Monday, August 10, 2015

Can I Get Out Of My Listing Contract?

I don't know if the summer heat is putting sellers on edge or if some really lazy real estate agents have been unleashed on the public lately, but numerous sellers of residential real estate have asked me this question in the past few weeks. The real question that they want answered is if they can sell their property without having to pay their real estate broker a commission.

The simple answer is "NO." You gave your agent an exclusive right to sell your property for six months. If you sell your property to someone else during those six months, you clearly owe your broker a commission under the terms of the WB-1 Residential Listing Contract - Exclusive Right To Sell. If you try to stiff your broker on its commission, you risk getting hailed into small claims court. Next question!

Did I disappoint you with my simple answer? Did you expect more from me after reading several of my posts? Good! The more complicated answer to this question is "MAYBE."

For example, you might have an argument that your broker breached the contract first and that this breach relieved you of any obligation to pay its commission. Under the "Marketing" provisions of the listing contract, you authorized your broker to use "reasonable efforts" to get a buyer. Even better, your broker AGREED to use "reasonable efforts" to get a buyer for your property. I submit that "reasonable efforts" must mean something more than putting your client's property on the Multiple Listing Service and then sitting on your derriere for the next six months. The Wisconsin Supreme Court has declared that an agent under an exclusive agency contract cannot sit idly by, doing substantially nothing, and then claim a commission on a sale effected through the seller's efforts. See Huchting v. Engel, 17 Wis. 237 (1863).

A more frequent source of broker/seller disputes is the "Protected Buyer" language in the listing contract. The term of the listing contract is extended by a full year as to any "Protected Buyer." In other words, you could sell your property on your own well after your listing contract expires and still owe your broker a commission! What the heck is a "Protected Buyer"?

PROTECTED BUYER: Means a buyer who personally, or through any person acting for such buyer: 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 Broker or cooperating brokers the potential terms upon which buyer might acquire an interest in the Property, but only if Broker delivers the buyer’s name to Seller, in writing, no later than three days after the expiration of the Listing. The requirement in 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; 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.

The broker's commission is clearly "protected" if the seller later sells to someone who submitted a written offer during the listing term, but what about "prospects"? If the prospect was working with the broker, then the broker probably earns the commission. The broker merely needs to show that it provided the requisite notice of this "protected buyer" to the seller and that the prospect either attended an individual showing (not an open house) or discussed potential terms with said broker or a cooperating broker. 

The thornier issue arises with a prospect who was working with the seller during the listing period and later purchases the property. The broker must prove that the prospect negotiated with the seller by discussing the potential terms of sale during the listing period. Negotiation clearly means something more than mere flirtation; it implies formal discussions of price or other material terms. While direct proof that the seller and prospect negotiated specific terms is hard to come by, courts frown on sellers who receive offers soon after expiration of the listing contract from buyers who have somehow already been approved for a loan to purchase the property, already had the property inspected by a licensed home inspector, and magically obtained a title commitment and an appraisal for this property.     

To avoid this issue in the first place, sellers should be more careful in selecting their real estate broker and in reviewing the listing contract. Sellers also need to recognize that their listing contract is with the broker (i.e., Shorewest, Keller Williams, Re/Max, etc.) not with their individual real estate agent. If you suspect that your real estate agent is sleeping on the job, you should contact your agent's supervisor and ask to be assigned to another agent. If all else fails, sellers should negotiate early termination of the listing contract. While you might have to pay your broker something, this is a far better solution than trying to sell your property while you're still under contract with your broker and hoping that your broker doesn't find out.    

Sunday, August 9, 2015

Buying Residential Property From An Estate

My mother has been a widowed empty nester for over 15 years, yet she still lives in the same 3 bedroom, 1.5 bathroom home in Wauwatosa that she's owned for the past 35 years. Someday, we may convince her that she should downsize. If not, she will own that home for the rest of her life and either my sister or I will have to sell it. Selling my childhood home understandably worries me. Will I have to sign a Real Estate Condition Report for a property that I haven't lived in since 1999?

Unfortunately for me, the answer appears to be "yes." While Wis. Stat. s. 709.01(2) specifically exempts "personal representatives" from that chapter's Real Estate Condition Report requirement, that exemption only applies if the personal representative "never occupied the property transferred." I occupied my childhood home continuously from 1979 until 1994 and then sporadically for the next 5 years.

As I've discussed before, I often see sellers abuse s. 709.01(2)'s exemptions. When buying a residential property from an estate, buyers need to insist on receiving a completed Real Estate Condition Report from the personal representative unless the personal representative represents in writing that she has never occupied the property.

Real Estate Condition Reports are not the only potential source of liability for personal representatives selling residential property. Sellers of residential property have a common law duty to disclose all material defects. See Ollerman v. O'Rourke Company, Inc., 94 Wis. 2d 17, 288 N.W.2d 95 (1980). Personal representatives can also get themselves in trouble when they cheap out on needed basement or roof repairs or paint over signs that the basement or roof leaks. As I discussed in a recent post, such acts of concealment can qualify as representations even when the seller has not made any written representations about the condition of a property. See Novell v. Migliaccio, 2010 WI App 67, 325 Wis. 2d 230, 783 N.W.2d 897.

Trouble is, circuit court judges tend to be particularly prejudiced against real estate misrepresentation cases when the defendant is a personal representative of an estate. Such sellers get to play the sympathy card regardless of what their motivations were at the time that they sold mom's home without disclosing the engineering report recommending major foundation repairs. While I can certainly identify and sympathize with the loss of a parent, that's no excuse for sticking another family with your family's repair bills.

In light of this reality, however, buyers of residential property from an estate need to be particularly vigilant. They should research what work has been done on the property through checking the building inspection file at city hall. Buyers of such properties should always get a home inspection and should also get a specialized foundation and/or roof inspection. While sellers are almost always in the best position to provide information about their home's condition, that rule often does not hold true for personal representatives of an estate. While I could tell you all about the Great Tosa Flood of 1997, a licensed home inspector would be able to provide a buyer with far more relevant information about my mother's home than I ever could.