September 2005 Please Route to: ______Legal Update ______

A WRA Publication Exclusively for the Designated REALTOR® ______

Inside This Issue Buyer Agency Practice In this high-tech world of the 21st cen- ices to the seller as a client. The buyer tury, buyers are Internet-savvy and are agency agreement specifies the extent of 3 likely to come into a REALTOR®’s the buyer’s broker’s authority to act on office with a packet of printouts for behalf of the buyer/client and the per- Daily Buyer Practice that interest them. These new formance required to earn the broker’s Issues world buyers have been reading about compensation. No licensee real estate and finance and want to work may provide client services to a buyer with a buyer’s agent who is responsive to unless they are working under a buyer 7 their needs. contract. Buyer’s Broker’s While it is important to look out for the The WB-36 Buyer Agency/Tenant Compensation interests of a buyer/client and optimize Representation Agreement, the DRL- their purchasing opportunities and the approved buyer agency contract that value that they receive, buyer’s agents must be used by Wisconsin licensees, 8 must not lose sight of the fact that the gives the buyer’s broker the authority to Collecting the Buyer’s ultimate goal is to assist the buyer in pur- act as an exclusive buyer’s agent, but Broker’s Fees chasing the he or she wants, does not provide the authority for an not to go to war with the listing broker exclusive right to locate and negotiate. or the seller. While assertive negotiation The form is flexible, however, and may 12 strategies at times may be useful, overly be tailored to provide the desired agency Buyer Agency and aggressive tactics may lose the deal for authorization and to create consistency the buyer. with the desired business practice model. Procuring Cause This Legal Update examines the WB-36 Exclusive Buyer’s Agent Buyer Agency/Tenant Representation In line 1 of the WB-36, the buyer 14 Agreement and the authorization it pro- authorizes the broker to work as his or vides to act as a buyer’s agent. It also Conclusion her exclusive buyer’s agent to locate and reviews buyer agency practice issues and negotiate the procurement of an interest rules, buyer agency compensation and in property. No one else can be a buyer’s procuring cause, and buyer agency ques- agent for the buyer, but the language tions and answers from the Legal does not prohibit the buyer from per- Hotline. sonally working with sellers, seller’s Authorization to Act as agents, and attorneys as the buyer seeks a Buyer’s Agent and acquires the desired property. In other words, the WB-36 buyer agency The buyer agency agreement is the agreement is like an exclusive agency agency contract that authorizes the bro- agreement in the sense that the buyer ker to provide brokerage services to the does not have to work only with the buyer as a client. In general terms it is buyer’s agent and, in fact, can work on WISCONSIN the counterpart of the REALTORS® his or her own or with others to locate ASSOCIATION © 2005 that the seller executes to authorize the and negotiate for property. listing broker to provide brokerage serv- Lines 26-29 of the WB-36 caution the 16.05(3), a real estate broker is only Contacts buyer that: authorized to complete legal contracts on behalf of a party if the form completion is BUYER MAY WORK WITH OWNER incidental to the broker’s legitimate real OR AGENTS OF OWNER IN LOCAT- EDITORIAL STAFF estate practice. A licensee cannot just ING AND NEGOTIATING AN Author “play attorney” without providing other INTEREST IN PROPERTY. HOWEV- Debbi Conrad brokerage services such as inspecting the ER, BUYER MAY BE RESPONSIBLE property, making property condition dis- FOR BROKER'S FULL COMPENSA- Production closures and negotiating the offer. Terry O’Connor TION IF BUYER’S CONTACTS WITH OWNER OR OWNER’S Tracy Rucka Location Services Only AGENTS RESULT IN NO COMPEN- Rick Staff If the buyer only needs a buyer’s agent to SATION BEING RECEIVED BY BRO- locate a and the KER FROM OWNER OR OWNER’S ASSOCIATION buyer or the buyer’s attorney will conduct AGENT. MANAGEMENT the negotiations and draft the contracts, Chairman The upshot is that the buyer’s ability to the buyer’s agent may line out “and nego- Kitty Jedwabny, CRB, CRS work with others comes with a price: the tiate the procurement of” in lines 1-2. buyer may have to pay a higher purchase President price or additional broker compensation if Exclusive Right-to-Locate-and- William E. Malkasian, CAE the buyer works with an agent of the sell- Negotiate er. It is very important that the buyer fully The WB-36 does not create an exclusive ADDRESS/PHONE appreciate this fact. right-to-locate-and-negotiate agency rela- The Wisconsin tionship, which would be the counterpart REALTORS® Association Agency Authorization of an exclusive right-to-sell listing con- 4801 Forest Run Road Modifications tract. An exclusive right-to-locate-and- Suite 201 The parties to the WB-36 may modify the negotiate buyer agency relationship Madison, WI 53704-7337 extent of the broker’s authorization and would require a buyer’s agent to essential- ly be available 24 hours a day to assist the (608) 241-2047 the range of the broker’s services to fit the buyer. The buyer’s agent would have to (800) 279-1972 circumstances and the needs of the buyer/client. This flexibility enables a be the buyer’s constant companion, scouring the market for suitable proper- LEGAL HOTLINE: broker to offer different business models ties, available at the drop of a hat to write Ph: (608) 242-2296 and different levels of services to buyers. This is an important capability when an offer if the buyer falls in love with a hot Fax: (608) 242-2279 property at an open . Buyers would Web: www.wra.org working with computer-savvy buyers who may not need the full range of services. even be unable to ask their attorneys to They may have completed some of the write the offer for them because the The information contained herein is traditional tasks on their own, most likely buyer’s broker would have the exclusive believed accurate as of 09/15/05 The right to negotiate on behalf of the buyers. information is of a general nature online. and should not be considered by any If a REALTOR® wants to offer this busi- member or subscriber as advice on a Negotiation Services ness model to consumers, the REAL- particular fact situation. Members should contact the WRA Legal If the buyer spots a property on the TOR® may modify the WB-36 and estab- Hotline with specific questions or for Internet, has taken a virtual tour, and only lish a true “exclusive right-to-locate-and- current developments. wants the buyer’s agent to help negotiate negotiate” buyer agency agreement by Reproduction of this material may be and implement a contract, the phrase “to striking the words “act as buyer’s agent” done without further permission if it locate an interest in property and” may be on line 1 of the WB-36 (creating a provi- is reproduced in its entirety. Partial crossed out on lines 1-2 of the WB-36. sion that says, “Buyer gives Broker the reproduction may be done with writ- This sort of modification must be done ten permission of the Wisconsin exclusive right to locate and negotiate the REALTORS® Association Legal very carefully because a licensee cannot procurement of an interest in real Department. lawfully be put in the position of just step- estate”), or by adding language to that ping in to draw up the papers and do the effect in an addendum. . Under Wis. Admin. Code § RL

