Agency Agreements. Real estate transactions are not always a smooth, uninterrupted series of events leading to the

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1 3 Agency Agreements REEB 16 Chapter Overview Licensees use state-approved forms to create agency relationships with clients The agency agreement will depend on the transaction This chapter will cover three state-approved agency agreements: the WB-1 Residential Listing Contract; the WB-4 Important Terminology THE REAL ESTATE TRANSACTION Condominium Listing Contract; and the WB-36 Buyer Agency/Tenant Representation Agreement Licensees must able to competently use approved forms and understand the contractual obligations and relationships parties create when entering into agency agreements Real estate transactions are not always a smooth, uninterrupted series of events leading to the eventual transfer of a property from a seller to a buyer There can be both expected and unexpected complications that disrupt the transaction Good real estate licensees can maneuver through the complications or avoid them all together with a little planning, reliance on resources, and good communication 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 A real estate transaction has a beginning and an end The transaction may begin when a seller lists a house, when a buyer writes an offer, or when a buyer begins looking for a property If all goes well, the transaction ends at closing and the licensee receives a well-earned commission The Buyer closing excluded properties protected buyer A buyer may make initial contact with a real estate licensee with a phone call, meeting at an open house, or through a referral At some point in the relationship, the licensee must discuss an agency relationship with the buyer and a buyer must decide whether to be a client or a customer Before a buyer makes a decision to be a customer or a client, the buyer and the broker are in the pre-agency stage During pre-agency, a broker provides general real estate information to a buyer, such as property characteristics, and may discuss the lending and pre-approval process but does not negotiate or provide opinions and advice Once a buyer starts asking for opinions or advice or asks the licensee to write an offer, the buyer must choose whether to be a client or a customer and the broker must provide agency disclosure If the buyer wants to be a client, the parties execute a buyer agency agreement that contains the necessary agency disclosure If the buyer wants to be a customer, the broker must give written agency disclosure to the customer When buyers start looking for property, they should consult with a lender to determine a price range for the search Buyers also need to consult with a homeowner insurance provider to determine whether challenges, such as a flood plain, will make it difficult to insure the property 39

2 REAL ESTATE SALES Buyers then start looking at properties that fit their specifications and eventually make an offer on a property The process of drafting depends on the complexity of the transaction Often in a residential transaction, the buyers include a pre-qualification letter from a lender with the offer to give the seller some assurance that the buyer will have the funds to complete the transaction A lender provides a pre-qualification letter to a buyer after a review of the buyer s finances It may include an amount for which the buyer is pre-qualified or it may be property specific and include a property s address Sellers like pre-qualification letters because they indicate that the buyer consulted a lender and has a general idea of how much the buyer will be able to borrow to finance the transaction A pre-qualification letter is never a guarantee from a lender that the lender will approve the loan A buyer submits an offer to a seller and a seller accepts, rejects, or counters the offer If a seller accepts the offer, the seller signs it and delivers it back to the buyer by the date specified in the offer When a seller rejects an offer, the seller notes that on the offer and delivers it back to a buyer There is not a deadline for rejecting an offer but if a seller does not act on an offer before the buyer s deadline, the seller cannot later accept the offer and try to enforce it against the buyer If a seller counters an offer, the seller initials the offer on the last page, completes a WB-44 Counter-Offer, and delivers both the offer and the counter-offer to the buyer The use of counter-offers between buyers and sellers may involve several back and forth negotiations until the parties arrive at an accepted offer or a rejected offer This process is covered in Chapter 10 with the Offer to Purchase and Chapter 12 with the Counter-Offer The Seller A licensee s first step in working with a seller is educating the seller about the real estate market A licensee will usually perform a market analysis on a seller s property and discuss listing price and marketing strategies The seller and the licensee sign a listing contract and the broker begins to market the property Marketing may include advertising in a multiple listing service, social networking sites, yard signs, and newspaper advertisements The goal is to attract qualified buyers at or near a seller s listing price After a seller accepts an offer, the buyer and seller being working through the contingencies in the offer and a buyer may deliver earnest money if it is part of the offer Licensees are responsible for managing contingencies and compliance with contingencies If a buyer or a seller is not able to satisfy a contingency, but wants to