Agency Agreements. Important Terminology. OVERVIEW OF THE REAL ESTATE TRANSACTION Many real estate transactions have to weather

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1 3 Agency Agreements Chapter Overview This chapter reviews three state-approved agency agreements: the WB-1 Residential Listing Contract; the WB-4 Condominium Listing Contract; and the WB-36 Important Terminology closing excluded properties protected buyer Buyer Agency/Tenant Representation Agreement. Licensees must be comfortable with the forms and the contractual obligations created by them. OVERVIEW OF THE REAL ESTATE TRANSACTION Many real estate transactions have to weather complications. Good real estate licensees are able to maneuver through the complications and a majority of the time avoid them all together. Licensees must practice competently which includes drafting approved forms to accomplish the intent of the parties and having a clear understanding of the laws affecting real estate practice. As in all journeys there is a beginning and an end. The real estate journey begins at different times depending on the relationship between the broker and their respective party and, if all goes well, ends at closing. The Buyer There are several ways buyers make initial contact with a real estate licensee. The contact may be through a phone call to the real estate company, meeting a real estate agent at an open house or through a referral from a friend. At some point the licensee must have a discussion with the buyer regarding agency relationships. In the pre-agency stage where the broker is neither a subagent nor representing the buyer, an agency discussion is not required at that time because an agency relationship does not exist. However, written agency disclosure must be completed at some time even if the parties started in the pre-agency stage. When the buyer chooses a type of relationship written agency disclosure must be provided. If the buyer chooses to be a client and signs the buyer agency agreement the agency disclosure statement is included. If the buyer chooses to be a customer the licensee will present the broker disclosure to customer agency form. During the process, the licensee and buyer will discuss the characteristics of the property they are seeking and whether they are qualified for a loan or have spoken to a lender. If the buyers have not spoken with a lender they should be directed to do so before they find their dream home and discover it is out of their price range. In addition to discussing financing qualifications the buyer should speak with a provider of homeowner s insurance. Occasionally it may be difficult to obtain homeowner s insurance, often it is due to the location of the property (e.g. floodplain). Buyers should speak with an insurance representative early in the buying process. 31

2 REAL ESTATE SALES After determining the type of property a buyer is seeking, the search is on. Eventually motivated buyers are ready to draft the offer. Drafting the offer takes time depending upon the complexity of the transaction. Often in a residential transaction the buyers attach a prequalification letter from the lender to provide some piece of mind to the seller regarding financial standing. The prequalification letter is provided by a lender to state the borrower has prequalified for a certain loan. Sellers like the prequalification letter because it lets them know the buyers have spoken to a lender. However, the parties should not be misled, just because a buyer has produced a prequalification letter does not mean there is a 100% guarantee they will receive that loan. The offer is submitted to the seller. Once presented, an offer can be accepted, rejected or countered. An accepted offer is signed by the parties and then delivered back to the buyer by the date specified in the offer. A rejection is noted on the offer and delivered back to the buyers; there is not a specific time frame that this needs to occur. The countered offer should be properly initialed on the last page and a completed WB-44 Counter-Offer delivered back to the buyers along with the offer to purchase. The counter process may go back and forth several times until eventually there is acceptance or rejection. Chapter 10 addresses the offer to purchase while Chapter 12 addresses the counter-offer and other approved forms. The Seller The seller in a real estate transaction has different needs. One of the first steps in working with a seller is educating them on the real estate market. Typically this occurs through a market analysis. The seller and real estate licensee then discuss how to market the property. After signing the listing contract, the listing broker begins to actively market the property. For instance, marketing may include advertising in the MLS as well as several other locations from the newspaper, company Web site to social networking sites. Hopefully, a buyer drafts an offer sooner rather than later. Presumably a buyer submits an offer to seller. Assuming the offer is accepted, the next step is to work on removing any contingencies found within the offer and the delivery of earnest money. The licensee is responsible for managing the contingencies including compliance of the contingencies. If the buyer/seller is not able to meet a contingency but would like to continue with the transaction, the licensee is responsible for drafting the appropriate amendments to ensure enforceability of the contract. Licensees need to understand the complexities of the different contingencies. Contingency language may seem very simple on its face but is in fact legal language that can carry quite a punch to uneducated licensees, buyers or sellers. The Closing Once the contingencies are removed the parties are ready to go to closing. The closing is the consummation of the real estate transaction; it is where the mortgage funds are given to the buyer and the legal title is exchanged for payment of the purchase price. After the parties are certain that all pertinent documents are signed and that title has transferred, the documents are recorded in the public records to ensure continuity of title. The role the licensee plays in the closing varies according to local custom. In Wisconsin what is referred to as a closing meeting, may be conducted. The closing meeting, or face-to-face closing, occurs when the parties sit around a single table and pass all of the closing documents back and forth. In addition to the buyers and sellers, a closing meeting may involve the real estate licensees, the attorneys representing the parties, the buyer s lender and a representative of the title company. 20

3 Agency Agreements - 3 Regardless of how closing occurs there are certain issues that the buyers and the sellers need to have resolved either at the closing, or prior to the closing. The biggest concern for the sellers is receiving proper payment for the property at closing. Buyers however have different issues, some include: 1. Receiving clear, unencumbered title. 2. Receiving the seller s deed. 3. Making sure all required repairs are completed. 4. Receiving leases and agreed upon rent proration, if any, on the property. If all goes well at closing the buyers and sellers sign the closing statement, the buyers sign the mortgage documents and the sellers sign the deed. In short, the buyers give the sellers a check for the property and in return receive keys to the property. AGENCY AGREEMENTS There are rules concerning who has the right to deal with a buyer or seller that has a valid agency agreement with another licensee. Sellers All negotiations must go through the listing broker unless there are extreme circumstances and the listing broker is not available. Buyers Buyers in a buyer agency agreement have more flexibility when negotiating. The WB-36 Buyer Agency/Tenant Representation Agreement is exclusive only in the sense that the buyer cannot enter into a buyer agency agreement with another broker relating to the same properties. In the unmodified buyer agency agreement there is no exclusivity in locating or negotiating an interest in a property for the buyer. Therefore, if a buyer has an unmodified WB-36 agreement with a broker, the buyer is free to directly negotiate offers with other brokers or property owners. State law prohibits a licensee from negotiating with a buyer if that buyer has an existing buyer agency agreement with another broker AND has been modified giving the buyer s broker the exclusive right to negotiate on behalf of the buyer. Licensees approached by buyers under a WB-36 agreement should caution the buyer to check the agreement provisions to determine whether the buyer may work with other licensees and, if so, whether the buyer is still obligated to pay the buyer broker s success fee. If the WB-36 agreement has not been modified, the buyer will be responsible for payment of the broker s fees if they purchase or acquire an interest in a property covered under the agency agreement, regardless of whether the buyer s agent was involved in the transaction. Finally, licensees are not obligated to ask the buyer if they have a buyer agency agreement or whether that agreement contains an exclusive right to negotiate. However, in practice, many brokers do honor a WB-36 agreement and decline to work with a buyer who is under such an agreement. This is a professional and courteous practice. 413