WISCONSIN REALTORS® ASSOCIATION © 2005 2 Legal Update, September 2005 Property Description a consent to multiple representation, Daily Buyer Practice waiver of confidentiality, and blank lines The buyer’s broker’s authorization to Issues locate property for the buyer begs the for listing confidential and non-confi- Much confusion often surrounds buyer question: what property? That question dential information. The explanation of agency practice. Misunderstood issues is answered on lines 3-10 of the WB-36 multiple representation makes it clear include the disclosure of buyer agency with the buyer’s designation of his or that a broker in a multiple representa- status to others, the ability of other her target as far as general property tion situation has been authorized by agents to approach and work with buy- types, types of property interest, price each party in the transaction to provide ers under a buyer agency agreement, range and other property characteristics client services to each party, and is not and concerns relating to the buyer’s and transaction terms such as property allowed to place the interests of either broker’s performance. size, location, seller financing availability party ahead of the other in negotiations. and schools. These descriptive items In other words, the range of services delineate the parameters that the buyer’s provided to each party is limited. Disclosure of Buyer Agency agent should search when attempting to An area where the rules are often not locate a property, but do not restrict the Legal Hotline Questions & followed involves the disclosure of buyer type of property that the buyer may pur- Answers – Buyer Agency agency status to listing agents and sell- ers. chase. In other words, the property Authorization description does not limit the buyer’s The following questions concerning Under § RL 24.07(8)(a)2, “Licensees broker’s ability to earn his or her fee. buyer agency authorizations were asked acting as agents of potential buyers of of the WRA Legal Hotline. real estate used or intended to be used Excluded Properties principally for one to 4 family residential If a buyer's agent is aware that a buyer Multiple Representation purposes, who are aware that the owner has seen a property prior to entering One agent has a home listed. Another of the real estate has granted another into the buyer agency agreement, the agent within the office, who has a buyer licensee the exclusive right to sell, shall buyer's agent would be wise to discuss agency, has written an offer on that notify the listing broker of the licensee's the procuring cause and commission property. Is the offer to purchase drafted buyer agency relationship at the earlier issues which might arise from the prior as an agent of the buyer or as dual of all of the following: showing. The broker and buyer should agent? consider whether such properties should a. The first contact with the listing broker be excluded from the buyer agency This is a multiple representation situa- where information regarding the seller agreement to avoid disputes later on, tion. One agent of the broker is the list- or transaction is being exchanged. provided that all are comfortable with ing agent – an agent of the seller. The b. A showing of the property. an arrangement that will return the buyer wants another agent of the broker buyer to work with other agents if it to act as a buyer's agent. Thus, this same c. Any other negotiation with seller or turns out that the buyer wants to broker is being asked to represent both listing broker.” exclude one or more properties from the seller and the buyer as clients. The Similarly, Standard of Practice (SOP) the scope of the broker’s agency author- broker arguably cannot offer complete 16-10 states, “REALTORS®, acting as ization. If the buyer acquires an interest loyalty and obedience to two opposing agents of, or in another relationship in a property listed as excluded on lines interests at the same time. with, buyers or tenants, shall disclose 11-12, the buyer’s broker will not pro- that relationship to the seller/'s vide brokerage services or earn his or her The parties must give informed consent agent or broker at first contact and shall fee, just as a sale to an excluded buyer to a multiple representation relationship. provide written confirmation of that dis- does not earn the listing broker his or The broker must explain the concerns closure to the seller/landlord's agent her commission. and limitations to each party and ask them to sign a written consent to multi- not later than execution of a purchase ple representation that meets the agreement or .” SOP 16-11 indi- Agency Disclosure and requirements of Wis. Stat. § 452.137. cates that “On unlisted property, Consent to Multiple This may have already been done if each REALTORS® acting as buyer/tenant Representation party signed the consent to multiple agents or brokers shall disclose that rela- The agency disclosure information representation included in the listing tionship to the seller/landlord at first required by Wis. Stat. § 452.135 is contract and the buyer agency agree- contact for that client and shall provide incorporated into the WB-36, including ment. written confirmation of such disclosure

WISCONSIN REALTORS® ASSOCIATION 3 Legal Update, September 2005 to the seller/landlord not later than exe- nection with the real estate which grants buyer agency agreement and if they cution of any purchase or lease agree- to another licensee an exclusive right to want help from the REALTOR® before ment. REALTORS® shall make any sell, lease or negotiate. All negotiations providing substantive services to the request for anticipated compensation shall be conducted with the broker buyer. Article 16 of the Code of Ethics from the seller/landlord at first con- holding the exclusive right to sell, and provides that REALTORS® may not tact.” not with the party, except with the con- interfere with the exclusive brokerage sent of the broker or where the absence relationships of other REALTORS®. All of this indicates that buyer’s agents of the broker, or other similar circum- Article 16 does not allow other agents to must tell listing agents and sellers at first stances, reasonably compels direct nego- freely intervene and undertake the contact that they are buyer’s agents and tiation with the party. A listing broker buyer’s broker’s job without first asking later confirm that status in the offer to has no duty to investigate whether a the buyer whether he is a party to a purchase. While the Department of buyer has granted a buyer's agent an buyer agency agreement and if the buyer Regulation and Licensing (DRL) rule is exclusive right to negotiate. wants assistance from the seller’s agent. limited to one- to four-family residential properties and listing brokers with Note: The DRL's approved form, SOP 16-13 states: exclusive right-to-sell contracts, the WB-36, does not grant the buyer's “All dealings concerning property exclu- Code of Ethics provisions apply to all agent an exclusive right to negotiate.” sively listed, or with buyer/tenants who properties and all brokers. This rule permits listing agents to nego- are subject to an exclusive agreement REALTORS® must also understand that tiate directly with a buyer under the shall be carried on with the client’s agent early in the process a buyer may not have WB-36. The only time that listing or broker, and not with the client, yet decided whether he wants buyer agents are compelled to negotiate with except with the consent of the client’s agency. He may start out working with the buyer’s agent is when the buyer or agent or broker or except where such agents as subagents and may later decide the buyer’s agent has made the listing dealings are initiated by the client.” that he wants a buyer’s agent. Through agent aware that the WB-36 has been (Adopted 1/93, Amended 1/98) no fault of the agent, initial contacts may modified to provide for the exclusive “Before providing substantive services be as a subagent, but the agent may later right to negotiate. In addition, § RL (such as writing a purchase offer or pre- request the seller’s consent to shift to 24.13(5) does not obligate licensees to senting a CMA) to prospective pur- buyer’s agency. ask the buyer whether he or she has a chasers, sellers, tenants or buyer agency agreement or whether that (“prospects”), REALTORS® shall ask agreement contains an exclusive right to Dealing with Buyers under prospects whether they are parties to any negotiate. Buyer Agency Agreements exclusive representation agreement. License law does not prohibit agents of Many brokers make it a practice to REALTORS® shall not knowingly pro- the seller from negotiating directly with honor a buyer agency agreement and vide substantive services concerning a a buyer who is party to the standard decline to work with a buyer who is prospective transaction to prospects who WB-36, although professional courtesy under a buyer agency agreement. This is are parties to exclusive representation and tradition may cause many brokers to a professional and courteous practice. In agreements, except with the consent of avoid such direct contact whenever pos- the absence of such gracious brokers, the prospects’ exclusive representatives sible. REALTORS®, on the other hand, there is no guarantee under § RL or at the direction of prospects.” are to deal with the buyer’s broker, and 24.13(5) that the buyer agency agree- If a REALTOR® is the agent manning must ask a buyer if he or she has a buyer ment will be honored unless the buyer an open house and a house-hunting agency agreement and if he or she wants or buyer’s agent informs the other agent friend drops by, the REALTOR® may assistance before providing substantive that there is a buyer agency agreement not write an offer for his or her friend services to a buyer with a WB-36. that has been modified to provide for without first asking if the friend is a party exclusive negotiation rights, or unless With respect to Wisconsin licensees, § to a buyer agency agreement. If there is the buyer simply refuses to work with RL 24.13(5) provides: a buyer agency agreement, the REAL- other agents. TOR® may ask the friend if he or she “NEGOTIATION THROUGH BRO- ® REALTORS®, on the other hand, must would like the REALTOR to perform KER. A licensee may not negotiate a sale deal with the buyer’s agent, absent con- services, for instance, write an offer to or lease of real estate directly with a party sent from the buyer or the broker to do purchase, even though the friend is sub- if the licensee knows that the party has otherwise. In addition, REALTORS® ject to a WB-36. an unexpired written contract in con- must ask the buyer if the buyer has a