continue with the transaction, the licensee is responsible for drafting appropriate amendments to address the new circumstances of the offer Licensees need to be able to read, understand, and help parties draft enforceable contingencies Contingency language can seem simple but it creates legal duties, obligations, and standards that parties can ask a court to enforce against another party The Closing Once parties remove contingencies, the parties are ready for closing Closing is the end of the real estate transaction The buyer exchanges the payment of the purchase price in exchange for legal title to the property The parties execute necessary additional documents such as deeds, mortgage contracts, and insurance provisions and the parties record the deed evidencing the transfer in the public records The role of a licensee at closing depends on local custom Licensees do not have to attend closing but many do and the role the licensee plays at closing depends on the customs of the local real estate market In Wisconsin, parties generally have a closing meeting, which is also called a face-to-face closing The parties meet a one location and pass all the closing documents around for the necessary signatures Attendees may include the real estate licensees, parties attorneys, the buyer s lender, and a representative of the title company 40

3 Agency Agreements - 3 Regardless of the closing process, buyers and sellers need to resolve certain closing issues either at closing or prior to the closing A seller needs to receive payment for the property at closing and buyers have other concerns including: 1 Receiving clear, unencumbered title; 2 Receiving the seller s deed; 3 Inspecting the property to make sure the seller repaired any conditions agreed to in the offer; and 4 Receiving leases and agreed upon rent proration, if any, for the property If there are no unsolvable issues at closing, the buyers and sellers sign the closing statement, buyers sign the mortgage documents, and sellers sign the deed The buyers give the sellers a check for the property and the sellers give the buyers the keys AGENCY AGREEMENTS When buyers or sellers have valid agency agreements with licensees, property negotiations should usually be conducted with the licensee, not the buyer or seller directly Sellers If a seller has a valid listing contract, other brokers should address all property negotiations to the listing broker unless the listing broker consents to direct contact with the seller, the listing broker is unavailable, or other similar circumstances compel direct negotiation with the seller For example, if a seller lists a property with a limited service broker, the limited services might not include negotiations and the listing broker may consent to direct negotiation with the seller Buyers When buyers have a buyer agency agreement, negotiations can go through the buyer s agent but buyers can also negotiate without the agent s assistance The WB-36 Buyer Agency/ Tenant Representation Agreement is exclusive because it prohibits a buyer from entering into another buyer agency agreement with another broker for the same properties but it does not prohibit a buyer from seeking out and negotiating independently for properties When a buyer has an unmodified WB-36 with a broker, the buyer can directly negotiate with property owners or other brokers Licensees should not negotiate directly with buyers who have modified buyer agency agreements to give the broker the exclusive right to negotiate on behalf of the buyer If a buyer modifies an buyer agency agreement to give a broker an exclusive right to negotiate on behalf of the buyer, the buyer has agreed to not independently negotiate for properties without the assistance of the broker If a buyer with a WB-36 agreement tries to negotiate directly with a listing or selling agent, the licensee should caution the buyer to check the agreement provisions to determine any restrictions on direct negotiation with other brokers If the buyer has not modified the WB-36, the buyer will owe the buyer s broker s success fee if the buyer purchases or acquires a property covered by the agreement, even if the buyer purchased or acquired property without the assistance of the broker Licensees do not have to ask a buyer if the buyer has an agency agreement or whether the buyer modified the agreement to give a broker an exclusive right to negotiation but common practice and professional courtesy usually guide brokers to decline to work with a buyer with an agency agreement and refer the buyer back to the buyer s broker for assistance 41

4 REAL ESTATE SALES WB-1 RESIDENTIAL LISTING CONTRACT-EXCLUSIVE RIGHT TO SELL A listing contract is an employment contract that a seller, as a principal, uses to employ a licensee, as an agent, to market the seller s property It is a personal service contract based upon a fiduciary relationship of trust and confidence With an exclusive right to sell listing contract, the listing broker earns a commission regardless of who procures the buyer for the listed property A seller can modify an exclusive right to sell to create other kinds of listing contracts such as exclusive agency, open listing, and one-party listings The state-approved listing contract is an exclusive right to sell but sellers can modify the state-approved form to fit the needs of the seller s transaction Licensees must know which form to use for a transaction and there may not be a form that fits the specifics of a particular transaction For example, if a licensee is listing a mixed-use property, the licensee will have to decide whether the