4 REAL ESTATE SALES A listing contract is an employment contract where a principal employs an agent to market the property. A personal service contract is based upon a special fiduciary relationship of trust and confidence in the broker. In an exclusive right to sell listing contract the listing broker earns a commission regardless of who procures the buyer to the listed property. The exclusive right to sell listing can be modified to create other types of listings such as exclusive agency, open and one-party listings. The only DRL-approved listing type is the exclusive right to sell. WB-1 RESIDENTIAL LISTING CONTRACT-EXCLUSIVE RIGHT TO SELL Licensees are responsible for knowing which form to use in a transaction. The DRL states licensees should use the form that requires the lease amount of modification. The WB-1 Residential Listing Contract should be used when listing a residential property. Line 1 Introduction This line identifies the form as an exclusive right to sell listing contract. The top of the form states that the form is approved by the DRL. All of the state-approved forms discussed during the course, also referred to as the WB forms, are provided during the license exam as reference documents. The optional use date and mandatory use dates are listed below the approval language. When the state forms are rewritten the state provides a time frame for licensees to have the option to use the new form. Once the mandatory date arrives all licensees must use the form. Lines 2-4 Property Description The blanks ask for a property s street address, which will generally be a sufficient description. A complete legal description is unnecessary if the street address adequately describes the property. For example, 123 Any Street in the City of Here, County of Now, Wisconsin. One item that should NOT be inserted is legal description to follow in the lines where the street address or a legal description would be provided. If there is no sufficient real estate description the contract will be void under Wis. Stat (1), and seller will not have to pay commission. Line 5 List Price This is stated as a specific price. Both the amount should be written out and then the numerical value inserted in the parenthesis. If the two ever contradict, the written amount controls over the numerical value. For example, Two Hundred Fifty Thousand Dollars ($250,000). 42

5 Agency Agreements - 3 Lines 6-9 Included in List Price Terms of Listing This section specifies what is included in the list price. As defined in the Definitions section on Page 4 Property is the real estate described in the Property Description section. So, the list price includes the Property. The items inserted on lines 7-9 presumably are the personal property items that the seller wishes to leave behind once the property is purchased. The items may include any number of personal property items such as a snow blower, lawn mower, furniture, television, etc. Lines Not Included in List Price The information that is stated on lines are the items not included in list price, this includes the property the Seller is taking. Essentially the seller should list fixtures seller plans to take when moving out. The terms of the offer to purchase will determine what property is ultimately included or excluded in the transaction. Generally, a fixture is an item of property which under certain circumstances may be treated legally as personal property but which has become so attached to land or buildings, or is used in such close association with the land or buildings, that it is treated as a part of the land. A prudent broker should make sure seller understands the offer terms determine what property is included or excluded in the transaction. Stating property inclusions and exclusions in the listing helps seller determine what property is available and has been included in list price. Fixture is defined Page 4 on lines Following the general description of fixture, lines are the items deemed fixtures under the contact. It is imperative licensees have a full understanding of what items fall into the definition of fixture. The CAUTION on lines discusses rented fixtures. This section reminds seller to list fixtures that are rented by seller and are accordingly owned by someone else. This addresses water softeners or other water conditioning systems, home entertainment systems, satellite dish components, LP tanks, etc. The seller should carefully consider property that has several components or pieces where some pieces may appear to be fixtures, while other pieces seem to be personal property. For example, the home theater which includes a projector, projection screen and all of the component parts. 435

6 REAL ESTATE SALES If the seller sorts out what is staying and what is going and writes it down in the listing, then the agent should check the listing inclusions and exclusions against those in any submitted offer. The listing contract really only expresses what seller is willing to have included in the offer and still have it meet acceptable terms. The MLS or office data sheet only reflects what property is available while the offer establishes the parties agreement about personal property. The offer to purchase controls what items are included and/or excluded in the transaction, not the listing contract or the MLS. When a licensee is helping the seller to address the items the seller wishes to include or exclude in the listing, they should pay close attention to the following tips: 1) Ask the seller to make an itemized list. 2) Walk through property with the seller and ask about items detachable or questionable items. 3) Mark the items with tags stating they are excluded (also check the offer to purchase and counter when appropriate). 4) Suggest the seller remove the item and show the house with items that will go with the house. 5) Address rented fixtures such as: water softeners, satellite dishes, LP tanks, satellite receiver boxes and security systems. During this discussion it is also a good opportunity for agents to seek information about the title of the listed property by ordering a search and hold or title report from the title company. This process generally cost a fee, depending on the title company and should be a consideration for the licensee. Another action is to ask the seller to complete a title issues questionnaire. The title issues questionnaire often is provided to the licensees by their company. The title questionnaire asks the seller questions to preempt title concerns such as: recent modifications to the property, easements, boundary lines disputes and other issues that have a direct impact on title. These title issues are discussed in Chapter 8. The purpose of asking the seller about potential title issues at the time of the listing is to provide the buyer good and marketable title at closing. The buyer wants good and marketable title so he may enjoy the property in peace without any legal challenges and have the ability to readily sell the property later. This discussion is to make licensees more aware of title issues, not to encourage licensees to make legal statements about title. Licensees are not permitted to provide legal advice. Lines Marketing In this section the seller authorizes the broker to use reasonable efforts to find a buyer for the property. This section authorizes the broker to market any personal property included in the list price. Depending on the company s individual plan, the marketing may include the MLS, newspaper, broker open houses, open houses, etc. The spaces on lines are provided to list any special financing or incentives offered by the seller which should be included in the broker s marketing strategies. For example, the seller may offer a home warranty, carpet allowance, land contract etc. When marketing properties licensees should avoid providing information regarding lot lines, lot sizes or even room dimensions. A Wisconsin licensee can be found liable for inaccurate statements made by the broker which appear to the buyer. 64