WISCONSIN REALTORS® ASSOCIATION 4 Legal Update, September 2005 In some circumstances it may be advan- shall give advice to the buyer within the ¤ Internet Buyer tageous to the buyer to accept the assis- scope of the broker’s license, facilitate or A buyer called and apparently had tance from another REALTOR®, such participate in discussions about the found a property on the Internet and as when the buyer has fallen in love with terms of a potential contract for the went to an open house. He liked the a hot property and needs to act quickly. acquisition of a property interest, com- home and set up an appointment with But other times it may not be advanta- plete appropriate contractual forms, the agent who hosted the open house for geous for the buyer, as when another present either party’s contractual pro- another showing. That agent did not REALTOR® steps in to write an offer posals with an explanation of the advan- have the buyer sign an agency disclo- that the buyer’s agent could have done tages and disadvantages, and engage in sure. A couple of days later, the agent in just as competent and timely a man- other efforts as specified in the agree- left the buyer a message saying that he ner – the only difference may be that it ment. had taken time out of his schedule to costs the buyer more to work with the show them the property and he wished he If the broker does not provide good other REALTOR® than with the buyer’s would call him back. This upset the service and perform these functions, the agent because both the buyer’s agent buyer and he now wants to work with a broker will be in breach of the agree- and the REALTOR® may need to be different broker and possibly write an ment and the buyer will be able to ter- compensated. offer. If the second broker wants to work minate the WB-36 without owing any with the buyer, how will she get paid? Wisconsin licensees approaching buyers damages to the broker. A buyer may ter- under buyer agency agreements minate a buyer agency agreement at any The second broker may contact the list- arguably should caution the buyer to time because it is a personal service con- ing agent or broker to negotiate a com- check the provisions of their buyer tract embodying an agency relationship. pensation agreement despite concern agency agreement to determine whether Neither the principal nor the agent can over services provided and procuring the buyer may work with other agents be compelled to remain in an agency cause. The second broker may enter into and whether the buyer will still be obli- relationship. If there has been no breach a buyer agency agreement. If buyer gated to pay the buyer’s broker’s fees. of contract on the part of the broker, agency is pursued, the second broker Causing a buyer who is party to a WB- however, the buyer's termination will be should tell the buyer that the buyer’s 36 to work with another agent without considered to be a breach of contract cost may increase if neither the listing cautioning the buyer about the possibil- and in "bad faith," and the broker may broker nor the seller can be persuaded to ity of extra costs may be calling into be entitled to damages. pay the buyer’s broker’s fee. question the Wis. Stat. § 452.133(1) A buyer also may assert a buyer’s bro- ¤ In-House Exclusive duties of good faith and fair and honest ker’s failure to perform as a defense if a An agent has been working with a treatment. broker sues to collect a success fee in a buyer under buyer agency on a particu- To avoid having another REALTOR® scenario where the broker hasn’t been lar property. The buyer’s agent found show the property and write the offer, doing his or her job. In other words, a out that the buyer was contacted by buyer’s brokers must teach their buyer can resist and defeat a buyer’s another company who told her that the buyer/clients that this behavior may agent who tries to collect a fee without “property was up for bids.” The other lead to additional expenses for the buyer having done anything. However, if the agent told the buyer’s agent that she has if the other REALTOR® is procuring agent had been performing but the an exclusive office contract and anyone cause – somebody other than the listing buyer went off to an open house and can sell the property, but no one will get broker may still have to pay the buyer’s wrote an offer without giving the paid except her company. Is this legal? broker’s fee. If the seller refuses, that buyer’s agent a chance, the buyer’s bro- If the buyer will pay the buyer’s broker’s obligation will fall back on the buyer per ker’s fee would arguably still be legiti- fee, the agent need not worry about not the WB-36. mately due. getting paid. The buyer could ask the seller to pay the buyer’s broker’s fee in Broker’s Performance Legal Hotline Questions & the offer. Arguably, the listing agent’s The buyer’s agent must use his or her Answers – Buyer Agency policy may not serve the best interests of professional knowledge and skills and Practice Issues her client because this practice may limit reasonable efforts to locate an interest in The following questions concerning market exposure dramatically and the property for the buyer and negotiate the buyer agency practice issues were asked seller should be informed of this impact. procurement of the interest in property of the WRA Legal Hotline. If this is a consistent practice, it may con- desired by the buyer. The buyer’s broker stitute a failure to cooperate in violation

WISCONSIN REALTORS® ASSOCIATION 5 Legal Update, September 2005 of Article 3 of the REALTOR® Code of offered on the MLS or otherwise, any tion, the written consent of the seller Ethics. commission being hereby declined due must be obtained if the agent is to to Mr. Licensee’s status as a become a buyer's agent. ¤ Incentive for Personal Transaction principal/party to this transaction.” Is it illegal to accept a buyer’s broker’s ¤Brokerage Service Must Be Provided fee when a licensee is purchasing prop- When drafting the offer, line 1 of the Re: Buyer agency. An agent lists a erty for him or herself? offer should be crossed out because the property that is an estate and procures a buyer. The buyer decides to write an Under the , the agent is buyer/licensee is acting as a offer to purchase while the agent is out of prohibited from competing with the principal/party and not as a licensee. In the state and has someone else handling principal. A licensee can be either a prin- addition, the buyer/licensee must dis- her transactions. The buyer writes his cipal or an agent in a transaction, but close his or her licensee status as offer with his brother who is a licensee in conflicts of interest occur when a licens- required by § RL 24.05(5). The licens- Madison instead of with the agent ee tries to be both. When acting as a ee may wish to write in the offer that he assisting the listing agent. The agent buyer of real estate, the licensee is a prin- or she is a licensed pur- who wrote the offer says that he is a cipal in the transaction and not the agent chasing the property for personal buyer’s agent, and the offer calls for the for anyone. Therefore, the buyer/licens- use/investment/speculation/resale, as seller to pay the buyer’s agent's fee. The ee cannot collect a commission from the the case may be. buyer's agent had never seen the proper- seller because the buyer/licensee cannot ¤ No Agency Disclosure to Listing ty. Can an agent just step in like that? perform services on behalf of the seller Broker with undivided loyalty when the licensee Re: Buyer agency agreement. The list- The buyer’s agent never inspected the has his or her own interest as the buyer ing broker is requesting a copy of the property (even though he had access if at stake. It is also inconsistent for a agency disclosure the buyer’s agent pro- he wished), in violation of § RL buyer/licensee to act as his or her own vided to the buyer. Is this mandatory? 24.07(1)(c). The buyer’s agent may also agent and collect a commission for rep- be engaged in the unlicensed practice of No. Wisconsin law does not require a resenting oneself. Instead, a buyer/ law if the buyer's agent “just wrote up buyer’s broker to provide the listing licensee can negotiate a buyer's incentive the offer” without providing any legiti- broker with evidence of the agency dis- to be paid by the listing broker or the mate brokerage services, as required by closure. In fact, because the agency dis- seller. This incentive can be for the the Wisconsin Supreme Court in the closure provisions are part of the WB-36 amount of the co-broke commission Dinger case. An agent cannot “play buyer agency agreement, the buyer’s that would otherwise be paid to the sell- attorney” and write an offer to purchase agent arguably is prohibited from pro- ing broker in the transaction. under the guise of a buyer agency agree- viding a copy of this form without per- ment without providing brokerage serv- The buyer's incentive should be proper- mission from the buyer, due to the con- ices. The seller or the listing agent may ly documented in writing before closing, fidential nature of its contents. The list- wish to file a complaint against the preferably before the offer to purchase is ing broker does not have a right to see “buyer’s agent” for these apparent executed. There is no "secret" form or the actual buyer agency agreement, but license law violations. language for the incentive agreement. may request a written statement from However, the agreement should identi- the buyer’s broker confirming that the ¤Failure to Ask fy the parties and the transaction, and broker is working under a current buyer The buyer's daughter attends an open indicate how the incentive is earned, agency agreement. house and then returns with the buyer. when it will be paid, and who will pay it. ¤ Switching Agency After the buyer looks at the home, he tells For example, an incentive agreement Is it possible to change an agency rela- the open house agent that he wants to might provide: “As an inducement to tionship midstream? If an agent dis- write an offer. The agent, the buyer and Larry Licensee to purchase the property closes his subagency to the listing broker the buyer's daughter go to the office and at 123 Main Street, Salestown, (and shows a house) and now the buyers write an offer, which is accepted. The Wisconsin, Real Good Realty, Inc., want to do a buyer’s agency with him, is agent finds out that the buyer has a promises to pay to Mr. Licensee an this okay? buyer agency agreement with another incentive in the amount of $2,000 at the agent. What liability does the agent time of closing provided the closing Pursuant to § RL 24.07(8)(a)3, a selling have for not asking the buyer about hav- occurs on or before December 31, agent switching to buyer agency must ing a buyer agency relationship? 2005. It is agreed that this incentive disclose the change in representation to shall be paid in lieu of any commission the listing broker and the seller. In addi-

