With the ushering in of 2019, it is a new dawn, a new day, a new year, and a new life in real estate. So as the song says, you should be feeling good. One way to feel good is to avoid mistakes. The easiest way to avoid mistakes is to learn what not to do from others.
Two recent disciplinary actions from the Real Estate Examining Board (REEB) at the Department of Safety and Professional Services (DSPS) provide examples of what not to do.
#1 Failure to report convictions results in limitations
Facts: The individual’s salesperson license was first issued September 12, 2013, and current through December 14, 2018. On August 4, 2017, the DSPS received a complaint regarding a real estate transaction. The case was opened for investigation. On April 17, 2017, the licensee was convicted of OWI (3rd), a misdemeanor in Calumet County. The licensee was sentenced to 50 days in jail, revocation of driver’s license for 26 months, and an alcohol & other drug abuse (AODA) assessment, among other things. On April 25, 2017, the licensee reported his conviction to the DSPS.
Violations: The licensee violated Wis. Admin. Code § REEB 24.17(1) by violating a law, the circumstances of which substantially relate to the practice of a real estate licensee. The licensee also violated Wis. Admin. Code § REEB 24.17(1) by failing to report his 2017 conviction within 48 hours after the judgment of conviction.
Discipline: The licensee agreed in stipulation not to drive a current or prospective client in a motor vehicle, and may petition the board for termination of this limitation after two years of practice, and within 90 days shall pay costs of $287.
Lesson: Real estate licensees must report a crime to the REEB within 48 hours of a conviction. The REEB then decides whether the circumstances of that crime are substantially related to the practice of real estate.
A crime constitutes conduct that is prohibited by state law and punishable by fine or imprisonment or both. A crime punishable by imprisonment in the Wisconsin state prisons is a felony; every other crime is a misdemeanor. Conduct punishable only by forfeiture is not a crime — for example, a no-call violation or several traffic offenses — according to Wis. Stat. § 939.12 and § 939.60. If there is a first-offense OWI, for instance, the licensee should check with legal counsel because it may be a forfeiture not subject to REEB reporting. See Wis. Admin. Code § REEB 24.17(1).
As illustrated in this disciplinary action, the REEB does not respond positively to licensees who fail to report a conviction to the REEB within 48 hours.
The DSPS form to report convictions is form #2704, which can be found on the DSPS site. Do not wait until renewal to report a conviction, unless you renew within 48 hours of a conviction.
#2 Failure to understand the notice v. amendment in the Inspection Contingency results in discipline
Facts: The individual’s salesperson license was first issued April 18, 1995, and current through December 14, 2018. On August 4, 2017, the DSPS received a complaint regarding a real estate transaction, and the case was opened for investigation.
On May 16, 2017, the licensee drafted an offer to purchase on behalf of the buyers. The offer included an inspection contingency with a right to cure. On lines 421-424, the offer stated, “This Contingency shall be deemed satisfied unless Buyer, within 7 days of acceptance, deliver to Seller a copy of the written inspection report(s) and a written notice listing the Defect(s) identified in those report(s) to which Buyer objects (Notice of Defects.). CAUTION: A proposed amendment is not a Notice of Defects and will not satisfy this notice requirement.”
The sellers accepted this offer on May 17, 2017. On May 24, 2017, at approximately 10:15 p.m., the buyers delivered to the sellers a WB-40 Amendment to Offer to purchase (Amendment) drafted by the licensee attaching the home inspector’s five-page summary to his inspection report. The buyers demanded acceptance by 11:59 p.m. on that same day.
Violations: The licensee violated Wis. Stat. § 452.133(1)(b) by failing to provide brokerage services with reasonable skill and care and Wis. Admin. Code § REEB 16.06(8) by failing to use approved forms and prepare addenda in such a manner to adequately accomplish the contractual instruction on the person for whom the licensee uses the forms and prepares the addenda.
Discipline: Within 90 days, the licensee shall successfully complete six hours of remedial education on the topics of contracts, approved forms, and/or business ethics and pay costs in the amount of $325.
Lesson: Understanding the notice and amendment are different when it comes to the inspection contingency and everywhere else. In this disciplinary action, it would appear the buyer wanted to provide a notice of defects — not an amendment — and the agent failed to do so.
Therefore, this discussion focuses on the differences related to the inspection contingency. Before the deadline on line 421 of the WB-11 Residential Offer to Purchase (WB-11), remember:
- The buyer needs to have the home inspected by:
- A Wisconsin registered home inspector.
- Any inspections inserted on lines 413-414 performed by a qualified independent inspector or independent qualified third party.
- Any follow-up inspections recommended in a written report resulting from those authorized inspections.
- Negotiate any amendments.
- Deliver a notice of defects if the parties cannot agree to an amendment.
If the parties cannot agree to an amendment modifying the agreement and the buyer does not provide a notice of defects by the deadline on line 421, the buyer has agreed to purchase the property in the condition in which the buyer has been made aware.
The WB-40 Amendment to Offer to Purchase is used when the parties are agreeing to modify terms.
If, after a home inspection, the buyer wishes to negotiate terms, such as how something should be fixed or a lowering of the purchase price, then the buyer would suggest such to the seller by way of an amendment.
As noted in the disciplinary summary, “CAUTION: A proposed amendment is not a Notice of Defects and will not satisfy this notice requirement.” See line 424 of the WB-11. Therefore, since the amendment is not a notice, the amendment provides the parties with the ability to negotiate terms without activating the right to cure provision.
The WB-41 Notice Relating to Offer to Purchase is used when one party is giving notice that does not require the other party’s agreement. If, after a home inspection, the buyer wishes to trigger the right to cure provision on lines 427-233 of the WB-11, then the buyer would provide a notice of defects. Once a buyer provides a notice of defects, the situation is dictated by the right to cure language. A buyer may choose to skip the amendment process and go right to the notice of defects.
The notice of defects would be drafted on the WB-41 listing the defects (defined on lines 182-184 of the WB-11) to which buyer objects that are identified in the inspection report(s) along with the inspection report attached. It is not appropriate for the buyer to dictate how the seller will cure in a notice of defects.
The offer to purchase provides the contingency is waived unless the buyer delivers to the seller “a copy of the written inspection report(s) and a written notice listing the Defect(s) identified in those report(s) to which the Buyer objects (Notice of Defects).” See lines 421-423 of the WB-11. Therefore, a copy of the written inspection report accompanies the buyer’s notice of defects. Even if a copy of the inspection report has previously been provided to the seller, best practice as a licensee is to provide a notice of defects with a copy of the written inspection report.
Memory trick: An easy way to remember to reserve the buyer’s negotiating rights is to think of “A before N,” “amendment before notice,” or 40 before 41.
For more discussion about using a notice or amendment, see the WRA’s home inspection resource page online at www.wra.org/HomeInspectors as well as the home inspection flowchart on page 21 to navigate the inspection contingency.
Understanding the state-approved offers is one of the basics of competent practice by real estate licensees. If you’re a REALTOR® and you have questions, contact the WRA Legal Hotline using the contact information on page 25, reach out to your supervising broker or contact an attorney. It’s always better to ask questions and understand the goals of your party when you’re involved in a transaction.
Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.