residential listing contract or a business listing contract best fits the transaction and use the form that requires the least amount of modification Licensees use the WB-1 Residential Listing Contract when listing a residential property Line 1 Introduction Approved by the Wisconsin Department of Regulation and Licensing (Optional Use Date) (Mandatory Use Date) WB-1 RESIDENTIAL LISTING CONTRACT - EXCLUSIVE RIGHT TO SELL Page 1 of 5, WB-1 1 SELLER GIVES BROKER THE EXCLUSIVE RIGHT TO SELL THE PROPERTY ON THE FOLLOWING TERMS: This line identifies the form as an exclusive right to sell listing contract The top of the form states that the form is a state-approved form All of the state-approved forms have a prefix of WB and a number identifying the form When taking the licensing exam, the test taker will have all of the WB forms during the exam as reference documents All forms have an optional and mandatory use date All licensees must use the form as of the mandatory use date Lines 2-4 Property Description SELLER GIVES BROKER THE EXCLUSIVE RIGHT TO SELL THE PROPERTY ON THE FOLLOWING TERM PROPERTY DESCRIPTION: Street address is: in the of, County of Wisconsin Insert additional description, if any, at lines or attach as an addendum per lines LIST PRICE: Dollars ($ A listing broker fills in the blanks with the street address for the property A street address is usually a sufficient description and a legal description is not necessary unless the street address does not adequately describe the property For example, 123 Any Street in the City of Here, County of Now, Wisconsin A licensee should not fill out this section with legal description to follow because that does not sufficiently describe the real estate, which means the contract is not valid according to Wis Stat 24010(1) and if the contract is not valid, the seller might not have to pay a commission, even if the listing broker procured a buyer for the property Line Wisconsin 5 List Insert Price additional description, if any, at lines or attach as an addendum per lines LIST PRICE: Dollars ($ A licensee includes the specific price at which the seller wants to list the property The list price is written out in words first and then a licensee places the numerical depiction in the parenthesis If the event that the amounts do not match, the written amount will determine the list price For example, Two Hundred Fifty Thousand Dollars ($250,000) ) 42

5 Agency Agreements - 3 Lines 6-9 Included in List Price LIST PRICE: Dollars ($ ) INCLUDED IN LIST PRICE: Seller is including in the list price the Property, all Fixtures not excluded on lines 11-14, and the following items: NOT INCLUDED IN LIST PRICE: CAUTION: Identify Fixtures to be excluded by Seller or which are rented and will In this section, the licensee lists what a seller wants to include in the purchase price of the property The Definitions section on page 4 defines Property as the real estate described in the Property Description section, which does not include personal property The list price includes the Property and the personal property items that a seller includes on lines 7-9 A seller might include items such as a snow blower, lawn mower, furniture, or a television Lines Not Included in List Price NOT INCLUDED IN LIST PRICE: CAUTION: Identify Fixtures to be excluded by Seller or which are rented and will continue to be owned by the lessor (See lines ): On lines 11-14, a licensee lists all the property that a seller does not want to include in the list price This is where a seller lists fixtures the seller wants to remove from the property The terms that a buyer includes in the offer to purchase dictate the final details of the property that is included or excluded A fixture is an item of property that, under certain circumstances may be treated as personal property but that has become so attached to the 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 licensee must make sure a seller understands that the offer terms dictate the items of property a seller can leave and the items that the seller can remove Listing property inclusions and exclusions in the listing contract can help a seller determine what property is available to include in the list price Fixtures are defined on page 4 of the WB-1 on lines Following the general description of a fixture, lines include a non-exhaustive list of items that are fixtures The definition of fixtures may not be readily apparent to buyers and sellers and licensees must help the parties understand the definition of fixture 4) as otherwise agreed in additional provisions on lines or in an addendum to this Listing FIXTURES: A "fixture" is an item of property which is physically attached to or so closely associated with land or buildings so as to be treated as part of the real estate, including, without limitation, physically attached items not easily removable without damage to the premises, items specifically adapted to the premises, and items customarily treated as fixtures, including, but not limited to, all: garden bulbs; plants; shrubs and trees; screen and storm doors and windows; electric lighting fixtures; window shades; curtain and traverse rods; blinds and shutters; central heating and cooling units and attached equipment; water heaters and treatment systems; sump pumps; attached or fitted floor coverings; awnings; attached antennas, garage door openers and remote controls; installed security systems; central vacuum systems and accessories; in-ground sprinkler systems and component parts; built-in appliances; ceiling fans; fences; storage buildings on permanent foundations and