WISCONSIN REALTORS® ASSOCIATION 6 Legal Update, September 2005 Although not prohibited from drafting ker interpret the contract for the sellers? and confidence in the broker. When a the offer to purchase upon the buyer’s buyer directs a broker to stop searching The buyer is the agent's client. The request, SOP 16-13 requires the agent for property, the broker must obey the FSBO seller is the customer and is owed to first ask the buyer if he was a party to instructions. The buyer can revoke this the duties owed to all parties in a trans- a buyer agency agreement. The agent contract simply by verbal notice, by writ- action under Wis. Stat. § 452.133(1). may be subject to discipline and sanc- ten letter or notice, or by amendment to The agent must disclose material adverse tions for violation of Article 16 of the the contract, which would also be signed facts, provide accurate information Code of Ethics if it is found that the by the broker. about market conditions upon request, agent failed to inquire. and present all proposals in an objective The power to revoke, however, is not a ¤Property Protection and unbiased manner. Like all licensees, right to do so. Canceling a buyer agency The buyer’s agent wrote an offer on a regardless of agency status, the agent contract may violate the broker's rights FSBO that was accepted. The buyer has cannot give advice or opinions regarding under the contract. In that event, the told the agent that he just doesn't want the legal rights and obligations of a broker may demand compensation for to work with the buyer's agent any more party, the legal effect of a contract or the damages sustained as a result of the because he doesn't want to pay the 2.4 conveyance, or the status of title to a cancellation. The broker's damages, in percent commission. Will the buyer’s property, per § RL 16.05. The agent general terms, might include reimburse- agent earn the success fee stated in the may give a general explanation of the ment for expenses incurred by the bro- WB-36? provisions in approved forms when ker, for example, mileage, newspaper The WB-36 buyer agency agreement completing or delivering a contract to a advertisements and a reasonable amount provides for property protection. (See party. for the broker's time and services. lines 167-171.) In the case where the The buyer's agent, based upon the A licensee who coaches a seller about buyer’s agent submits an offer to pur- agency relationship created by the buyer how to terminate a listing or a buyer chase, that property will automatically agency agreement, may draft the offer, about how to terminate a buyer agency be protected for one year after the buyer any counter-offers and any other trans- contract may be accused of license law agency contract terminates. If the offer actional documents needed by the buyer and ethical violations and sued in court had not been submitted, then the and seller. Buyer's agents working with for damages. Such conduct may be buyer’s agent would have had to submit FSBO sellers must be sure to give the viewed as giving legal advice in violation the property description to the buyer no seller an agency disclosure form indicat- of § RL 24.06(1) and Article 13 of the later than three days after expiration of ing that the buyer is the agent's client. If Code of Ethics. It also may be seen as the buyer agency contract in order to the FSBO seller is not comfortable with interference with the other broker's protect the property. this arrangement, the seller may draft his agency contract in violation of Article 16 If the buyer cancels the buyer agency or her own transactional documents or of the Code of Ethics. A person who agreement and closes the transaction, hire an attorney to handle this task. interferes with a contract may also be sued in civil court if damages can be the buyer’s agent earns his fee. If the ¤Termination of Buyer Agency proved. buyer and seller agree to cancel the offer A REALTOR® is working with a buyer. to purchase but then the buyer buys the The REALTOR® found out that the property during the protection period buyer has a buyer agency agreement Buyer’s Broker’s on his or her own or working with with another broker, who has not done Compensation another agent, the buyer will still owe anything for the buyer. The REAL- The buyer’s broker earns the success fee the buyer’s broker’s fee per the WB-36 TOR® told the buyer that the buyer if the buyer, or any person acting on compensation provisions. Since this agency agreement may be canceled. The behalf of the buyer, acquires an interest property is protected under the WB-36 buyer has a friend who tried to do this in property or enters into an enforceable in the current situation, the buyer will and was sued by the agent. If the buyer contract to acquire such an interest dur- owe the buyer’s agent his fee, regardless cancels the buyer agency contract, can ing the term of the WB-36. This is true of who writes the offer or who is procur- the broker sue the buyer? even if the buyer’s agent did not help ing cause. Buyers have the power to revoke a buyer locate the property and was not involved agency contract at any time. This is in negotiations, and even if the property ¤Providing Services for a FSBO Seller because an agency contract, such as the purchased does not fall within the prop- What information and advice can the WB-36, is a personal service contract erty description parameters outlined at broker give a FSBO seller? Can the bro- based upon a special relationship of trust the beginning of the WB-36.

