Some of the most frequently asked Legal Hotline questions about buyer agency involve For Sale Buy Owner (FSBO) transactions and the collection of buyer agency fees.

Buyer agency in FSBO transactions

Agency agreement required

The owners of a property are willing to sell, but they do not want a one-party listing because they don't want to pay commission. An interested buyer is willing to pay a commission if the broker writes an offer. How should the parties proceed?

The broker must have an agency relationship with either the buyer or the seller before showing the property, writing an offer or performing any other real estate brokerage services. The broker may enter into a WB-36 buyer agency contract with the buyer or a listing contract with the seller to create the necessary agency relationship.

An agent is telling a couple that in order to be represented by a buyer's agent, they have to sign a buyer agency contract; they can't just initial an agency disclosure form. The agent says she can only work for the seller if the buyers won't sign the buyer agency contract. Is this correct?

Yes. The buyer agency relationship is created by entering into a WB-36 Buyer Agency/Tenant Representation Agreement. An agency disclosure form does not create buyer agency. 

Agency disclosure

What agency disclosures must a buyer's agent give to the seller in a FSBO transaction?

Licensees acting as buyer's agents must notify the seller of the buyer agency relationship per § RL 24.07(8). Notification must take place upon (1) the first contact with the seller where information regarding the seller or transaction is being exchanged, (2) a showing or (3) any other negotiation with the seller, whichever one occurs first. The agent's buyer agency must be confirmed in writing in the offer to purchase (line 1). Similar requirements are found in the Code of Ethics, Standard of Practice 16-11.

If the buyer's agent is going to provide any brokerage services to the seller, as a subagent, the agent must give the seller an agency disclosure form advising the seller that the buyer is the agent's client and ask the seller to sign the form to acknowledge receipt.

Providing brokerage services to the seller

A buyer's agent is writing an offer on a FSBO property. What information and advice can the broker give the sellers? Can the broker interpret the contract for the sellers?

The buyer is the agent's client. The seller is the customer and is owed the duties owed to all parties in a transaction under Wis. Stat. § 452.133(1). The agent must disclose material adverse facts, provide accurate information about market conditions upon request, and present all proposals in an objective and unbiased manner. Like all licensees, regardless of agency status, the agent cannot give advice or opinions regarding the legal rights and obligations of a party, the legal effect of a contract or conveyance, or the status of title to a property, per § RL 16.05. The agent may give a general explanation of the provisions in approved forms when completing or delivering a form to a party.

If the buyer's agent were to enter into a listing with the seller, a multiple representation would be created and the agent would not be able to place the interests of one client ahead of the interests of the other client in negotiations. The agent would draft documents to accomplish the respective intent of the parties, and continue to present all offers and proposals in an unbiased and objective manner and keep the confidences of the respective parties. The buyer and the seller would not enjoy the undivided loyalty provided a client outside of dual agency.

As an alternative, the agent may continue to work with the buyer while the seller retains an attorney for legal advice and representation in the transaction.

Compensation issues

Buyer agency does not equate with procuring cause

A buyer looked at a property listed on the MLS with a co-broke agent, but now wants to hire another agent from a third firm as a buyer's agent. Can the agent work as a buyer's agent and earn the compensation offered on the MLS even though the co-broke agent introduced the property to the buyer?

The agent may enter into a buyer agency agreement and work with the buyer as a client, but whether the agent will receive the compensation offered on the MLS will depend upon procuring cause. Buyer agency does not trump procuring cause-the buyer's agent will not be procuring cause just because he has a buyer agency relationship. The buyer's agent can draft the offer, but the buyer may end up paying the buyer's broker's fee directly to the buyer if the buyer's agent is not procuring cause.

Before the buyer enters into the buyer agency agreement, the agent should explain to the buyer that choosing buyer agency may increase the cost of the transaction for the buyer. Failure to explain this to a buyer client is arguably a failure to disclose material information in violation of Wis. Stat. § 452.133. 

Seller pays buyer's broker fee

The seller received an offer drafted by a buyer's agent. The offer included an addendum asking the seller to pay the buyer's brokerage fee and rejecting the MLS offer of compensation. Can a buyer's broker's compensation be addressed in this manner in an offer to purchase?

A buyer's broker may ethically suggest or recommend that the buyer ask the seller to pay some or all of the buyer's broker's fee pursuant to Article 16 of the Code of Ethics and NAR Case Interpretation #16-12. The buyer may condition the offer upon the seller paying the buyer's broker's fee on behalf of the buyer, as a seller's expense at closing.

The buyer's broker must have been authorized by the buyer in the WB-36 to accept compensation from the owner or the owner's agent to comply with RL24.05(1). See Legal Updates 99.06 (www.wra.org/LU9906) and 02.01 (www.wra.org/LU0201) for further discussion of this issue.

Seller response

The buyer is asking the seller to pay the buyer agent's fee in a provision of the offer to purchase. Is the seller required to pay that fee in addition to the listing commission?

Although the buyer may ask the seller to pay all or a portion of the buyer agency fee, the seller is not required to agree to these terms and conditions. The seller may counter the offer to remove this provision. Some sellers, however, may be reluctant to do this for fear that any adverse response will scare away the buyer, and sellers may wish to go ahead and pay the additional fee. The seller also may counter the offer to increase the purchase price by an amount sufficient to cover the seller's payment of the buyer's broker's fee. A seller might wish to counter the amount of the fee. For further discussion of these options, see pages 5-8 of Legal Update 99.06 (www.wra.org/LU9906).

Additional compensation

May a buyer's broker draft an offer to purchase that requests the seller to pay an additional percentage of the sales price to the broker's company at the time of closing and still receive the compensation paid by the listing broker via the MLS? 

An agent may receive commission from multiple sources. The WB-36 Buyer Agency/Tenant Representation Agreement may be negotiated so the buyer will pay the buyer agent a success fee. This amount may be reduced by amounts the broker receives from the seller or the listing broker. If the success fee is in excess of the amount paid by the seller and the listing broker, the buyer will be obligated to pay the remainder of the success fee.

Buyer's brokers should be clear when drafting offer to purchase provisions to specify whether the amounts being paid pursuant to the offer are in addition to - or in place of - the compensation offered by the listing broker. The buyer's broker should advise the listing broker directly if the buyer's broker is waiving off the compensation offered by the listing broker.