7 Agency Agreements - 3 Wisconsin law provides that an inexperienced buyer should be entitled to rely on factual statements made by a professional. Licensees should use general disclaimers on all advertisements including information datasheets to avoid the presumption that all statements made by a licensee have been verified. Disclaimers may not provide certain and absolute protection in all cases. Mistakes by licensees may lead to: lawsuits for damages, rescission of the transaction and/or possible filing of disciplinary complaints with the DRL. To avoid these situations licensees should: 1) Never walk the parcel or lot lines with a buyer and should caution sellers that they will be legally liable to the buyer if they show them the wrong boundary or lot lines; 2) Encourage buyers to get a survey map; 3) Licensees should specifically attribute data used in advertisements, to its source or risk potential liability for the accuracy of the data. For example: lot size as per seller, acreage as per city assessor, square feet as per tax record, etc. Lines Occupancy This section is borrowed from the offer to purchase. The idea is to alert seller early on that property needs to be broom swept with all debris and personal property removed at closing so that buyer may move in without having to deal with the seller s stuff. This section also reminds the seller that occupancy of the property is to be provided to the buyer at the time of closing unless otherwise agreed. Lines Cooperation, Access to Property or Offer Presentation Seller agrees they will cooperate and work with other agents, including subagents and buyer s brokers, except as specified on lines This section specifies cooperation includes access for showings and submission of offers as required by and regulated by the administrative rules. Information to be inserted on the blank lines may include the names of any brokers, their agents, or buyers that seller states shall not be allowed to attend showings and any specific terms of offers that should not be submitted. On line 33 the seller is cautioned that limiting the listing broker s cooperation with other brokers may reduce the marketability of the property. Information included on lines is provided by the seller only, not information suggested by the licensee. The ability for the seller to exclude a broker from cooperation is not an opportunity for the listing broker to keep certain brokers out of the transaction. A broker inserts exceptions only at the direction of the seller. Most likely, if the broker independently included such information it would be deemed an antitrust violation. 457

8 REAL ESTATE SALES Lines Exclusions This section addresses buyers and other persons whose acquisition of the property does not earn a commission for the current listing broker. The Exclusions section essentially serves two purposes: 1) the seller s excluded buyers and 2) addresses the previous listing broker s protected buyer list. The discussion of protected buyers is created by three different parts of the form: Exclusions lines 34-36; Extension of Listing lines and definition of Protected Buyer lines If the property has been listed previously with another broker, the previous listing broker may have buyers that are protected. To determine what parties are protected buyers sellers would review the definition of Protected Buyer on lines If a protected buyer purchased the property, only the previous broker would earn the commission. Therefore protected buyers protect the previous broker s commission. According to line 36, when the seller lists with a new broker, the seller has seven days to get the previous listing broker s protected buyer list to the new listing broker. If one of the previous listing broker s protected buyers contacts the new listing broker about the property, the new listing broker should direct the protected buyer back to the previous listing broker. If that protected buyer purchases the property the new listing broker receives no commission, only the previous listing broker would be paid. Even if the seller does not provide the list to the new broker the buyers are still protected, the intent of providing the seller a time frame is to keep them informed in the process. Also the listing contract is with the seller and the listing broker, not the previous listing broker and the new listing broker. The last sentence in the Exclusions section refers to a provision that permits the sellers to name certain buyers who are excluded from the listing. This provision is intended to permit sellers to exclude family members, neighbors and other potential buyers with whom the seller has previously negotiated without the brokers participation. For licensees the naming of an expiration date (on line 37) is encouraged so that the exclusion does not run for the duration of the listing contract term. As per lines 38-39, if the seller accepts an offer to purchase from a named excluded buyer or the seller sells (deeds) the property to the named excluded buyer by the stated deadline the listing broker does not earn a commission. Sellers recruited by the listing broker that were previously For Sale By Owner (FSBO) often make the most use of the Exclusions section. The Protected Buyer discussion continues in the Extension of Listing section on lines

9 Agency Agreements - 3 Lines Commission This section provides for payment of a commission and how it is calculated. Commission is not a requirement of an agency relationship. If desired, a licensee could provide brokerage services for free. If this occurred then the commission would be stated as $0.00 on line 40 of the listing. The parties can agree to any form of commission structure, as long as it s legal and permissible under company policy. Line 40 provides a blank line for the broker to state whether commission is a percentage of the purchase price, a set amount or other compensation. Various commission structures are used; for example, retainer fee, hourly wage, variable rates, etc. An example of variable rates: if the property is sold in-house the commission is 4%, if it s sold by a co-broker the rate is 3%. Commission rates are established by the firm. Typically, commission is stated at a percentage of the purchase price. The law does not require a specific maximum or minimum amount to be charged. Commissions are earned at one point and are paid at closing or the date set for closing, unless otherwise agreed to in writing (lines 54-55). The listing broker earns a commission (lines 42-49) if any of the five occur during the term of the listing: 1) Seller sells or accepts an offer which creates an enforceable contract for the sale of all or any part of the Property; 2) Seller grants an option to purchase all or any party of the Property which is subsequently exercised; 3) Seller exchanges or enters into a binding exchange agreement on all or any part of the Property; 4) A transaction occurs which causes an effective change in ownership or control of all or any part of the Property; or 5) A buyer is procured for the Property by Broker, by Seller, or by any other person, at no less than the price and on substantially the same terms set forth in this Listing and in the standard provisions of the current WB-11 Residential Offer to Purchase, even if Seller does not accept this buyer s offer. 49