WISCONSIN REALTORS® ASSOCIATION 7 Legal Update, September 2005 This provision parallels the commission sation will be reduced by any amount the most effective manner of assuring provisions in the DRL-approved listing received from the owner or owner's that the fee is paid. However, the buyer contracts, which do not require the list- agent. If no selection is made, the bro- is concerned first and foremost with pur- ing broker to procure the buyer in order ker may accept compensation from chasing the property. The buyer's agent to earn a commission. Similarly under the owner or owner's agent. However, should serve the best interests of his or the WB-36, the buyer’s broker’s fee is the buyer's broker is not authorized to her client by assisting the buyer in due if the buyer purchases a property unilaterally determine who will pay his achieving both goals as expeditiously as during the term of the WB-36 regard- or her fee. Some buyer's agents add possible. less of whether the buyer worked with additional protections for the buyer by the buyer’s agent, seller’s agents or oth- indicating that the buyer's agent's Buyer Pays Buyer’s Broker’s Fees ers in that transaction. total compensation will be whatever The buyer may choose to simply pay all can be collected from the seller or sell- or part of the buyer’s broker’s success SOP 1-13 provides that, "When er's agents. This is perfectly legal and fee out of pocket as an additional cost of entering into buyer/tenant agree- ethical. his or her purchase. This may happen in ments, REALTORS® must advise some FSBO transactions when the potential clients of: 1) the REAL- buyer drafts the offer to provide for the TOR®'s general company policies Collecting the Buyer's seller to pay the buyer’s broker’s fee and regarding cooperation and compensa- Broker's Fees the seller declines. tion; and 2) any potential for the There is no legally preferred method buyer/tenant representative to act as a for the payment of buyer's broker's 4 PROS AND CONS: The buyer is disclosed dual agent, e.g. listing bro- fees. A buyer's broker's fee may be generally better off if the listing broker ker, subagent, landlord's agent, etc." paid by the buyer, the owner or seller or the seller pays the buyer’s broker’s SOP 1-4 provides that "REAL- (if authorized in the WB-36), the fee because otherwise the buyer’s bro- TORS®, when seeking to become a owner or seller's agent (e.g., the list- ker’s fee may become an additional buyer/tenant representative, shall not ing broker, if authorized in the WB- purchase expense for the buyer, mislead buyers or tenants as to savings 36), or by a combination of these. increasing the buyer’s overall cost of or other benefits that might be real- These options all involve various pros acquisition. If the buyer pays the fee ized through use of the REALTOR®'s and cons for the parties and the bro- and there is a listing broker in the services." kers. transaction, the listing broker may benefit by receiving a commission that Accordingly, the buyer needs to be Some brokers find that things may go was originally intended to compensate educated by the buyer's broker about more smoothly if the listing broker both the listing broker and a cooper- agency relationships, compensation pays the buyer's broker's fees as a ating broker. alternatives and possible consequences commission split. That way, there is before he or she can make informed generally no need to restructure the Listing Broker Pays Commission choices and decisions regarding the transaction to accommodate the pay- buyer's broker's compensation. The Split ment of the fee. If the listing broker A commission split from the listing bro- broker should help the buyer under- can or will not pay the buyer's bro- stand how different compensation ker may arise from the buyer’s broker’s ker's fee, the buyer may then seek pay- acceptance of the listing broker’s offer of amounts and collection strategies ment from the seller. In other situa- might play out before setting the cooperation and compensation made tions such as a FSBO transaction, the through the MLS, from a policy letter buyer's broker's compensation and buyer may have to directly pay the fee before an offer to purchase is written. agreement between the listing and if the seller declines to do so. The buyer’s brokers, or by a specific com- The buyer and the buyer's broker buyer's broker may receive part of his pensation agreement that the two bro- agree contractually upon the buyer's or her fee from the buyer and part kers have entered into for the particular broker's fees. At lines 24-25 the from the listing broker or seller. transaction. Payment in these situations buyer's broker and buyer may indicate Company policy cannot dictate the is dependent upon the buyer’s broker whether or not the buyer's agent may buyer's approach when it comes to the meeting the standard of performance accept compensation from the owner payment of the buyer's broker's fee. that must be met before the buyer’s bro- or the owner's agent. If the buyer The buyer is the one who is ultimately ker is entitled to compensation. In the agrees to this, the amount the buyer responsible to pay the buyer's broker's MLS, that standard is procuring cause. owes for the buyer's broker's compen- fee and therefore is entitled to choose

WISCONSIN REALTORS® ASSOCIATION 8 Legal Update, September 2005 4 PROS AND CONS: Payment by cause will likely be avoided because the expense. Payment by the seller is an the listing broker benefits the parties seller’s contractual obligation to pay the advantage to the buyer’s broker because they are not directly involved buyer’s broker’s fee is not subject to because the buyer’s broker does not and do not have to make any addi- procuring cause unless it is specifically have to meet a performance standard tional payments or monetary conces- stated in the offer. as a pre-condition to receiving the fee, sions. This is a familiar process for the and payment will typically be received SOP 16-16 indicates that REALTORS® brokers and generally works smoothly immediately at closing. For the seller, may not use the terms of an offer to pur- unless there is a dispute over whether on the other hand, this is an addition- chase to attempt to modify the listing the buyer’s broker has met the appli- al cost which decreases the seller’s net broker’s offer of compensation to sub- cable standards entitling him or her to proceeds. Accordingly, sellers who agents or buyer’s brokers. It also forbids the offered compensation. receive an offer with such a provision the submission of an offer contingent may react in various ways. 4 PROS AND CONS: If a dispute upon the listing broker’s agreement to arises, it is generally handled through modify the offer of compensation. For Seller Responses to Fee Payment local board arbitration if the parties example, a buyer’s broker may not sub- themselves cannot find a solution. mit an offer which is contingent upon Provisions The seller must be permitted to make an The drawback for the brokers is that the listing broker reducing the commis- informed decision regarding how to they must contend with the strain and sion received from the seller by the respond to a provision in the offer ask- expense of going through the local amount offered to subagents on the ing the seller to pay the buyer’s broker’s association’s mediation and/or arbi- MLS, and contingent upon the seller fees. The listing broker’s job is to edu- tration process. Even if the buyer’s paying the buyer’s broker’s fee. This cate the seller about agency relationships broker prevails, payment of a success would violate Article 16 of the Code of and broker compensation alternatives, fee may be delayed several months. Ethics. and to discuss the advantages and disad- The drawback for the buyer may be A buyer may, however, ask the seller to vantages of various options for the seller. that if the buyer’s broker has failed to pay the buyer’s broker’s fee as part of the meet the performance standard enti- terms and conditions in the offer to pur- SOP 1-12 provides that, “When enter- tling him or her to compensation ® chase. This payment would become a ing into listing contracts, REALTORS from the listing broker, then the seller’s expense paid at closing from the must advise sellers/landlords of: 1) the buyer will have to pay the buyer’s bro- ® seller’s proceeds. This payment by the REALTOR ’s general company policies ker. seller is an economic adjustment only regarding cooperation with and com- and does not create an agency relation- pensation to subagents, buyer/tenant Seller’s Payment of Buyer’s Broker’s ship between the seller and the buyer’s agents, and/or brokers acting in legally Fees broker. It is similar to the case when the recognized non-agency capacities; 2) The buyer may draft his or her offer to buyer’s offer provides for the seller to the fact that buyer/tenant agents or purchase to provide for the seller to pay pay the buyer’s mortgage points or clos- brokers, even if compensated by listing all or part of the buyer’s broker’s fee. ing costs, except in this case, the expense brokers, or by the sellers/landlords may For example, this may happen if the being paid is the buyer’s broker’s fee. represent the interests of buyers/ten- compensation offered by the listing bro- Because this request for payment is ants; and 3) any potential for listing bro- ker is less than the amount of compen- made between the parties to the offer – kers to act as a disclosed dual agents, e.g. sation due to the buyer’s broker under by the buyer to the seller – there gener- buyer/tenant agents.” the WB-36. ally will be no Article 16 violations. The The seller does not set the buyer’s bro- This also may happen if the buyer’s bro- brokers are not parties to this agreement ker’s fees, but may certainly choose what ker anticipates a procuring cause dis- because they are not the parties to the provisions are acceptable in the offer to pute. If a buyer who is party to a WB-36 offer to purchase. This is not an agree- purchase or other real estate acquisition has been working with seller’s agents in ment between the buyer and the listing contract. The seller is entitled to negoti- locating a property yet returns to the broker or an agreement between the ate whatever is in his or her best inter- buyer’s broker to have him or her write seller and the buyer’s broker. ests, and is not bound by the listing bro- the offer, the buyer’s broker may fear ker’s or buyer’s broker’s compensation 4 PROS AND CONS: Payment by that the seller’s agent the buyer worked the seller benefits the buyer because preferences or policies. with will claim procuring cause. If the the buyer will not have to pay the The seller may agree to a provision in seller pays the fee, the issue of procuring buyer’s broker’s fee as an additional the offer to purchase asking the seller to