docks/piers on permanent foundations CAUTION: Exclude any Fixtures to be retained by Seller or which are rented (eg, water softener or other water conditioning systems, home entertainment and satellite dish components, LP tanks, etc) on lines and in the offer to purchase MATERIAL ADVERSE FACT: A "material adverse fact" means an adverse fact that a party indicates is of such The CAUTION on lines warns a seller to consider rented fixtures such as a water softener The seller does not own these fixtures and does not have the authority to include them in the purchase price so the seller should list them as excluded from the purchase price Rented fixtures might also include theater systems, satellite dish components, or tanks for liquid propane A seller should consider property that has several components where some pieces might seem like fixtures and others are more like personal property For example, a theater system may include installed items like a projector and screen and moveable items like speakers A seller should specify whether the seller will include all components as fixtures or remove them as personal property 43

6 REAL ESTATE SALES After the seller lists the property that a seller wants to include and exclude from the listing price, the seller s listing agent should check offers against the seller s listing contract to see if the documents agree The listing contract lists the property that a seller is willing to have included or excluded from an offer that is acceptable to the seller MLS or office data sheets will list what property is available but the offer to purchase is the parties final agreement about what items are included in the purchase price and what items are not a part of the purchase price When a licensee is helping a seller to decide what items the seller wants to include or exclude from the listing, the licensee should use theses practice tips: 1) Ask the seller to make an itemized list; 2) Walk through property with the seller and ask about detachable or questionable items; 3) Mark the excluded items with tags and check offers and counter-offers with the seller s list of excluded and included items; 4) Suggest the seller remove the item and show the house with items that will go with the house; and 5) Address rented fixtures such as water softeners, satellite dishes, LP tanks, satellite receiver boxes, and security systems When educating a seller about fixtures and included or excluded items in the transaction, a licensee can ask the seller for additional information about the title to the listed property and order a search and hold or title report from the title company or have the seller complete a title issues questionnaire The person ordering a title report from a title company or a search and hold on the title will pay for this service Brokers often have a standard title issue questionnaires for sellers The title questionnaire will ask sellers to answer questions about recent modifications to the property, easements, boundary line disputes, or other issues that have an impact on title Chapter 8 covers title conditions By asking a seller about title issues, the licensee can begin the process of making sure that the seller will provide marketable title at closing Marketable title give a buyer the right to enjoy the property without legal challenges and the ability to sell the property later Licensees must be aware of title issues but should not advise sellers or buyers about the condition of title Licensees cannot give legal advice to parties Lines Marketing MARKETING: Seller authorizes and Broker agrees to use reasonable efforts to procure a buyer for the Property Seller agrees that Broker may market Seller's personal property identified on lines 7-9 during the term of this Listing Broker's marketing may include: Broker may advertise the following special financing and incentives offered by Seller: Seller has a duty to cooperate with Broker's marketing efforts See lines regarding Broker's role as marketing agent and Seller's duty to notify Broker of any potential buyer known to Seller Seller agrees that Broker may market other properties during the term of this Listing OCCUPANCY: Unless otherwise provided, Seller agrees to give buyer occupancy of the Property at time of closing In the Marketing section, the seller authorizes the broker to use reasonable efforts to find a buyer for the property and to market any personal property included in the list price A broker s marketing plan might include advertising in a multiple listing service holding open houses, or placing yard signs On lines 19-20, the broker lists any special financing or incentives that a seller wants to include as part of the broker s marketing strategy A seller might want to advertise a home warranty, a carpet allowance, or seller financing When marketing properties, licensees should not provide information regarding lot lines, lot sizes, or room dimensions but rather refer buyers to other sources Licensees can be found liable for inaccurate statements made to the parties in a transaction 44