10 REAL ESTATE SALES If the commission is earned under: (1) the seller creates an enforceable contract. Typically an enforceable contract means all of the contingencies have been met, waived or removed and the parties are waiting for the closing date to arrive. If the seller (2) grants an option to purchase all or any part of the property and it is subsequently exercised, at any time in the future, the listing broker may claim commission. If during the term of the listing (3) the seller exchanges or enters into an agreement to exchange all or part of the property then the listing broker may claim commission. (4) transaction occurs which causes an effective change in ownership or control of all or any part of the property. For example, a corporation, LLC or some other business entity or organization owns the property and the majority corporate stockholder or LLC member sells to another person. The person or persons with voting control over the disposition of the property has changed. Typically (5) means that if a buyer writes an offer for the list price or higher, cash and with no contingencies even if the seller rejects the offer, the listing broker may make a claim commission was earned. Lines address how to calculate commission depending on the way the broker earned commission. If the broker earned a commission under (1) or (2) the commission is calculated based on purchase price. If the commission was earned under (3), (4), or (5) the commission is calculated upon the listing price. Lines discuss that if less than the entire property is exchanged (3) or an effective change in ownership or control (4) occurs during the term of the listing, that the commission is calculated on the fair market value. Lines reiterates that if one owner of the property sells, conveys, exchanges or options an interest in all or any part of the property to another owner that the listing broker may claim commission, unless it is the direction of a divorce judgment. Lines reminds the seller that a sale, option, exchange or procurement of a buyer for a portion of the property does not terminate the listing as to any remaining Property. This note applies to real estate only, not to any personal property items included in the list price. Lines Compensation to Others The DRL believes it is important that as a matter of consumer protection the seller knows what cooperative commission the listing broker is going to offer to other brokers. Prudent listing brokers should disclose their MLS compensation splits, disclose if they have policy letter compensation agreements with any brokers and let the seller see a copy of policy letters upon request. Prudent practice dictates that they be written in the listing contract, a listing contract addendum or a separate memo to create a uniform procedure within a company and facilitate documentation of compliance. This disclosure is made on lines and the exceptions to the compensation splits, if any, are stated on the second part of line 60. An agent s company will educate them as to the appropriate procedure to fill out this provision. All licensees must exercise great care when responding to commission questions to avoid any suggestion of price fixing. All decisions concerning commissions or fees must be unilateral, independent business decisions made solely within the broker s office, without consultation or discussion with anyone from another real estate firm. 10

11 Agency Agreements - 3 Lines Extension of Listing The discussion of protected buyers began in the Exclusion section on the first page of the form and is also included in the definition of Protected Buyer found on lines This protects the listing broker s right to a commission as to certain buyers for a period up to one year after the listing expired or terminated (line 65). This is not state law but is part of the preprinted contract and may be negotiated. Protected Buyers lines include buyers who during the term of the listing: 1. Delivers to seller or broker a written offer to purchase, exchange or option on the property during the term of this listing; 2. Negotiates directly with seller by discussing with seller the potential terms upon which buyer might acquire an interest in the property; 3. Attends an individual showing of the property or discusses with broker or cooperating brokers the potential terms upon which buyer might acquire an interest in the property. Buyers under 3) are only protected if the broker delivers the buyer s name to seller, in writing, no later than three days after the expiration of the listing. The requirement of 3), to deliver the buyer s name to seller in writing, may be fulfilled as follows: a) If the listing is effective only as to certain individuals who are identified in the listing, by the identification of the individuals in the listing (one-party listing); or, b) if a buyer has requested that the buyer s identity remain confidential, by delivery of a written notice identifying the broker with whom the buyer negotiated and the date(s) of any showings or other negotiations. If the buyer is protected during the term of the listing, the previous listing broker has one year from the date of expiration or termination of the listing that the buyer is protected. Basically, the previous broker has a one-party listing for the protected buyer during the one year period. Before taking a listing, a prudent broker would first determine if the property was previously listed. If there was a prior listing, the listing broker should request a list of protected buyers from the seller and should send a written request to the prior broker if the seller does not respond or is uncertain. As part of this process, a prudent listing broker would explain the listing protection provisions of the listing contract to the seller if needed. If the seller has questions about his legal rights, these questions must be directed to the seller s attorney. The prudent listing broker realizes that whenever the broker takes a new listing, it is necessary to ask the seller about any prior listings, offers and showings and whether the seller has received any lists of protected buyers. Often the current listing broker does not play a role if a previous listing broker s protected buyer becomes involved in a transaction, the previous listing broker takes over the transaction as the listing broker. However, the parties can agree to the contrary. Basically if a protected buyer returns during the new listing, the previous listing broker s contract is revived by the extension provision. The return of the protected buyer does not terminate the current listing, but rather suspends it relating to the previous listing broker s protected buyers. 11

12 REAL ESTATE SALES Protected Buyer example: Seller Sam had his house listed with Lamont Realty for a term of six months. The listing expired. Lamont Realty provided Sam the protected buyer list within three days from the expiration of the listing. This list included the names of Tom and Julia Chase. During the Lamont Realty listing, Tom and Julia Chase had an individual showing of the property with the Lamont Realty listing agent. Because the list was delivered within the three days of expiration, these buyers are protected for one year from the expiration of the Lamont Realty listing. Two months pass and Seller Sam lists his property with Cline Realty. Seller Sam has seven days to provide Lamont Realty s list of protected buyers to Cline Realty. The Cline Realty agent asks Seller Sam if Lamont Realty gave him a list. Seller Sam tells the Cline Realty agent that he was given a list, but has since lost it. Cline Realty contacts Lamont Realty and requests the list. Lamont Realty immediately faxes the list over. One month into the Cline Realty listing term the agent is contacted by Tom and Julia Chase. The Cline Realty agent refers Tom and Julia Chase back to Lamont Realty. Tom and Julia contact Lamont Realty and wish to write an offer on Seller Sam s property. If all goes well, Lamont Realty earns the commission and will be paid at closing. Lines Termination of Listing The listing broker and seller may always mutually agree to terminate a listing contract, however Termination of Listing also addresses unilateral terminations by one party. Lines reaffirms that the parties to the listing are the seller and the broker (firm) and that the agents (salespersons or broker associates) do not have the authority to enter into a mutual agreement to terminate the listing, amend the commission amount or shorten the term of the listing, without the written consent of the agent s supervising broker (lines 68-70). Line 71 requires early termination be indicated in writing. Lines requires any written termination notice be delivered in accordance with definition of delivery and will be effective upon delivery. This is important in terms of knowing when to stop showings, when to remove the For Sale sign and the starting place to count the three days allowed for submitting the names of buyers for listing protection. Once the seller has delivered written notice to the broker that the listing is terminated, the seller is free to list the property with another broker. The first listing broker will have no further rights with respect to the listing, other than any listing protection or established with respect to properly qualified buyers and possible damages for wrongful termination. Brokers receiving written termination notice from a seller may wish to officially document it by Amendment (WB-42) to Listing Contract changing the end of the contract term to the effective date of the termination notice, or by submitting a Cancellation Agreement and Mutual Release (CAMR) WB-45, or by executing a notice letter. When termination is completed with a CAMR, the listing broker will lose its right to protected buyers, unless specific language is included. Lines state that neither party to the listing contract has the legal right to unilaterally (one-sided) terminate the listing without a material breach by the other party. Sellers have the power to revoke a listing contract at any time, however there are ramifications to canceling the contract early unless there is a material breach by the broker. In that event, the broker may demand compensation for damages sustained as a result of the listing cancellation. The listing broker also has the power to cancel the listing contract and the seller may have a claim for damages owed. A broker may insert language in the listing contract to define what happens in the case of an early termination by the client or broker and the amount of damages. Some brokers 12