WISCONSIN REALTORS® ASSOCIATION 9 Legal Update, September 2005 pay the buyer’s broker’s fee if the seller listing broker might end up with noth- fees and preserve the seller’s net pro- is anxious to sell the property. The seller ing. However, the Code of Ethics in ceeds. For example, a seller receives an may counter out the fee provision if the SOP 17-4 may operate to protect the offer for $200,000 conditioned upon seller is confident that other good offers listing broker’s remaining commission. the seller paying the buyer’s broker’s will be received. The seller may agree to fees in the amount of $5,000. The seller If a cooperating broker claims to be pay the fee and ask the listing broker to may choose to counter at $205,000 if procuring cause in this type of situation, reduce his or her commission by a like the seller’s desired sales price is the matter may be addressed in local amount. The seller also may counter the $200,000. association arbitration. SOP 17-4(2) offer to increase the purchase price, applies if the buyer’s Broker B was paid PROS AND CONS: Payment by counter the offer to delete the fee provi- 4 by the seller, and listing Broker A has the seller benefits the buyer’s broker, sion and try to convince the buyer’s reduced the commission owed by the who receives his or her payment, and agent to accept the compensation seller before the cooperating Broker C the listing broker, who receives what offered by the listing broker, or the sell- appears and claims to be procuring some may consider to be a windfall: a er may make some other response. cause. Under SOP 17-4(2), Broker C commission that may have contem- u Seller Just Pays Buyer’s Broker’s Fees may initiate arbitration directly against plated compensation for both the list- buyer’s Broker B without having to ing broker and a cooperating broker. The seller may just agree to pay the involve listing Broker A. If cooperating The seller’s proceeds are substantially buyer’s broker’s fee if the seller is wor- Broker C does bring arbitration against protected although the slight distor- ried about losing the offer or must sell listing Broker A, Broker A can name tion of the purchase price will result in immediately due to an emergency situa- Broker B as an additional party without slightly higher costs for financing, tion. having to go through the consolidation transfer fees, percentage commissions 4 PROS AND CONS: Payment by process. If cooperating Broker C does and fees, insurance, and title insur- the seller benefits the buyer because prove that he or she is procuring cause, ance. The buyer essentially ends up the buyer will not have to pay the the compensation paid to buyer’s paying the buyer’s broker’s fees via buyer’s broker’s fee as an additional Broker B may be awarded to cooperat- the increase in the purchase price. expense, but it causes the seller to pay ing Broker C, with listing Broker A u Counter Out Buyer’s Broker’s Fee an additional cost, decreasing the sell- keeping the reduced commission they Provision er’s overall net proceeds. Payment by received from the seller. the seller is an advantage to the The seller may counter the offer to 4 PROS AND CONS: This approach buyer’s broker who does not have to delete the buyer’s broker’s fee provision is disruptive for the seller and the list- meet a performance standard as a pre- and try to convince the buyer’s agent to ing broker who have to modify the condition to receiving the fee, and accept the compensation offered by the listing contract, but the seller is payment will typically be received listing broker. This action is often pleased to have no net impact on his immediately at closing. intended to avoid adjustments to the total proceeds. The listing broker listing contract and the offer and to try Seller Pays Fees and Listing Broker would usually prefer to directly com- u to place the buyer’s broker in the Reduces Commission pensate the buyer’s broker and have procuring cause arena where only the the compensation subject to procur- broker who procured the buyer will be The seller may agree to pay the buyer’s ing cause. The buyer’s broker will typ- paid. The seller may be willing to count- broker fee and ask the listing broker to ically enjoy this outcome, however, er out the fee provision if the seller is amend the listing contract to reduce the the fee he or she receives from the confident that other good offers will be listing broker’s commission by a like seller may be challenged if another received. amount so that the seller will come out broker can prove he or she is procur- even. The seller does not want to pay, ing cause. 4 PROS AND CONS: The seller for example, a 6 percent commission to might risk losing the buyer by coun- the listing broker plus 3 percent to the u Counter the Offer to Increase the tering the fee provision in the offer, buyer’s broker. If the listing broker Purchase Price but that assumes that the buyer does agrees to reduce the commission to off- When a seller is asked to pay the buyer’s not really want the property or is set the seller’s payment of the buyer’s broker’s fees as a condition in the offer unwilling to find a different way to broker’s fee, and a selling broker then to purchase, some sellers may choose to pay the fees. The buyer and the arrives on the scene and claims to be counter the offer and increase the pur- buyer’s broker may have to consider procuring cause, it may seem that the chase price to cover the buyer’s broker’s whether other payment arrangements

