Customer Signatures on Broker Disclosure to Customers
A broker cannot negotiate on behalf of a party who is a customer unless the broker first provides the Broker Disclosure to Customers. That rule is nothing new, but there is a subtle change here that impacts the forms the licensees use. If the transaction is for a residential property with one to four dwelling units, the broker is required to ask for “the party’s signed acknowledgement” — in other words, a signature. That is a change since the prior rule said the broker had to ask for the party’s written acknowledgement through initials or a signature. That is a significant change because the WRA Broker Disclosure to Customers form asks for the customers’ initials, and the new language calls for signatures.
What this means for brokers working in transactions with one to four family properties is that starting July 1, 2012, they must ask customers to sign the Broker Disclosure to Customers. This may be accomplished in a few different ways. They can use the WRA’s revised forms available in paper copies and zipForm®. If the brokers have existing paper copies of the WRA Broker Disclosure to Customers form, they may use those forms together with the WRA Addendum to Broker Disclosure to Customers, available on the WRA’s website at www.wra.org/FormsUpdate. They can also use the existing paper copies if they remember to ask the customers to sign instead of initial because the rule requires that the “broker shall request the party’s signed acknowledgement that the party has received a copy of the written disclosure statement,” not that the form say that a signature is needed or even that a signature actually be obtained. Obviously using the WRA Addendum is a better option because that will help the agents remember that signatures must be requested and will help assure the customers that there has been a change in the legal requirements.
Remember that this change only applies to transactions where the “brokerage services are related to real estate primarily intended for use as a residential property containing one to four dwelling units.” Agents do not need to request signatures in commercial, retail, industrial or transactions with five or more dwelling units.
Disclosure of Agency to Customers
The revised § REEB 24.07(8) gives guidance for specific circumstances when brokers must give a Broker Disclosure to Customers. For instance, most licensees realize that a listing broker must provide a Broker Disclosure to Customers to the buyer in the transaction if the listing broker is negotiating directly with the buyer and not through a selling broker or a buyer’s broker. In this case, the listing broker is the only broker involved with the parties, which makes it important that the buyer understand that the listing broker is working for the seller.
If you flip that around to a case where there is only a buyer’s broker participating in the transaction, then the buyer’s broker needs to provide a Broker Disclosure to Customers to the seller if the buyer’s broker is negotiating directly with the seller and not through a listing broker. This occurs when a buyer represented by a buyer’s broker negotiates with an FSBO seller.
Note that in these instances, the requirement to provide a Broker Disclosure to Customers is triggered by negotiation. Negotiations begin when the discussions with the person exit the providing information phase and enter the offer or proposal development phase. Negotiations occur when an agent works on developing proposals for the other party’s consideration or works on reaching an agreement between the parties. Negotiations, simply stated, would include acting as an intermediary, drafting approved forms and presenting approved forms. Therefore, a buyer’s agent would be responsible to provide the seller-customer with a copy of the Broker Disclosure to Customers form if the agent was going to present the buyer’s offer to purchase to the seller because presenting party proposals and providing a general explanation of the proposal is within the definition of “negotiate” found in Wis. Stat. § 452.01(5m).
When a broker is working with a buyer, not as a buyer’s agent but rather as a subagent, the subagent broker shall provide a Broker Disclosure to Customers to the buyer-customer with whom he or she is working. Subagency occurs when a broker is engaged by another broker to provide brokerage services in a transaction, but is not the other broker’s employee. For example, a cooperating broker who works for a listing broker in attempting to find a buyer and sell the property is a subagent.
The subagent does not, however, need to provide any disclosures to the principal broker’s client. For example, the subagent of a listing broker gives a disclosure to the buyer, but not to the seller. Similarly, principal brokers are not required to provide a Broker Disclosure to Customers to the customers of their subagents. For example, a listing broker doesn’t give disclosure to a buyer working with a subagent.
The Broker Disclosure to Customers is not only for sales transactions either. A licensee shall provide a Broker Disclosure to Customers to prospective tenants when negotiating lease terms on behalf of the client, who could be the owner or landlord. The trigger here will be whether the licensee is actually negotiating lease terms or whether a completed, nonnegotiable lease is simply presented to tenants.
Disclosure of Agency to Clients
A broker cannot negotiate on behalf of a client unless the broker first provides the Broker Disclosure to Clients. This normally is not a problem because most of the listing contracts and the WB-36 buyer agency agreement contain the language of the Broker Disclosure to Clients. The rule indicates that if the Broker Disclosure to Clients is not within agency agreement, then the broker must first provide the Broker Disclosure to Clients and ask the party to sign it to acknowledge receipt if the property has one to four dwelling units. Fortunately the WRA Broker Disclosure to Clients calls for the client to sign so no changes are necessary with that form. This form may need to be used separately with REO listings, for example, where the asset manager provided a listing contract for the broker to sign that does not contain the Wisconsin agency disclosure provisions.
In the rental world, a licensee entering into a lease listing or a property management contract must provide the client with the Broker Disclosure to Clients. This may be provided separately as some of these agency agreements have not yet been updated to include the Broker Disclosure to Clients language, and a signature may need to be requested if there are one to four units.
This article began by asking, “To Disclose or to Not Disclose, Is that the Question?” And what is the answer? A resounding “No!” The revised chapter REEB 24 makes it eminently clear that disclosures in writing are required in a wide array of situations. Agency relationships should never be in doubt. Any time there is even a possibility that there may be negotiation, prudent practice will dictate giving a Broker Disclosure to Customers to parties who are not clients. Providing those written disclosures will go a long way toward keeping an agent off the DSPS Division of Enforcement’s radar screen.
To see the revised Wis. Admin. Code chapter REEB 24, go to https://docs.legis.wisconsin.gov/code/admin_code/reeb/24.pdf. To read more about the July 1, 2012 updates to Wis. Admin. Code chapter REEB 24, read the June 2012 Legal Update, “REEB 24 Regulatory Revisions,” at www.wra.org/LU1206.
Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.