13 Agency Agreements - 3 add provisions to their contracts specifically describing a procedure for the early termination of the listing. If so, as long as the seller follows the contract provisions for termination, the seller may generally cancel the contract without fear of being charged for any damages. That is not the case, however, if the early termination provision calls for an early termination fee or other specified damages. Generally, the broker s damages might include costs of advertising, reimbursement for other expenses incurred by broker in the process of listing and marketing the property or searching for the property, and the value of services rendered, assuming the broker can sufficiently prove this. Commission will be due only if the broker can prove that it was earned as stated in the contract. If the broker fails to perform according to terms of the listing contract or otherwise fails to act in good faith, then the seller will have the right, not just the power, to terminate the listing contract. If the broker was in breach, the broker cannot claim any damages based upon the early termination. Lines Seller Cooperation with Marketing Efforts This provides the seller with a description of their obligations in cooperating with the broker. The seller agrees to cooperate with the broker in marketing efforts and to provide the broker with all records, documents and other materials in seller s possession or control which are required in connection with the sale. Seller authorizes the broker to do those acts reasonably necessary and seller agrees to cooperate fully which may include use of a MLS, Internet advertising or a lockbox system. Seller shall promptly notify the broker in writing of any potential buyers with whom seller negotiates during the term of the listing and promptly refer all persons making inquiries to the broker. This reiterates sellers are not to go behind the broker s back, but rather provide them with any buyer the seller negotiates with or fields inquiries from. Lines Leased Property This explains the seller s rights under the leases are assigned and all security deposits and prepaid rents are transferred to the buyer at closing, but the seller remains liable under the leases unless released by the tenants. A seller of leased property must have this liability issue pointed out. Often, the landlord states in the lease in the event of a sale and/or transfer of title, the landlord is released from liability under the lease. However, if a landlord has not completed this release, they should consider a separate attorney drafted release agreement signed by the tenants prior to transfer of title. Lines Broker Disclosure to Clients Lines directly relates to the mandatory disclosure language required by the state of Wisconsin discussed in Chapter 1. This section includes the duties owed to all parties, the additional duties owed to a client, the mandatory confidentiality notice, an explanation of multiple representation relationships and lines for the client to indicate the agency model for the broker s participation. 13

14 REAL ESTATE SALES Lines Real Estate Condition Report Lines Seller Representations Regarding Defects These two sections directly relate to the Chapter 709, Seller Disclosure Law that establishes seller disclosure obligations relating to real estate. The Real Estate Condition Report (RECR) and seller representations discussed in Chapter 4. Lines Open House and Showing Responsibilities Seller is responsible for preparing the property for an individual showing or open house to minimize the likelihood of personal injury, property damage or theft. Seller s responsibility includes securing valuables, prescription drugs and eliminating safety hazards. However, line 178 provides brokers are liable for their own acts of negligence or intentional wrongdoing. Prior to an open house, agents should always inspect the premises for hazards and warn all people entering the home of any potential problems. For example, a broker is liable if he accidentally trips a potential buyer who sprains his ankle, or bumps into the china cabinet and breaks a plate. A broker may also be liable if he fails to warn a potential buyer of a known or dangerous condition existing on the property, such as a shaky handrail or an icy front walk. Line 181 informs the seller that buyers have the right to photograph or videotape property unless otherwise provided for in the additional provisions or an addendum to the listing contract. Line 181 also permits buyers or licensees to be present at all inspections and testing of the property. For example, the home inspection. Lines Definitions The listing contract contains definitions relating to the terms and provisions used within the contract. The following is a discussion emphasizing certain terms. Lines Deadlines-Days This defines the term days and how one would calculate deadlines. This definition become important in calculating the three days listing broker has to provide the seller the protected buyer list after the expiration of the listing. 14

15 Agency Agreements - 3 Lines Delivery Unfortunately delivery did not make its way into the listing. The legalities of e-commerce are complicated and no one was able to come up with a solution for language authorizing delivery for the listing that was agreeable to the DRL. While Wisconsin law seems to be manageable, the major obstacle to a simple and easy solution seems to be the fact that the federal e-commerce law requires electronic consent when certain documents are required by law to be in writing. This would include the listing contract and any amendments thereto because Wis. Stat requires a legally enforceable contract for payment of commission in a real estate transaction to be in writing. This also includes documents such as a RECR and the lead based paint (LBP) disclosure. There is no law that requires a list of protected buyers or a notice of termination to be in writing and, accordingly, it would seem that at least those documents could be delivered via . The listing contract requires the termination and list of protected buyers to be provided in writing, however, these are contractual obligations, not requirements of state or federal law. For proper consent to participate in delivery for all documents, 1) every contract needs an agreement to participate in delivery and 2) the buyer and seller needs to first consent electronically by to participate in e-commerce. Licensees should check with company policy before participating in e-commerce. Basically two steps need to be accomplished: 1) an addendum with every contract to the transaction agreeing to delivery signed by the appropriate parties. (e.g. the listing, buyer agency and offer) 2) electronic consent by from buyer and seller agreeing to delivery. A helpful resource is Lines Fair Housing Lists the protected classes on lines and is addressed in Chapter 5. The seller must understand the broker will not discriminate in advertising or treatment of potential buyers and will terminate the listing should the seller discriminate. Lines Earnest Money If the broker is holding the earnest money, seller authorizes the broker to disburse earnest money held in the trust account as directed in a written earnest money disbursement agreement signed by or on behalf of all parties having an interest in the trust funds. The existing offer lists different means allowed under Wis. Admin. Code RL