WISCONSIN REALTORS® ASSOCIATION 10 Legal Update, September 2005 may be acceptable. Countering the broker's fee pursuant to Article 16 of the compensation in MLS is 2.4 percent. fees payment provision preserves the Code of Ethics and National Association The buyer's agent has written in the monetary parameters planned for by of REALTORS® (NAR’s) Case offer that the seller agrees to pay the the seller and the listing broker as to Interpretation #16-12. The buyer may buyer's agent 2.4 percent of the purchase price range, seller’s net proceeds, and condition the offer upon the seller pay- price. Is this in addition to the 2.4 per- compensation to the cooperating bro- ing the buyer's broker's fee on behalf of cent that the listing broker is offering in ker. the buyer as a seller's expense at closing. the MLS? However, the buyer's broker must have Reduce Purchase Price Yes. The buyer's agent may receive 2.4 u been authorized by the buyer in the percent from the seller and 2.4 percent If the seller resists paying the buyer's WB-36 to accept compensation from from the listing broker for a total of 4.8 broker's fees, the buyer may make an the owner or the owner's agent to com- percent. Even if that is not what the offer based upon a net purchase price, ply with § RL 24.05(1). buyer’s broker intended, it is always best that is, a price computed by deducting ¤Fee Negotiation to clarify this in writing. The proper pro- the amount of the buyer's broker's fee An offer was received from a buyer’s cedure would be for the buyer’s broker from the price the buyer would other- broker. The property is currently listed to contact the listing broker and express, wise offer. This may cause the seller and at a 6 percent commission with a 50 per- in writing, that the buyer’s broker is listing broker to adjust the listing com- cent split to cooperating agents. In waiving off the compensation offered in mission. Addendum A it states that the buyer’s the MLS. broker rejects any offer of compensation 4 PROS AND CONS: The buyer offered by the listing broker and that the ¤Additional Compensation basically comes out even when the May a buyer's broker draft an offer to seller agrees to pay at closing, on behalf buyer pays the buyer’s broker’s fees purchase that requests the seller to pay of the buyer, the buyer’s broker fee equal- but reduces the price by the same an additional percentage of the sales ing 3.5 percent of the final sales price. amount. The seller is receiving less price to the broker's company at the time After a couple of counter-offers, negoti- money and the seller’s net proceeds of closing and still receive the compensa- ations are at a standstill. The listing will be diminished unless the listing tion paid by the listing broker via the broker maintains that the seller can broker reduces the commission due MLS? by the same amount. This is viewed dictate the fee or get the by some as undesirable because it dis- buyer’s broker to change the fee. The An agent may receive commission from torts the actual purchase price for pur- buyer’s broker does not agree – he sug- multiple sources. The WB-36 buyer poses of financing, transfer fees, per- gests that the seller just increase the agency agreement may be negotiated so centage commissions and fees, insur- price. How to proceed? the buyer will pay the buyer agent a suc- cess fee. This amount may be reduced ance, and . This is a matter of negotiation. The sell- by amounts the broker receives from the er can (a) choose to accept the provision seller or the listing broker. If the success Legal Hotline Questions & for the buyer’s broker’s fee and cover it fee is in excess of the amount paid by the out of the sale proceeds, (b) accept the Answers – Buyer Agency seller and the listing broker, the buyer provision for the buyer’s broker’s fee Compensation will be obligated to pay the remainder of and ask the listing broker to amend the The following questions concerning the success fee. listing contract to reduce the listing bro- buyer agency compensation were asked ker’s commission, (c) counter out the of the WRA Legal Hotline. Buyer's brokers should be clear when provision for the buyer’s broker’s fee, drafting offer to purchase provisions to ¤ Seller Pays Buyer's Broker Fee (d) offer to pay a different amount to specify whether the amounts being paid The seller received an offer drafted by the buyer’s broker, (e) raise the purchase pursuant to the offer are in addition to – a buyer's agent. The offer included an price to cover the requested fees, and/or or in place of – the compensation addendum asking the seller to pay the (f) make some other response. The sell- offered by the listing broker. The buyer's brokerage fee and rejecting the er cannot dictate the buyer’s broker fee buyer's broker should advise the listing MLS offer of compensation. Can a because that is set in the buyer agency buyer's broker's compensation be broker directly if the buyer's broker is agreement, but the seller can choose addressed in this manner in an offer waiving off the compensation offered by what he or she wants to agree to during to purchase? the listing broker. offer negotiations. A buyer's broker may ethically suggest ¤ One-Party Listing Not Necessary or recommend that the buyer ask the ¤Waiving Off the MLS Compensation An agent is working as a buyer’s agent seller to pay some or all of the buyer's A broker has a listing and buyer agency on a FSBO transaction. Can the agent

WISCONSIN REALTORS® ASSOCIATION 11 Legal Update, September 2005 require the seller to pay a fee directly? Appendix II to Part Ten – Arbitration inconvenience of a procuring cause dis- Should the agent enter into a one-party Guidelines – Sample Fact Situation pute. This may be successful in the short listing? Analysis, provides the following example run, but there is no guarantee that a of a typical procuring cause arbitration cooperating broker or the listing broker § RL 24.05(1) provides that a real estate scenario involving a subagent and a won’t pursue the cooperating commis- licensee may accept a fee or compensa- buyer’s agent: sion in local association mediation or tion related to a transaction from a non- arbitration. If the other broker can prove client with prior written consent of all “Fact Situation procuring cause, the buyer’s broker may the parties. A buyer’s agent may provide Listing Broker L placed a listing in the lose the fee that was originally paid at real estate brokerage services for the sell- MLS and made an offer of compensa- closing. er in a FSBO transaction. Because tion to subagents and buyer’s agents. agency authority is created by the WB- SOP 17-4 defines certain non-contrac- Broker S (a subagent) showed Buyer #1 36, it is not necessary to enter into a tual disputes as subject to the duty and the property several times, most recent- one-party listing with the seller in order privilege of arbitration. In the case ly two days before the successful offer to to negotiate with a FSBO seller. where the seller paid commission to a purchase was written by Broker B (a Arguably it is not in the seller’s best buyer’s broker pursuant to the offer to buyer’s broker). At the arbitration hear- interest to create a multiple representa- purchase, the listing broker reduced the ing, Buyer #1 testified she was not dis- tion. Depending on the facts, to enter amount of the commission due from the satisfied in any way with Broker S but into a one-party listing just to negotiate seller, and a second cooperating broker simply decided that "I needed a buyer’s commission from the seller arguably appears on the scene and claims to be agent to be sure that I got the best may place the agent’s interest ahead of procuring cause, the two cooperating deal." that of the parties to the transaction. brokers may arbitrate for the cooperative commission. (One was paid indirectly ¤ Limited Service/MLS Compensation Analysis: The Hearing Panel should A buyer's agent writes an offer on a consider Broker S's initial introduction through the seller, and the other wants property that has a For-Sale-By-Owner of the buyer to the property; that Broker direct payment from the listing broker.) S had remained in contact with the (FSBO) sign in the front yard but is • SOP 17-4(2) listed in the MLS with a limited-service buyer on an ongoing basis; and whether broker. Can the agent write in the offer Broker S's efforts were primarily respon- SOP 17-4(2) provides that non-contrac- that he would like a higher commission sible for bringing about the successful tual disputes that are subject to Article to be paid by the seller on behalf of the transaction. Unless abandonment or 17 arbitration include situations “Where buyer? estrangement can be demonstrated, a buyer or tenant representative is com- resulting, for example, because of some- pensated by the seller or landlord, and A buyer's agent may negotiate the thing Broker S said or did (or neglected not by the listing broker, and the listing buyer-agency fee in the WB-36 buyer to say or do but reasonably should broker, as a result, reduces the commis- agency agreement. The buyer may then have), Broker S will likely prevail. sion owed by the seller or landlord and, negotiate the offer to purchase to have Agency relationships are neither synony- subsequent to such actions, another the seller pay the buyer-agency fees on mous with nor determinative of procur- cooperating broker claims to be the behalf of the buyer. Whether a buyer's ing cause. Representation and entitle- procuring cause of sale or lease. In such agent might be able to negotiate direct- ment to compensation are separate cases the complainant may name the first ly with the seller depends on the terms issues. (Amended 11/99).” cooperating broker as respondent and and conditions of the listing. With the arbitration may proceed without the list- For an in-depth discussion of procuring listing broker's consent, a buyer's agent ing broker being named as a respon- cause, see Legal Update 02.04 may negotiate with the seller directly dent. Alternatively, if the complaint is (www.wra.org/LU0204), particularly and enter into an agreement to provide brought against the listing broker, the the Transaction Timeline on page 13. non-brokerage services to the seller for a listing broker may name the first coop- fee. erating broker as a third-party respon- Arbitrable Commission dent.” Disputes Buyer Agency and • SOP 17-4(5) Procuring Cause Some buyer’s brokers may encourage the buyer to ask the seller to pay the Previously, the interpretation of SOP Buyer’s brokerage does not trump buyer’s broker’s fee if there is concern 17-4 did not allow the listing broker to procuring cause. The NAR Code of hat another broker may be procuring play the role of the second cooperating Ethics and Arbitration Manual, in cause or in order to avoid the delay and

