In a typical residential real estate transaction, a property is listed with a real estate company (listing broker), and an agent from another real estate company (cooperating broker) works with the purchaser by showing the property, being present during inspections and tests, assisting in writing the offer to purchase and other negotiations during the transaction. 

Recently, with greater frequency, Out-of-State Licensees (OSL) have been entering Wisconsin and providing brokerage services in Wisconsin transactions without a Wisconsin real estate license. Along with violating Wisconsin real estate license law, this activity by OSLs has created significant problems in the transaction:

• Errors in offers to purchase due to the lack of familiarity with Wisconsin forms.
• Use of out-of-state forms with which Wisconsin real estate licensees lack familiarity, leading to additional consumer cost for attorney review and contract provisions placing the Wisconsin consumer at risk; for example, earnest money held by the OSL and contract jurisdiction in another state.
• Inaccurate information to consumers as to Wisconsin laws.

The WRA’s board of directors has directed staff to work on legislation to create an alternative opportunity for OSLs to provide limited brokerage services in Wisconsin transactions by requiring the OSL to enter into a written cooperative agreement with a Wisconsin real estate broker. 

The legislation will continue to encourage out-of-state purchases of Wisconsin properties, while keeping the Wisconsin licensee at the helm of the transaction and protecting both the consumer and the integrity of the transaction. 

Present legislation

Currently, there is no specific legislative structure for brokerage services performed by OSLs in Wisconsin: At this time, the Department of Safety and Professional Services’ position is that any OSL may provide brokerage services in Wisconsin as long as the

Wisconsin broker is not physically present in Wisconsin. Examples of violations would include being present and/or conducting a showing of a Wisconsin property. Essentially under current law, as long as the OSL stays in their own state, the Wisconsin broker’s hands are tied as to what the Wisconsin broker can expect of the practices of the OSL. 

There are three regulatory models that create the structure for the participation of OSLs in other states — cooperative, physical location and turf: Preliminary discussions deemed the turf model too restrictive, which is evidenced by the fact only three states have adopted the model. 

Presently, Wisconsin, along with 22 other states, is a “physical location” state. The OSL may not provide brokerage services while physically located in the state. The OSL may perform services from their home state.
Under the cooperative structure, the OSL may physically enter the state if they have a written cooperation or co-brokerage agreement with a Wisconsin broker outlining the OSL’s duties. Twenty-six states currently function under the cooperative model.

Proposed legislation 

The proposed WRA legislation has several features:

• Change Wisconsin to a cooperative state: Under this proposal, Wisconsin would change from a physical location to a cooperative state for all real estate transactions, including leases and sales.

• Creates a new voluntary option for the Wisconsin broker: The proposal allows the Wisconsin broker to have two voluntary options with the OSL: 1) referral fee arrangement or 2) enter into a written cooperation agreement. 

• Both the Wisconsin broker and OSL must have a valid broker license: The proposal requires both the Wisconsin broker to have a valid broker license and the OSL to provide evidence of good standing or other proof of licensure to enter into the cooperative agreement. 

• REEB-created agreement creates uniformity and allows customization: The written agreement will be created by the Real Estate Examining Board (REEB). The basic foundation of the agreement terms will have uniformity, however the brokers will be able to customize the agreement to reflect the arrangement of the two brokers. 

• ISL sets the terms of the OSLs actions as to the ISL’s listing: The REEB-cooperative agreement will allow the Wisconsin broker to set parameters as to the OSL’s limited brokerage services. The basics of those limitations would include the OSL’s ability to participate in showings, advertising, negotiations and writing offers. In addition, the Wisconsin broker may choose to require the OSL use of Wisconsin-approved forms. The brokers may also choose to allow the agents of the OSL broker to participate in the transaction. 

• Cooperative agreement also address other activities of the OSL and laws: The cooperative agreement and legislation will require trust funds be deposited in the Wisconsin broker’s trust account, clarification that no person may pay any part of a commission to the OSL unless the OSL has entered into a cooperative agreement, and a statement that the OSL is subject to Wisconsin license law and all lawsuits must be filed in Wisconsin only, which includes commission disputes.

• OSL listings will be prohibited: The proposal disallows an OSL from taking a listing without a Wisconsin real estate broker license or involvement of a Wisconsin broker. 

• ISL flexibility and control: The Wisconsin broker may only enter into a written cooperative agreement for the Wisconsin broker’s own listings or buyer agency agreements not for any other broker’s agreements. Additionally, the proposal allows the Wisconsin broker to choose to enter into a referral agreement for one of their listings and a cooperation agreement for another. 

• Penalties and enforcement: The proposal includes language that any violation of the section of the statute is unlawful and is subject to investigation, complaint and discipline of the REEB and is punishable by a fine of not more than $5,000 for each offense. 

• REEB shall have the authority to promulgate rules and regulations: The proposal will provide the REEB authority to create rules and regulations in establishing the conditions of the cooperative agreement.
We will keep you informed as the legislative process moves forward. If you have any questions or concerns relating to this legislation, please feel free to contact Cori Lamont at coril@wra.org.

Cori Lamont is Director of Regulatory Affairs for the WRA.