16 REAL ESTATE SALES It would seem the seller s authorization in the listing is much narrower and does not encompass the multiple safe harbor disbursements permitted under RL 18.09, which would seem to control the listing broker s options as far as earnest money disbursements rather than any seller authorization in the listing contract. Earnest money is discussed in Chapters 10 and 14. Traditionally the listing broker holds the earnest money. Lines discuss if the money is disbursed to seller then the money shall be first paid to reimburse the broker for cash advances made on behalf of seller and one half of the balance, but not to exceed the amount of commission agreed to if the transaction would have closed. This payment of the money to the broker does not terminate the listing. For example, the transaction failed to close because the buyer breached. One of the seller s remedies is to keep the earnest money. The listing broker may be able to claim a portion of that money for the cash advances made on behalf of the seller. However the broker is limited on how much they may take; one half of the balance and never more than what they would have received if the transaction closed. Lines Additional Provisions The blank lines on are provided to insert any other information which could not be fully expressed in earlier lines, special conditions or requirements of the seller. Examples: no yard sign, mortgage information for assuming a mortgage, disclosure that the listing agent is the child of seller, etc. Lines Addenda If the licensees s company or seller has addenda, such as a survey of the property, this is the place to make it a part of the listing contract by naming it and attaching it. Lines Notice About Sex Offender Registry This is included to help the licensee meet a disclosure requirement of providing the Department of Corrections telephone number and internet address in writing when asked about the presence of sex offenders. This disclosure discussion is included in Chapter 4. Lines Term of the Contract The term is the exact period during which the property is listed for sale with the listing broker. The term is not required to begin on the same date that the contract is signed. If the listing is signed before the term begins, then the broker is not actually representing the client until the term begins. An example of how this section is completed is the 20th day of June, 2009 to the 10th day of June, Lines Reading/Receipt This provision informs the seller that by signing the contract the seller acknowledges receipt of a copy of the contract and reviewed all five pages and any other documents attached to the listing contract that are properly incorporated. 16

17 Agency Agreements - 3 Lines Signatures and Contact Information The agent for the broker signs on behalf of the broker. Wis. Stat (1) states that for a valid agency agreement the agreement must be signed by the person agreeing to pay such commission. Therefore the seller is not legally obligated to sign the listing, only the person agreeing to pay commission. A real estate contract is considered signed if the contract includes any handwritten signature or symbol intended by the person affixing the signature or symbol to be an execution of the conveyance. The addresses and fax numbers provided authorizes delivery. Even though there is a blank line for the seller s address, the completion of that line does not authorize delivery for documents required to be in writing under the law (i.e. listing contract, amendments, real estate condition report, lead-based paint attachments, etc.) If the seller and listing broker wish to have as a form of delivery for the listing contract, an addendum agreeing to add as a form of delivery must be incorporated and the seller must consent electronically via . 17

18 REAL ESTATE SALES WB-4 RESIDENTIAL CONDOMINIUM LISTING CONTRACT The condominium listing contract is substantially based on the WB-1 residential form. However, condominium forms do contain features unique to the sale of condominiums. Those features are the focus of the following discussion. Licensees should review the condominium declaration and other condominium documents for clarification on what is included with the particular unit, such as the common element amenities, limited common elements, what the monthly assessment payments includes and other services and amenities that may involve separate charges. Lines 2-9 Property Description On lines 4-5 insert the unit number or any way the unit is specifically identified, the building in which the unit is located and lastly the name of the condominium. 456 Right Here Avenue in the city of Madison, County of Dane, Unit #601 (Building A) of The Riverfront Condominium. Lines 5-9 clarifies that in addition to the unit the property also constitutes the seller s interest in the common elements appurtenant to the Unit, together with and subject to the rights, interests, obligations and limitations as set forth in the declaration and condominium plat (and all amendments to them). Lines Property Included/Not Included in List Price A definition of fixtures is on lines Personal property that is included in the list price is indicated on lines Items not included in the list price are indicated on lines which typically are fixtures the seller would like to take with them. Lines also include in the sale the seller s interest in any common surplus and reserves of the condominium allocated to the unit, and all fixtures not excluded on lines The common surplus and reserves are often viewed as association property and used to offset common expenses or capital improvement. The association dues previously paid by the owner typically remains with the association, unless prorated or the condominium documents declare otherwise. 18

19 Agency Agreements - 3 Lines Limited Common Elements Any fixtures outside of the unit included in the sale must be specifically listed as additional items included in the list price. For example, a privacy fence on lines limited common elements assigned to the unit or awning installed on a limited common element such as a patio should be listed. The condominium declaration has a complete list of the limited common elements. Line 20 Storage Unit. STORAGE UNIT: A storage unit (is) (is not) STRIKE ONE included in the List Price; Unit number:. Th li it d l t i d t th U it i l d This is a place to indicate if an additional storage unit is included with the sale. If the seller is unsure then the condominium declaration should clearly state the ownership rights. Line 23 Parking Some condominiums require that parking spaces be purchased separately or leased from the association, while other condominiums may automatically include parking spaces as part of the unit or a limited common element. The first blank line indicates whether parking rights are included with the unit or are separately rented or purchased. The number or letter designation of the parking space(s) being transferred with the unit, or available for rent or purchase, is addressed as well. Such as, parking space 123 located in heated underground parking structure directly below building, or parking space B located in the adjoining parking lot. The second blank line is to include any parking fee, if known. Line 24 Association Fee In a condominium, the association levies assessments or sets the amount of money owed by each unit owner for the payment of the condominium s common expenses. These assessments are usually payable on a monthly basis, although may vary allowing condominiums to have different payment schedules. An example, $250 per month. Lines Right of First Refusal The right of first refusal in a condominium is most often used giving the association the first right to buy the unit upon the terms and conditions offered by a bona fide third-party buyer. Typically, the association has the right to match the price, terms and conditions offered. If a buyer submits an offer to the seller and the association has a right of first refusal, a meeting is convened by the association to decide whether the association wishes to match the terms of the buyer s offer and buy the unit, or let the prospective buyer purchase the unit. The association s right of first refusal must be disclosed to buyer, in writing, prior to submitting their offer. If the seller cannot confirm whether there is a right of first refusal, the condominium declaration should be reviewed. The right of first refusal terms and conditions may be given to the potential buyers. 19