Wisconsin REALTORS® Association 12 Legal Update, September 2005 broker and arbitrate against the first be arbitrated. According to the 2005 ¤ Buyer Agency Does Not cooperating broker for the selling side of Code of Ethics and Arbitration Manual, Equate with Procuring Cause the commission. A new addition to SOP if the seller agreed to pay the 3 percent A buyer looked at a property listed on 17-4 permits arbitration in such situa- in the offer and the listing broker the MLS with a co-broke agent, but now tions to determine if the cooperating reduced the listing commission by the wants to hire another agent from a broker paid by the seller or the listing same amount, the listing broker would third firm as a buyer's agent. Can this broker is procuring cause. be able to later arbitrate for the 3 per- agent work as a buyer's agent and earn cent under the newly adopted SOP 17- the compensation offered on the MLS SOP 17-4(5) relates to situations where 4(5). even though the co-broke agent intro- a buyer or tenant representative is com- duced the property to the buyer? pensated by the seller or landlord, and ¤Procuring Cause and Agency not by the listing broker, and the listing Disclosure The issues of buyer agency and procur- broker, as a result, reduces the commis- Re: Buyer agency. If buyer agency is not ing cause are independent. The agent sion owed by the seller or landlord and, disclosed when the agent makes the show- may enter into a buyer agency agree- subsequent to such actions, claims to be ing appointment and an offer is then ment and work with the buyer as a the procuring cause of sale or lease. In written, is any compensation due the client, but whether the agent will receive such cases, arbitration shall be between agent? the compensation offered on the MLS the listing broker and the buyer or ten- § RL 24.07(8)(a) requires that a buyer’s will depend upon procuring cause. ant representative, and the amount in agent disclose his or her status upon first Buyer agency does not trump procuring dispute is limited to the amount of the contact with the listing agent. A failure cause – the buyer's agent will not be reduction of commission to which the to make a timely disclosure of buyer procuring cause just because he has a listing broker agreed. agency, however, generally does not pre- buyer agency relationship. The buyer's clude compensation under a procuring agent can draft the offer, but the buyer Legal Hotline Questions & cause analysis. may end up paying the buyer's broker's Answers – Buyer Agency and fee directly to the buyer if the buyer's ¤Procuring Cause as Contractual agent is not procuring cause. Procuring Cause Standard The following questions concerning the A buyer’s broker wants the offer to pur- Before the buyer enters into the buyer interplay between buyer agency com- chase to provide that the seller agrees to agency agreement, the agent should pensation and procuring cause were pay the buyer’s broker fee on behalf of the explain to the buyer that choosing buyer asked of the WRA Legal Hotline. buyer. The listing broker believes this is agency may increase the cost of the a problem because of procuring cause. If transaction for the buyer – the buyer ¤ SOP 17-4(5) the offer contains this provision, can the may have to pay the buyer’s broker’s fee An agent met her customers at a new offer be countered to say that this pay- in addition to the customary transaction home site and showed them the listed ment would be subject to procuring costs. Failure to explain this to a buyer home. The next day an agent from cause? Would this be an impermissible client is arguably a failure to disclose another company showed the buyers the discussion of commission in the offer? material information in violation of Wis. same property and wrote the offer as a Stat. § 452.133 and may cause a viola- buyer's agent. When the buyer’s offer The seller may counter the offer to pro- tion of SOP 1-4 if the buyer is misled indicates that the agent rejects the MLS vide that the seller’s obligation to pay regarding the savings and other benefits offer of compensation and asks for the the buyer’s broker’s fee is subject to of buyer agency. seller to pay a 3 percent buyer agency fee procuring cause, as determined pursuant at closing, how does this get handled? to local association arbitration standards. Conclusion How to proceed with procuring cause? This may cause payment to the buyer’s REALTORS® should carefully educate broker to be delayed if there is another The offer to purchase should be timely their clients about the agency and com- agent claiming procuring cause. presented to the seller in an objective pensation issues they may encounter in and unbiased manner. The listing broker A listing broker also may ask other bro- real estate transactions so that those shall inform the seller of the advantages kers who are not in the MLS to sign pol- clients can make informed decisions. and disadvantages of the offer including icy letters agreeing to have all compen- Brokers should make sure that they are the provisions relating to payment of the sation determined and paid according to properly authorized to perform the job buyer agency fee. procuring cause standards. the buyer wants done. Buyer agency is an extremely effective business model Article 17 of the Code of Ethics allows when it is used responsibly as a tool for for certain non-contractual disputes to buyer representation in a transaction.

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Pre-License October 10-13, 2005, Broker, Madison November 7-10; 14-17, 2005, Sales, Madison This Legal Update and other January 16-19, 2006, Broker, Milwaukee Updates beginning with 92.01 can be found in the Real Estate Continuing Education members-only legal section October 4, 2005, 2005-2006, CE3, Janesville of the WRA Web site at: October 4, 2005, 2005-2006, CE1 & 2, Appleton www.wra.org. October 6, 2005, 2005-2006 CE 1 & 2, Madison October 6, 2005, 2005-2006 CE 1 & 2, Brookfield - WICPA A subscription to the Legal October 10, 2005, 2005-2006 CE2 (commercial), Madison Update is included in all October 11, 2005, 2005-2006 CE3 & 4A, Appleton association Designated October 18, 2005, 2005-2006 CE1 & 2, Green Bay REALTOR® dues. October 19, 2005, 2005-2006 CE1 & 2, Richfield Designated REALTORS® October 20-21, 2005, 2005-2006 CE1, 2, 3 &4A, Mosinee receive a monthly publica- October 25, 2005, 2005-2006 CE3 & 4A, Green Bay tion package including the October 26, 2005, 2005-2006 CE3 & 4A, Richfield Legal Update, and other November 2, 2005, 2005-2006 CE3 & 4A, Madison November 3, 2005, 2005-2006 CE4A, Janesville industry-related materials. November 9, 2005, 2005-2006 CE 3 & 4A, Brookfield - WICPA REALTORS® and Affiliate December 1, 2005, 2005-2006 CE 2 & 1, Madison members may subscribe to December 7, 2005, 2005-2006 CE 2&1, Brookfield - WICPA the Designated REALTOR® publication package for $30 annually. Sales and Marketing & Management Non-member subscription October 19-20, 2005, QuickStart Module 1 & 2, Madison October 26-27, 2005, ABR Course, Eau Claire rate for the package is $130 November 3-4, 2005, QuickStart Module 3 & 4, Madison annually. Member subscrip- January 23-26, 2006, GRI Course 2, Lac du Flambeau tion price for the Legal January 25-26, 2006, Lac du Flambeau Update is $25, February 21-24, 2006, GRI Course 2, Madison non-member price is $75. February 21-24, 2006, GRI Course 3, Madison Each subscription includes February 23-24,2006, RS201, Madison 12 monthly issues. February 23-24, 2006, RS202, Madison February 22-23, 2006, ABR, Madison Contact the Wisconsin February 21, 2006, ABR Elective, Madison REALTORS® Association February 23-24, 2006, RLI Tax Deferred 1031 Exchanges, Madison to subscribe: February 21, 2006, CRS Elective - Earn More. Work Less by Russer February 22, 2006, CRS Elective -Bridging the Marketing Generation Gap 4801 Forest Run Road, February 23, 2006, - REM101 Suite 201, Madison, February 24, 2006, Property Management - REM102 WI, 53704-7337

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Wisconsin REALTORS® Association 14 Legal Update, September 2005

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(Sponsored since 1994) 1

0 E&O program underwritten by the XL Insurance -

3 companies through Greenwich Insurance Company and Indian Harbor Insurance Company. 05091