The inspirational story of The Little Engine That Could and its mantra “I think I can, I think I can” is about perseverance. However its application to the practice of real estate may not be the appropriate mantra to determine competency. Challenge is part of growth of any business, but when it comes to contract-drafting and the multitude of services real estate professionals provide in a given real estate transaction, “I think I can,” should probably not be the litmus test.

A conversation about competency is similar to the conversation about what is or is not reasonable. Neither are defined in statute, rule or contractually. Sure, the Code of Ethics and license law provide some guidance on competency, but no clear-cut definition or act consistently delineates what is or is not competent. I liken it to the famous 1964 quote from Supreme Court Justice Potter Stewart in Jacobellis v. Ohio regarding obscenity: “I know it when I see it.”

The REALTOR^® Code of Ethics Article 11 addresses the issue of competency:

“The services which REALTORS^® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage; specifically, residential real estate brokerage, real property management, commercial and industrial real estate brokerage, land brokerage, real estate appraisal, real estate counseling, real estate syndication, real estate auction, and international real estate. REALTORS^® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth. (Amended 1/10)”

Read the following scenario and the question that follows.
An agent receives a referral from a friend of a first-time homebuyer who wants to purchase a home in the Fox Point area, a community north of Milwaukee. Fox Point is not an area that the agent regularly shows or lists homes. Frankly, the agent has never participated in any transaction in the Fox Point area in the 10 years the agent has practiced real estate, but as a favor to the friend, the agent decides to help. The agent and buyer sign a WB-36 Buyer Agency Agreement, and off they go to find a home in Fox Point. The agent typically practices in Pewaukee, approximately 40 minutes west of Milwaukee; however, the Fox Point area is in the same MLS of which the agent is a member. The agent shows the buyer a number of homes in the MLS in the area, however the buyer found a FSBO property in the Village of Fox Point and decided that it’s his dream home. The agent makes an appointment with the seller, the buyer sees the home, writes an offer, and closes 60 days later. After closing, the buyer decides to build a fence and learns that he needs a permit. When applying for the permit, the Village informs him that the buyer and seller failed to complete the Village’s Certificate of Compliance. For the purposes of this conversation, let’s say that there is a $130 fee for a single-family home for this certificate required by the Village at the point of sale. The Village requires that a building inspector approved by the Village confirm that the home is up to codes relating to building, plumbing and electrical. The buyer calls the agent and asks if the Village can enforce this fee and also asks why the agent did not tell the buyer and seller. The agent tells the buyer to contact an attorney regarding challenging the fee and admits that they had no idea about the point-of-sale requirement because they don’t typically practice in the Fox Point area.

Did the agent practice competently?
Survey says … it depends. And yes, “it depends” is a favorite answer of the legal community, because it does often depend on the circumstances. For example, how did the Village communicate the point-of-sale requirement? If the title company didn’t catch it and the home inspector didn’t mention it, how would the agent or a member of the public know about it?

As a real estate licensee, one of the greatest personal challenges is identifying when you are not competent to participate in a transaction. Listen to yourself; if any part of you is quietly questioning a possible risk to you in this transaction, then begin to look for alternatives.

Consult your broker; your broker as much as anyone wants you to be successful, but recognizing your limitations is part of that success. If you want to participate in the process, you need to engage the services of someone who is competent or refer your client to someone who is competent. If you decide you are not competent to provide services, Wis. Admin. Code § REEB 24.03(2)(a) states that you may engage the assistance of someone who is, and the person engaged to provide the assistance shall be identified and their contribution shall be described. Essentially, in the most frank terms, this is you saying, “I recognized my limitations, and this person has held themselves out as a competent individual.”

Your reputation is all you have. If you participate in a transaction in which you are not competent, you not only risk a lawsuit, discipline by the Real Estate Examining Board (REEB), and local board; you also risk a person expressing their dissatisfaction with you to all their friends, family and acquaintances because you were trying to be helpful.

Wis. Admin. Code § REEB 24.03(2)(c) states, “Licensees shall be knowledgeable regarding laws, public policies and current market conditions on real estate matters and assist, guide and advise the buying or selling public based upon these factors.”

It is not clear how the REEB would apply § REEB 24.03(2)(c) to the Fox Point scenario. However, following are questions to ask yourself to guide making your decision as to your own competency.

1. Do you know the market?
Do you know the current market conditions and how those relate to the area’s market value? Are you informed about unique local ordinances, such as point-of-sale requirements? Do you have an understanding of local environmental issues — lead, arsenic or water quality, for example? Do you understand shoreland zoning issues for a waterfront property? Do you know what municipal services are offered, such as garbage removal and recycling as well as whether property owners must buy their own trash cans?

2. Do you know about the type of property?
For the last 15 years, if you have focused solely on single-family residential transactions, should you participate solo in a vacant land, commercial, condominium or business transaction? While your license allows you to practice anywhere in Wisconsin and in any type of transaction, the competency requirement may prevent you from going it alone.

3. Do you know the appropriate contingencies, documents and addenda to include?
No matter if you practice in the same area and focus on the same type of property in your transactions, every transaction is unique. Many boards, attorneys and companies have specific addenda that address specific market issues.

In addition, if you do not understand the type of property or market nuances, you may be placing your party at risk. For example, if you do not typically practice in a certain area, you may be unaware of a gas leak three months prior that affected 50 homes and will continue to be impacted for several months. Therefore, you would not know what additional contingencies, documents, addenda or disclosures should be included to address the needs of the parties.

4. Do you know how to identify your limitations?
Knowing your limitations will help you provide better service, allowing you to become an expert in your market. And when it’s time to challenge yourself, by acknowledging your limitations you will be able to seek out the appropriate mentor who is competent and who can help assist you in the transaction and teach you the correct ways to execute your role in a transaction.

When you begin to tell yourself, “I think I can, I think I can draft this vacant land offer to purchase” when you have never participated in a vacant land transaction — ask yourself how helpful are you going to be to the consumer. Consider changing the mantra to “I think we can, I think we can” or “I will refer, I will refer.”

Cori Lamont is Director of Regulatory Affairs for the WRA.