20 REAL ESTATE SALES Lines Seller Cooperation with Marketing Efforts On lines 90-99, the seller agrees to give the listing broker copies of documents in addition to the condominium disclosure materials that the seller is obligated to provide to the buyer. Most lenders and title companies routinely request a statement setting forth the amount of any unpaid assessments on the unit being sold. The buyer is not liable for any unpaid assessment against the seller in excess of the amount reported by the association on this statement. If the association or the association board of directors does not provide the statement within 10 business days of the buyer s request, the association cannot file any additional assessment liens for any unpaid assessments following the day of the buyer s request. Lines Condominium Disclosure Materials State law requires seller provide the buyer with a copy of the condominium disclosure materials no later than 15 days prior to closing (lines ). Chapter 4 discusses condominium disclosure obligations and specific documents. This section provides a list of all the documents that are part of the condominium disclosure documents. If the seller is not able to provide the requested documents, the seller should be referred to an attorney. Listing brokers may wish to provide in the listing that the seller s attorney is responsible for the delivery of the disclosure materials or that the attorney will review the materials for accuracy. Also the buyer may wish to have their attorney be the recipient of the disclosure documents as to alleviate some of the pressure of getting those documents to the buyer s attorney with enough time for the five business day right to rescind. Lines Real Estate Condition Report Lines add, When the Property is a condominium unit, the property to which the real estate condition report applies is the condominium unit, the common elements and any limited common elements that may be used only by the owner of the condominium unit being transferred. 20

21 Agency Agreements - 3 WB-36 BUYER AGENCY/TENANT REPRESENTATION AGREEMENT Except for the insertion of the word buyer for seller, several portions of the WB-36 are the same as the WB-1. Due to the similarities of the language those portions will not be discussed. Lines 1-5 Broker the Sole Authority to Act for Buyer as a Buyer s Agent The buyer gives the broker the exclusive right to work as the party s one and only buyer s agent to locate and negotiate the procurement of an interest in property. No one else can be a buyer s agent for the buyer with respect to the properties subject to the WB-36. Example: the WB- 36 is drafted to authorize the broker to look for only residential properties in the Fox Valley. The buyer can enter into another buyer agency with another broker to look for a vacation property in Door County or a commercial property in Milwaukee. How to Modify the Agency Authorization to Create Different Business Model 1) Exclusive Right-to-Locate-and-Negotiate: Strike the phrase to act as buyer s agent on line 2 of the WB-36. 2) Exclusive Right-to-Locate: Line out and to negotiate the procurement of an interest in property in lines ) Exclusive Right-to-Negotiate: the phrase to locate an interest in property and may be lined out on line 2. Lines 6-9 Note This language emphasizes the buyer is under contract to pay the buyer s broker s fee if a property interest is acquired that falls within the terms of the agency agreement. Line 10 Purchase Price This information may be stated as a range. For example, $250,000 to $275,

22 REAL ESTATE SALES Lines Excluded Properties The WB-36 does not describe, in general terms, the property subject to the agreement and subject to the broker s authorization to act. Instead, the broker s authorization to act extends to all property except for the property excluded in the Excluded Properties section. Brokers start with the assumption that all property everywhere is subject to the agreement and then whittle that down by stating what is excluded. If buyer acquires an interest in a property listed in the Excluded Properties section, buyer s broker will not earn his fee. If a buyer s agent is aware that a buyer has seen a property prior to entering into the buyer agency agreement the buyer s agent would be wise to discuss the possible commission issues that might arise from the prior showing. The broker may consider excluding these properties from the agency agreement to avoid disputes later on. The following is a discussion of various situations where the buyer s agent would seriously consider placing a property in the Excluded Properties provisions. A. Properties Seen with another Buyer s Broker These properties might be excluded because the buyer had previously negotiated with the owner of the property, or had been shown the property by a buyer s agent. If the other agent was a buyer s agent, there may be a buyer agency agreement between the other agent and buyer that is still in effect as to that property or the property might be a protected property under an expired contract. B. Properties Seen with a Subagent or Seller s Agent If the licensee previously worked with buyer as an agent of seller, different rules come into play. Under (2) of Wisconsin s agency law, an agent must disclose all material information to the broker s client. If the buyer s agent was aware that the buyer had been shown a property prior to entering into the buyer agency agreement, the buyer s agent would arguably have a duty to disclose the commission issues which might arise from the other agent s prior showing. The simplest solution is to exclude the property from the second WB-36. As a side note, if the licensee showed the buyer a property as a subagent or agent of listing broker, and now the buyer wishes to enter into a buyer agency agreement, the licensee would need to inform the seller and listing broker they have entered into that buyer agency agreement with the buyer. This is done by the buyer s agent because when the property was shown to the buyer the licensee owed the duties of loyalty to the seller and now the licensee effectively is to switching sides by signing the WB-36 and the buyer becoming a client. C. Properties under Contract If buyer-client has an option negotiated with another agent or is in the middle of the implementation stage of an accepted offer to purchase, it would be wise for the buyer to also exclude those properties. 22

23 Agency Agreements - 3 How to Fill Out the Form and Correctly Address Excluded Properties To list specific properties excluded from the WB-36, it is best to use a property address (if sufficiently specific) or a legal description. First address the blank line on line 11 regarding the date. The date marks the end of the time period for which the properties are excluded. If there is a protected property from a prior buyer agency agreement the date would be the end of the protection period (one year). If there is just one property listed, typically the date marks the end of the one-year protection period. If there are different properties they may have different time frames and it may become problematic to determine the time frame. Buyer s agents may need to create an addendum with a list of specific excluded properties and their corresponding end dates. Licensees should take caution that if a property type is not indicated in the Purchase Price section, the Excluded Properties, in an addenda or additional provisions, the buyer could challenge the sufficiency of the agreement and avoid paying the buyer s broker s fee. Describing the Property Type Via Exclusions 1) One approach is to use the exclusions to create some absolute general limits for the overall buyer agency agreement and then use separate search parameters to focus on those specifics that may change over time. Specific search parameters could be incorporated into the WB-36 as an addendum, with the understanding that the WB-36 will need to be amended to change them. Making all search parameters part of the WB-36 under the Excluded Properties section does more than just set search guidelines it establishes the applicability of the entire agreement. 2) Another approach is to establish specific search parameters with a separate document used as a supplement to the WB-36 but not as an incorporated addendum. Buyer wants a three bedroom home in the Eau Claire area. Absolute exclusions might be properties more than 50 miles from Eau Claire and all properties that are not or cannot be used as a dwelling unit where at least five persons may reside. This would seem to set some basic limits and create a property type, but yet leave room for exploring various options. The buyer s agent could show the buyer a farmette property, house, condo, new construction or vacant lot where a home may be built. Specific search parameters could then be more specific and point the buyer s agent to homes within the Eau Claire Memorial school district with at least three bedrooms, two bathrooms and finished basement. One Specific Property If the buyer wanted the WB-36 to be limited to only one specific property, for example, 456 Great Street Milwaukee WI; the agreement may be completed to indicate that all properties except the specific one identified in the Excluded Properties section are excluded from the agreement. As an alternative, it may be stated in the additional provisions that the agreement pertains only to the identified property and that the broker cannot earn any fees or compensation under the agreement if buyer purchases any other property during term of the agreement. 23