7 Agency Agreements Wisconsin law provides that an inexperienced buyer should be able to rely on factual statements made by a professional Licensees should use disclaimers on all advertisements including information data sheets to avoid buyers assuming that licensees have verified the accuracy of statements about the property Disclaimers may not provide absolute protection in all cases and mistakes by licensees could lead to lawsuits for damages, rescission of the transaction, or disciplinary action from the Department of Safety and Professional Services To minimize liability, licensees should: 1) Never walk the parcel or lot lines with a buyer and caution sellers about potential liability if the seller inaccurately represents boundary or lot lines; 2) Encourage buyers to order a survey or map if property dimensions are material to the transaction; and 3) Include the source of data used in advertisements For example, state that the lot size is per seller measurements, acreage as per city assessor, or square feet as per tax record Lines Occupancy to Seller Seller agrees that Broker may market other properties during the term of this Listing OCCUPANCY: Unless otherwise provided, Seller agrees to give buyer occupancy of the Property at time of closing and to have the Property in broom swept condition and free of all debris and personal property except for personal property belonging to current tenants, sold to buyer or left with buyer's consent COOPERATION, ACCESS TO PROPERTY OR OFFER PRESENTATION: The parties agree that Broker will work This language in this section is the same as the occupancy language used in the offer to purchase Sellers need to prepare a property for closing by removing all debris and personal property and broom sweeping the premises A seller must turn over occupancy of a property at closing unless the parties agree to a different occupancy schedule Lines Cooperation, Access to Property or Offer Presentation property belonging to current tenants, sold to buyer or left with buyer's consent COOPERATION, ACCESS TO PROPERTY OR OFFER PRESENTATION: The parties agree that Broker will work and cooperate with other brokers in marketing the Property, including brokers from other firms acting as subagents (agents from other companies engaged by Broker - See lines ) and brokers representing buyers Cooperation includes providing access to the Property for showing purposes and presenting offers and other proposals from these brokers to Seller Note any brokers with whom Broker shall not cooperate, any brokers or buyers who shall not be allowed to attend showings, and the specific terms of offers which should not be submitted to Seller: CAUTION: Limiting Broker's cooperation with other brokers may reduce the marketability of the Property EXCLUSIONS: All persons who may acquire an interest in the under a prior listing contract In this section a broker agrees to cooperate and work with other agents, including subagents and buyer s brokers, unless cooperation would be contrary to the seller s instructions included on lines Broker cooperation means providing access for showings and presenting offers from other brokers to the seller Sellers may provide limitations to a broker s duty to cooperate by including instructions in this section Seller limitations could include prohibiting named buyers and sellers from attending open houses, instructing the listing broker not to engage subagents, present offers from named brokers, or refuse to draft certain offers Line 33 of this section cautions a seller that limiting a broker s ability to cooperate may reduce the marketability of the property Any information limiting a broker s cooperation should come from the seller, not from a broker Suggestions from a broker limiting broker cooperation could be antitrust violations 45

8 REAL ESTATE SALES Lines Exclusions CAUTION: Limiting Broker's cooperation with other brokers may reduce the marketability of the Property EXCLUSIONS: All persons who may acquire an interest in the Property as a Protected Buyer under a prior listing contract are excluded from this Listing to the extent of the prior broker's legal rights, unless otherwise agreed to in writing Within seven days of the date of this Listing, Seller agrees to deliver to Broker a written list of all such prospective buyers The following other buyers are excluded from this Listing until INSERT DATE : These other buyers are no longer excluded from this Listing after the specified date unless, on or before the specified date, Seller has either accepted an offer from the buyer or sold the Property to the buyer COMMISSION: This section specifies buyers whose acquisition of the property will not earn a commission for the current listing broker, which means they are excluded from this listing contract The excluded people consist of two groups: 1) the previous listing broker s protected buyer list; and 2) the seller s excluded buyers If a seller listed a property with one broker and then later listed it with another broker, the first broker may have protected buyers Buyers who a broker can protect are listed in the definition of Protected Buyer on lines If a protected buyer purchases the property, the seller owes a commission to the previous listing broker rather than the current one Protected buyers protect the previous broker s commission When a seller lists a property with a new broker, the seller should give the new broker a list of the previous broker s protected buyers within seven days of the new listing If a previous listing broker s protected buyer contacts the new listing broker about the property, the new listing broker should direct the protected buyer back to the previous listing broker If a seller fails to provide the list of protected buyers to the new listing broker as required by line 37, the buyers are still protected for the previous listing broker The concept of protected buyers discussion continues in the Extension of Listing section on lines The second group of exclusions are seller exclusions These are buyers that may have already negotiated with the seller, seller s family members, neighbors, or other potential buyers for whom the seller does not want to pay a commission if one of those buyers purchases the seller s property Licensees want to make sure that a seller puts an expiration date for seller exclusions on line 37 so that the exclusion does not run for the duration of the listing contract Often sellers who were previously For Sale By Owner (FSBO) will have several exclusions of potential buyers who expressed interest before the property was listed with the current listing broker As per lines 38-39, if the seller accepts an offer to purchase from a named excluded buyer or the seller sells 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 46

