spring. We will continue to keep you informed.
Until the WB form is created, the WRA will ask the REEB to state its interpretation as to whether an attorney-drafted cooperative form can be utilized until the mandatory WB cooperative form is available.
OSL prohibitions
One of the objectives of the legislation was to clarify activities in which an OSL is never allowed to participate while within or outside of the state of Wisconsin relating to properties located in Wisconsin. Those prohibited activities include:
- OSLs are prohibited from taking a Wisconsin listing.
- OSLs are prohibited from promoting the sale/rental of a property in Wisconsin.
Penalties
Historically the most challenging part was the enforcement of the law against those who violated it. The challenge for the DSPS was the arguable legal authority for the state agency to reach across state lines and try to discipline an OSL. Therefore, the law now establishes very clear penalties; see Wis. Stat. § 452.137(5) (b) and (f).
The consequences of violating the law are two-fold:
- Any person who violates this specific section of the law or a rule promulgated under this section may be fined, for each violation, not more than the greater of:
- $5,000.
- 1 percent of a sales transaction purchase price subject to the cooperative agreement.
- 1 percent of the lease or rental transaction total lease or rental value of the property subject to the cooperative agreement.
- No person may pay an OSL any commission, money or other thing of value for brokerage services unless the OSL broker is a party to a cooperative agreement with a Wisconsin broker.
Arguably, “no person” includes a Wisconsin broker, a seller, a title company or a closing attorney, and therefore any person paying an OSL broker would be violating the law if a commission was paid unless the OSL broker entered into a cooperative agreement with a Wisconsin broker.
If you have any questions, concerns or comments relating to the legislation, including the WB cooperative form, please contact Cori at CoriL@wra.org.
Resources
Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.