24 REAL ESTATE SALES Lines Compensation The parties agree contractually upon the buyer s broker s fees. The agent should help the buyer understand how compensation amounts and collection strategies might play out before setting the compensation and before writing an offer to purchase. Payment of Compensation The WB-36 provides a place where the parties may indicate whether or not the buyer s agent may accept compensation from the owner or the owner s agent (line 32). As stated on lines if the buyer agrees that buyer s broker may accept compensation from the owner or owner s agent then the amount the buyer owes for the buyer s broker s compensation will be reduced by any amount received from the owner or owner s agent. The WB-36 has 4% success fee and consent to receive compensation from the owner or owner s agent. Ex. #1: Compensation offered by the MLS for co-brokers is 4%. The buyer owes the buyer s broker nothing. Ex. #2: Compensation offered by the MLS for co-broker is 3%. The buyer owes the buyer s broker 1%. Ex. #3: Compensation offered by the MLS for co-broker is 5%. Buyer owes nothing and broker may be able to receive an extra 1%. Some buyer s agents add additional protections for the buyer by indicating that the buyer s agent s total compensation will be, whatever can be collected from the seller or listing broker or whatever is offered in MLS. This is perfectly legal and ethical. However, agents should be aware of scenarios where this may not work. For instance, property that is not in the MLS or a FSBO and the seller refuses to pay the buyer s agent. Often licensees who have a buyer agency agreement believe earning a co-broker split as a buyer s agent is automatic, which is completely false. Another issue involves a buyer-client that contacts the listing agent regarding a property. The listing agent will argue they are procuring cause thus potentially leaving the buyer s agent nothing for the co-broker split. The buyer is responsible for honoring the success fee of the WB-36. Collecting the Buyer s Broker s Fees The buyer s broker fee may be paid by the buyer, owner/seller, owner/seller s agent or by a combination of these, presuming the buyer agency agreement permits. If the listing broker pays the buyer s broker fee, the commission split is an offer of cooperation and compensation made through the MLS or from a policy letter agreement between the two brokers. Payment is dependent upon the broker meeting the standard of performance. In the MLS the standard is procuring cause. On occasion, the buyer may draft his offer to purchase to provide for the seller to pay all or part of the buyer s broker fee. This may happen if compensation offered by listing broker is less than the amount due to the buyer s broker under the WB-36 or if the buyer s broker anticipates a procuring cause dispute. 24

25 Agency Agreements - 3 Lines Broker s Duties This sets forth the minimum standards of performance for the buyer s broker. The buyer s broker must use professional knowledge, skill, and reasonable effort to locate an interest in property for the buyer and negotiate the procurement of the interest in property desired by the buyer. The blank line on 41 is for the buyer s agent to insert any other activities they are willing to do that are above and beyond the minimum requirements. E.g., agreeing to send the buyer a weekly with recently listed properties meeting the buyer s search parameters. Lines Waiver of Confidentiality The buyer may give the agent permission to disclose otherwise confidential information. The last line of this provision reminds the buyer that if they wish to remain confidential during the purchase of a property and give another party the authority to sign documents on their behalf (the form uses the word agent, which does not necessarily mean real estate agent), at some point the buyer s name must be provided. Lines Non-Exclusive Relationship The buyer acknowledges that broker may be acting for other buyers in connection with the location of properties and may negotiate on behalf of such buyers with the owner or owner s agent. This section states that in the event the broker represents other buyers, the broker will not disclose confidential information, unless required by law. Lines Property Dimensions Discloses to the buyer that calculations determining property dimensions may be rounded and vary depending on different formulas used. This section is cautioning the buyer to verify the dimensions or total square footage of a property if it is material to buyer. Lines Definitions If a buyer and buyer s broker would like to use as a form of delivery, certain steps must be taken. Review the definition of Delivery discussion of the WB-1. Buyer on lines includes buyers, tenants, optionees, exchangers, business investors and entrepreneurs, etc. On lines the form defines Person Acting on Behalf of Buyer clarifying that this may include a multitude of people. For instance, a buyer cannot evade payment of buyer s broker s fee just by having his son solely-owned corporation purchase property or obtain interest in property for purposes of later conveying it to the buyer or employing it for his beneficial use. 25

26 REAL ESTATE SALES Lines Term of the Agreement Licensees should pay close attention to lines Buyer s agent and buyer at this point determine if the agreement will continue after the buyer procures an interest in property or if it will terminate. Lines Extension of Agreement Term The Extension of Agreement Term discussion is very similar to the Protected Buyer discussion. However, instead of protected buyer it is referred by the WRA as Protected Properties. Therefore, if the buyer s agent provides a list the buyer within three days of expiration or termination of the WB-36 and the buyer goes back and purchases one of those properties the previous buyer s agent would earn a commission. The property will be protected for one year after the WB-36 ends: 1) If buyer or buyer s broker submits an offer to purchase on a property, that property will automatically be protected. 2) If an offer has not been submitted, then buyer s agent would have to deliver the property description to the buyer no later than three days after expiration of the WB-36 to protect the property. The delivery would need to occur via one of the methods authorized in the Delivery definition of the WB-36. If a buyer-client would wish to go back to purchase a protected property during the one-year extension period, the broker would have the exclusive right to represent the buyer as a buyer s agent in the negotiations for that property. The broker s right to compensation would be determined according to the standards set out in the original buyer agency agreement. There is no automatic exclusion of protected properties from a following buyer agency agreement, as there is with listing protection. If the buyer enters into another WB-36, the WB-36 does not contain preprinted provisions that automatically exclude properties protected under a prior WB-36. The buyer s agent taking the second WB-36 will have to ask the buyer/client about prior buyer agency agreements were any offers to purchase submitted on any properties during the term of the prior WB-36 and did the buyer s broker deliver descriptions of any properties to the buyer no later than three days after expiration of the prior WB

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