9 Agency Agreements Lines Commission unless, on or before the specified date, Seller has either accepted an offer from the buyer or sold the Property to the buyer COMMISSION: Broker's commission shall be Seller shall pay Broker's commission, which shall be earned, if, during the term of this 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 part 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 (See lines regarding procurement) A percentage commission, if applicable, shall be calculated based on the purchase price if commission is earned under 1) or 2) above, or calculated based on the list price under 3), 4) or 5) A percentage commission shall be calculated on the fair market value of the Property exchanged under 3) if the exchange involves less than the entire Property or on the fair market value of the Property to which an effective change in ownership or control takes place, under 4) if the transaction involves less than the entire Property Once earned, Broker's commission is due and payable in full at the earlier of closing or the date set for closing, unless otherwise agreed in writing Broker's commission shall be earned if, during the term of the Listing, one owner of the Property sells, conveys, exchanges or options an interest in all or any part of the Property to another owner, except by divorce judgment NOTE: 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 section describes the different ways in which a broker can earn a commission and how to calculate the amount of the commission Commission is not a requirement of an agency relationship and a broker could donate services or charge a reduced fee If a broker is donating brokerage services, the broker would list the commission as $000 on line 40 of the listing The parties can agree to any form of commission structure that is legal and permissible by the broker s company policy A broker can use line 40 to state whether commission is a percentage of the purchase price, a set amount, or other compensation Sellers and brokers may agree to base a commission on a percentage of the purchase price, a retainer fee, a flat fee, hourly range, or variable rates For example, a broker could charge a 4% commission if the property is sold without the assistance of a co-broker and a 3% commission if a co-broker procures the buyer Brokers establish their own commission rates and policies though commissions are always negotiable with the seller Commonly, brokers base commissions on a percentage of the purchase price and there is not a specific maximum or minimum commission amount A broker earns a commission if one of the events listed on lines occurs but a seller does not pay a commission until closing or the date set for closing, unless the parties agree to another arrangement in writing The listing broker earns a commission (lines 42-49) if any of the five listed events 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 This means that the seller and buyer have an enforceable contract, all the contingencies have been removed, and the parties are just waiting for the closing date to arrive 2) Seller grants an option to purchase all or any part of the Property which is subsequently exercised A broker does not earn a commission when a seller grants an option but if the option is later exercised, the broker earns a commission 3) Seller exchanges or enters into a binding exchange agreement on all or any part of the Property When a seller exchanges property according to the tax rules governing exchanges, there is not a traditional sale of the property but the successful exchange results in a change in ownership for which the broker earns a commission 47

10 REAL ESTATE SALES ) A transaction occurs which causes an effective change in ownership or control of all or any part of the Property A broker may earn a commission under this option if a seller decides to transfer property to an LLC in which the seller is a principal or a seller transfers property to a trust of which the seller is a beneficiary 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 A broker may earn a commission under this section if a buyer writes what is called a mirror offer That means an offer that mirrors the specifications for list price, included and excluded property, and any other provision a seller included in a listing contract For example, a buyer writes an offer for the listing price or higher with no contingencies and a seller rejects it Even though the seller rejected it, the broker earned a commission under this section Lines address how to calculate a commission depending on the way the broker earned it If the broker earned a commission under 1) or 2), the parties use the purchase price to calculate the commission amount If the broker earns a commission under 3), 4), or 5), the parties calculate the commission using the list price If a seller exchanges less than the whole property under 3) or the seller changes ownership or control of less than the whole property under 