The WRA Legal Hotline often receives questions about which activities constitute brokerage services and whether a licensee needs an agency agreement to conduct certain activities. The following scenarios contemplate when licensees must have the proper agency authority to provide brokerage services to parties.   

Property management 

The agent sold a residential property to an investor. The investor now wants the agent to advertise the property for rent and find a tenant. The agent’s firm currently only provides services for the buying and selling of properties. The broker and the agent have talked about possibly doing rental services and property management, but they are not sure where to start. What kind of contract would they use with the investor-landlord?

Persons who are paid or otherwise compensated to rent property and negotiate and sign leases for the owner fall within the definition of a broker under Wis. Stat. § 452.01(2). This statute states that a broker includes “any person who for another, and for commission, money or other thing of value, negotiates or offers or attempts to negotiate a sale, exchange, purchase or rental of an interest or estate in real estate.” This definition includes people negotiating the terms of a rental interest in real estate.

If the negotiation of lease terms or the drafting and signing of leases for another is involved, licensure is required. A property manager who signs or negotiates leases on behalf of a property owner must either be a licensed broker or be a licensed salesperson associated with a brokerage firm.

Brokers also must have proper agency authority to provide property management services. Typically, a Property Management Agreement or a WB-37 Residential Listing Contract — Exclusive Right to Rent is used.

The WB-37 Residential Listing Contract — Exclusive Right to Rent and the WRA Property Management Agreement are available in Transactions (zipForm Edition) and in the WRA PDF Forms Library. Both Transactions (zipForm Edition) and the forms library are available to WRA members for free.

For more information, see the WRA rental resource webpage at www.wra.org/rental.

For Sale by Owner (FSBO)   

A FSBO seller has an accepted offer on his commercial property and has asked the firm to get involved in the contingencies. Can the firm even get involved at this point? 

Because there is an accepted offer between the seller and the buyer, the firm should not get involved in the transaction. A licensee’s authority to provide brokerage services and explain contingencies to the parties must be incidental to the real estate practice of the licensee. Here, the firm does not have a listing contract with the seller for the transaction and cannot provide brokerage services to the seller. See Wis. Admin. Code § REEB 16.05 below. 

Wis. Admin. Code § REEB 16.05 Legal advice and practice of law.
(1)  A licensee may not provide advice or opinions concerning the legal rights or obligations of parties to a transaction, the legal effect of a specific contract or conveyance, or the state of title to real estate.
(2) Notwithstanding sub. (1), a licensee may provide a general explanation of the provisions in an approved form to the parties to a transaction at the time of completing the form or when delivering an approved form for the seller’s or buyer’s acceptance.
(3) A licensee may use approved forms only in those transactions in which the licensee is acting in a capacity as licensee or in which the licensee is a principal, and in either case the use of such forms is incidental to the real estate practice of the licensee.
(4) A licensee may not make a separate charge for completing an approved form in connection with a transaction.

Wis. Admin. Code § REEB 16.05(3) and the Department of Safety and Professional Services’ interpretation thereof originates decades ago from the concern that broker completion of conveyance forms constituted the practice of law, as was discussed in the 1961 case, State ex rel. Reynolds v. Dinger. In Dinger, the court found that such overlapping into the sphere of the legal profession could only occur when such activities are incidental to the broker’s trade or business.

Accordingly, the firm must provide legitimate brokerage services such as inspections; disclosures; drafting the offer; discussing financing, contingencies and issues the parties have not contemplated; and assisting with notices and amendments, among other things — otherwise the firm may be engaged in the unlicensed practice of law. An agent cannot “play attorney” and discuss the contingencies in the offer under the guise of an agency agreement without providing brokerage services as required by the Wisconsin Supreme Court in the Dinger case.

Both license law and the REALTOR^® Code of Ethics limit a broker from providing legal advice. Therefore, suggesting or recommending the parties consider consultation with legal counsel is appropriate.

Article 13 of the Code of Ethics provides: “REALTORS^® shall not engage in activities that constitute the unauthorized practice of law and shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it.”

See “Repeat After Me: ‘Call an Attorney’ A reminder of a licensee’s role in a real estate transaction,” in the November 2011 Wisconsin Real Estate Magazine at www.wra.org/WREM/Nov11/CallAttorney and “Wisconsin Supreme Court Rules on Unauthorized Practice of Law,” in the July 2010 Wisconsin Real Estate Magazine at www.wra.org/WREM/Jul10/UnauthorizedPracticeOfLaw.

Can an agent hold an open house for a FSBO seller?

Some might assert this may be done as pre-agency. During the “pre-agency” stage, a licensee may supply information and may conduct showings as long as the showings do not involve negotiation. The pre-agency agent has the role of a neutral information provider who represents neither party because agency relationships are not yet determined.

Wis. Stat. § 452.133(5) indicates: 

DUTIES WITHOUT AGENCY OR SUBAGENCY RELATIONSHIP. If a firm is providing brokerage services to a person who is a party or a prospective party to a current or prospective transaction, and the firm does not have an agency agreement with the person and is not a subagent of another firm in the transaction, then the firm and any licensees associated with the firm owe the person the duties under sub. (1) and may not, unless required by law, provide advice or opinions relating to the transaction in which the person is receiving brokerage services if providing the advice or opinions is contrary to the interests of a party to a current or prospective transaction with the person receiving the brokerage services.

A licensee may give a buyer seller-provided non-confidential information so long as the buyer and the licensee do not engage in negotiations based on the information provided. For example, giving an opinion regarding pricing is an example of advice or opinions contrary to the interest of the other party — in this instance, the seller — that would be forbidden. Therefore, before any negotiation or drafting an offer, the licensee must either enter into an agency agreement or become the subagent of a firm with an agency agreement.

If the seller does not want to enter into an exclusive right-to-sell listing with the firm, the firm may consider a limited service listing or an exclusive agency listing. “Exclusive agency listing” means a written listing agreement containing all the elements of an exclusive right-to-sell listing except that the owner retains the right to sell the property himself or herself without owing the listing firm a commission.

For further discussion about agency law issues and the services that may be provided in the pre-agency stage and to a customer, see the June 2006 Legal Update, “Revised Agency Law Implementation,” at www.wra.org/LU0606. Also see the October 2010 Legal Update, “Agency Law Revisited,” at www.wra.org/LU1010. 

Advertising

Can a firm advertise a property before the start of the listing contract?

In Wisconsin, an agent cannot advertise a property unless a firm has a listing. A firm does not become the listing firm until the term of the listing contract actually begins. A property is not listed until the date on line 330 of the 2024 WB-1 Residential Listing Contract or the analogous date on the other WB listing contracts. To advertise, the firm must be the listing firm or have permission from the listing firm. Wis. Stat. § 452.136(3) provides:

ADVERTISING WITHOUT AGENCY AGREEMENT PROHIBITED. A firm and any licensees associated with the firm may not advertise a property unless one of the following applies:
(a) The firm is the listing firm for the property.
(b) The firm or a licensee associated with the firm has obtained consent to advertise the property from the listing firm for the property.