4), the parties calculate the commission using the fair market value of the portion of the property that the seller exchanged or transferred to the new owner When a property has more than one owner, if any owner sells, conveys, exchanges, or options an interest in all or any part of the property to another owner, the listing broker earns a commission, unless the transfer is due to a divorce judgment If a seller decides to sell, option, or exchange part of a listed property, the remaining property stays listed under the terms of the listing contract Lines Compensation to Others remaining Property COMPENSATION TO OTHERS: Broker offers the following commission to cooperating brokers: (Exceptions if any): As a matter of consumer protection, the Department of Safety and Professional Services wants sellers to know how much compensation a listing broker offers to cooperating brokers Listing brokers should disclose MLS compensation splits, disclose if they have policy letter compensation agreements with any brokers, and share copies of agreements if a seller requests details A listing broker discloses compensation agreements with other brokers on lines and if there are exceptions to the listing broker s compensation agreements, the broker includes those on second part of line 60 A broker s company policy will dictate how listing agents address offers of compensation to other brokers Licensees must be careful when addressing commission questions and policies to avoid an appearance of price-fixing Broker decisions concerning commissions and fees must be unilateral, independent business decisions, made solely within the broker s office, and without consultation or discussion with anyone from another real estate firm 48

11 Agency Agreements Lines Extension of Listing EXTENSION OF LISTING: The Listing term is extended for a period of one year as to any Protected Buyer Upon receipt of a written request from Seller or a broker who has listed the Property, Broker agrees to promptly deliver to Seller a written list of those buyers known by Broker to whom the extension period applies Should this Listing be terminated by Seller prior to the expiration of the term stated in this Listing, this Listing shall be extended for Protected Buyers, on the same terms, for one year after the Listing is terminated The concept of protected buyers begins in the Exclusions section on the first page of the listing contract If a broker has a Protected Buyer according the definition found on lines , then the Extension of Listing section applies to those buyers This means that as to those protected buyers, this listing contract is extended for a period of one year If a protected buyer purchases the property under the listing contract during the extension of listing period, the former listing broker earns a commission even though that listing contract expired The extension of a broker s listing as to protected buyers is not state law but is a contractual right created by the preprinted listing contract Sellers and brokers can negotiate this provision and change the terms by shortening the extension period, limiting who a broker can name as a protected buyer, or other provisions 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 A Protected Buyer is a buyer 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; or 3) Attends an individual showing of the property or discusses with a broker or a cooperating broker the potential terms upon which buyer might acquire an interest in the property To protect buyers who attended individual showings or discussed with the broker or cooperating broker the potential terms upon which the buyer might acquire an interest in the property, the listing broker must deliver the buyers names to the seller, in writing, no later than three days after the expiration of the listing If a buyer wants to remain confidential, a broker can deliver the name of the broker with whom the buyer negotiated and the date of the showing or any other negotiations When taking a new listing, a broker usually asks the seller if the property has been listed before The new listing broker will ask the seller for a list of the previous broker s protected buyers and, if the seller does not have the list, the new broker can ask the previous broker for the list The new listing broker should explain the concept of protected buyers to the seller so that if any of the protected buyers come back to look at the property or negotiate, the seller can refer them to the previous listing broker A current listing broker does not participate in a transaction if the buyer is a previous broker s protected buyer Parties can agree to other arrangements For example, a previous listing broker may be uninterested or unable to assist a protected buyer with an offer The previous listing broker may contact the current listing broker and offer to share a portion of the commission if the new listing broker will assist the protected buyer 49

12 REAL ESTATE SALES Seller Sam signed a six-month listing contract with Lamont Realty When the listing expired, Lamont Realty gave 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, Tom and Julia contact the Cline listing agent The Cline Realty agent refers Tom and Julia Chase back to Lamont Realty Tom and Julia contact Lamont Realty 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 same terms, for one year after the Listing is terminated TERMINATION OF LISTING: Neither Seller nor Broker has the legal right to unilaterally terminate this Listing absent a material breach of contract by the other party Seller understands that the parties to the Listing are Seller and the Broker (firm) Agents (salespersons) for Broker (firm) do not have the authority to enter into a mutual agreement to terminate the Listing, amend the commission amount or shorten the term of this Listing, without the written consent of the agent(s)' supervising broker Seller and Broker agree that any termination of this Listing by either party before the date stated on line 259 shall be indicated to the other party in writing and shall not be effective until delivered to the other Party in accordance with lines CAUTION: Early termination of this Listing may be a breach of contract, causing the terminating party to potentially be liable for damages A listing broker and a seller can mutually agree to terminate a listing contract The Termination of Listing section also addresses unilateral terminations by one party Lines reaffirms that the parties to the listing are the seller and the broker and that a broker s agents 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 that a party who wants to terminate early do so in writing and deliver the notice of termination to the other party according to the delivery provisions found at lines Termination is not effective until delivery, which is important because it starts the three-day deadline for delivering a protected buyer list and marks the time when the listing broker stops showings and advertising the property Once the seller delivers a written notice to a broker terminating the listing, the seller can list the property with another broker The first listing broker does not have additional rights or obligations under the listing contract other than extension of the listing for protected buyers and possible damages for wrongful termination If a broker receives written notice from a seller terminating the listing, the broker can ask the seller to sign a WB-42 Amendment to the Listing Contract changing the end date of the contract, a WB-45 Cancellation Agreement and Mutual Release, or submit a notice to the seller affirming the termination date of the contract If a broker uses a WB-45 Cancellation Agreement and Mutual Release to release a seller from a listing contract, the listing broker will lose the right to extend the listing for protected buyers unless the parties modify the cancellation to state otherwise Lines state that neither party to the listing contract has the legal right to unilaterally 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 50

13 Agency Agreements termination by the client or broker and the amount of damages Some brokers 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 A broker s damages might include costs of advertising, reimbursement for other expenses incurred by broker in the process of listing and marketing the property, and the value of services rendered A broker claiming damages would have to show sufficient proof of the damages 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 terminating party to potentially be liable for damages SELLER COOPERATION WITH MARKETING EFFORTS: Seller agrees to cooperate with Broker in Broker's marketing efforts and to provide Broker with all records, documents and other material in Seller's possession or control which are required in connection with the sale Seller authorizes Broker to do those acts reasonably necessary to effect a sale and Seller agrees to cooperate fully with these efforts which may include use of a multiple listing service, Internet advertising or a lockbox system on Property Seller shall promptly notify Broker in writing of any potential buyers with whom Seller negotiates during the term of this Listing and shall promptly refer all persons making inquiries concerning the Property to Broker This provides the seller with a description of the seller s obligations to cooperate with the listing 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 the broker needs for the sale of the property The seller authorizes the broker to do those acts reasonably necessary and seller agrees to cooperate fully with a broker s efforts to sell the property, which may include using internet or MLS 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 that sellers should not negotiate with buyers without the broker s knowledge and should refer interested buyers to the broker Lines Leased Property Property to Broker LEASED PROPERTY: If Property is currently leased and lease(s) will extend beyond closing, Seller shall assign Seller's rights under the lease(s) and transfer all security deposits and prepaid rents (subject to agreed upon prorations) thereunder to buyer at closing Seller acknowledges that Seller remains liable under the lease(s) unless released by tenants CAUTION: Seller should consider obtaining an indemnification agreement from buyer for liabilities under the lease(s) unless released by tenants BROKER DISCLOSURE TO CLIENTS: When a seller sells leased property, the seller assigns the seller s rights under the lease to the buyer This includes security deposits and prepaid rents, which the seller transfers to the buyer at closing A seller remains liable to the tenants under the lease agreement for any obligations created by the lease Often property owners will include a clause in a lease stating that in the event of a sale or transfer of title to the property, the tenants will release the property owner from liability stemming from the lease If a property owner does not secure this release, either through a provision in the lease or a separate indemnification agreement, the seller will remain bound by the terms of the lease 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 51