In my last post, I lauded the new Real Estate Condition Report's required disclosure of restrictive covenants and deed restrictions. I write this post to emphasize that disclosure of the mere existence of restrictive covenants in a subdivision isn't good enough.
To review, sellers answer questions on a Real Estate Condition Report "YES," "NO," or "N/A." A "YES" answer to the question "are you aware of restrictive covenants or deed restrictions on the property?" only tells buyers that there are restrictive covenants or deed restrictions; it does not inform buyers what uses of the property are actually restricted. A mere affirmative answer to this question fails to inform buyers whether or not they can have an above-ground pool or hang out their laundry.
True, sellers are required to explain their "YES" responses. The old Real Estate Condition Report contained an explanation section several lines in length at the end of the report. The new Real Estate Condition Report contains explanation sections that run only three lines long at the end of each section. Since the question about restrictive covenants is question 7 in the "LAND USE" section, sellers must explain a "YES" response to that question at the end of that section. Even assuming that this question is the only one in that section to which the seller answered "YES," three lines is nowhere near enough space to explain restrictive covenants that may run over thirty pages in length.
Some real estate condition reports provide sellers with an option of answering "See Expert's Report" instead of "YES, "NO, or "N/A." While restrictive covenants are not expert reports, such an option could prompt some sellers to attach their subdivision's restrictive covenants to their real estate condition reports. Alternatively, some sellers might "explain" their "YES" response to the restrictive covenants question as "see attached restrictive covenants." I doubt that either practice is common however.
Even before sellers were questioned about restrictive covenants and deed restrictions in the new Real Estate Condition Report, I drafted language in offers requiring sellers to deliver any restrictive covenants to buyers within 10 days of acceptance. Even that isn't good enough however. If the content of restrictive covenants is important to buyers and those restrictive covenants are not provided to buyers prior to acceptance, buyers might have to close on their purchase even if they later find out that they cannot have their pool. Without a contingency or a right to rescission based on the contents of the restrictive covenants, the buyers have no excuse for failing to close and might forfeit their earnest money or even face liability for damages.
Going forward, I will draft language in offers requiring sellers to deliver any restrictive covenants to buyers within 10 days of acceptance AND giving buyers the right to rescind their offer and get their earnest money back in the event that they object to the content of any of those restrictive covenants. Of course, some sellers will object to this language because it would allow buyers to rescind for purely subjective reasons (unlike rescissions based on the disclosure of defects in a Real Estate Condition Report, which are subject to a more objective standard). Trouble is, I see no other way to protect buyers from purchasing a property with undesirable restrictive covenants other than demanding that sellers deliver said covenants to buyers before any offer is made, which is unrealistic under most circumstances.
Please reach out to me at rudolphkuss@stevensandkuss.com if you're interested in a property for sale in a residential subdivision.
Saturday, June 30, 2018
Friday, June 29, 2018
Sellers Now Must Disclose Restrictive Covenants And Deed Restrictions
Based on my experience, the biggest improvement in the new Real Estate Condition Report required by 2017 Wis. Act 338 and Wis. Stat. § 709.03 is the following question: "Are you aware of restrictive covenants or deed restrictions on the property?"
The closest that the old Real Estate Condition Report came to this question was Property Condition Statement C.26, which read as follows: "I am aware of subdivision homeowners' associations, common areas co-owned with others, zoning violations or nonconforming uses, rights-of-way, easements, or another use of a part of the property by nonowners, other than recorded utility easements." A seller who was aware of restrictive covenants in his subdivision could honestly answer this statement "No" as long as his subdivision did not have an actual homeowners association.
Contrary to what is popular belief in some quarters, restrictive covenants are enforceable even without a homeowners' association. Some of these restrictive covenants are written so that any neighborhood bully can sue his neighbor for enjoying an above-ground pool or installing a vinyl fence on his property. Even worse, some of these restrictive covenants are written so that the neighborhood fascist can seek payment of his attorneys' fees from the poor neighbor that he is suing for having the wrong politician's campaign sign on his lawn or leaving Christmas lights up past New Years Day on his home.
In my opinion, the existence of restrictive covenants in a subdivision is far more worthy of disclosure to buyers than the existence of a homeowners' association. While homeowners' associations may sue homeowners, they are at least theoretically controlled by the board member election process, Robert's Rules of Order, and group dynamics. The restrictive covenants themselves are the potentially adverse condition affecting the property, regardless of whether they are enforceable by a homeowners' association or by any of your crazy neighbors.
Please reach out to me at rudolphkuss@stevensandkuss.com if you are being bullied by your neighbor or by your homeowners' association over your use of your property.
The closest that the old Real Estate Condition Report came to this question was Property Condition Statement C.26, which read as follows: "I am aware of subdivision homeowners' associations, common areas co-owned with others, zoning violations or nonconforming uses, rights-of-way, easements, or another use of a part of the property by nonowners, other than recorded utility easements." A seller who was aware of restrictive covenants in his subdivision could honestly answer this statement "No" as long as his subdivision did not have an actual homeowners association.
Contrary to what is popular belief in some quarters, restrictive covenants are enforceable even without a homeowners' association. Some of these restrictive covenants are written so that any neighborhood bully can sue his neighbor for enjoying an above-ground pool or installing a vinyl fence on his property. Even worse, some of these restrictive covenants are written so that the neighborhood fascist can seek payment of his attorneys' fees from the poor neighbor that he is suing for having the wrong politician's campaign sign on his lawn or leaving Christmas lights up past New Years Day on his home.
In my opinion, the existence of restrictive covenants in a subdivision is far more worthy of disclosure to buyers than the existence of a homeowners' association. While homeowners' associations may sue homeowners, they are at least theoretically controlled by the board member election process, Robert's Rules of Order, and group dynamics. The restrictive covenants themselves are the potentially adverse condition affecting the property, regardless of whether they are enforceable by a homeowners' association or by any of your crazy neighbors.
Please reach out to me at rudolphkuss@stevensandkuss.com if you are being bullied by your neighbor or by your homeowners' association over your use of your property.
Monday, June 25, 2018
Introducing 2017 Wis. Act 338
My next few posts will discuss 2017 Wis. Act 338. I agree with the Wisconsin REALTORS Association that this new law represents an "extreme makeover" of the condition reports used in Wisconsin real estate transactions. The intent of this law is to make real estate condition reports more user-friendly and less confusing. While these new forms will take some getting used to, I generally agree that the new real estate condition reports are an improvement.
While the condition reports that sellers of residential real estate and vacant land must complete have substantially changed, it is important to recognize that the scope of Chapter 709 has not. Wis. Stat. § 709.01 (when read in conjunction with Wis. Stat. § 709.02) still requires sellers of residential real estate or vacant land to furnish a real estate condition report unless they have never occupied the property and are either a personal representative of an estate, a trustee of a trust, a conservator, or a fiduciary appointed by a court. If the property is owned by an estate, the personal representative still must furnish a condition report unless he or she has never lived in the property (even as a child). If the sellers have set up a revocable trust or family trust for estate planning purposes and transferred ownership of the property to that trust (as many couples do), they still must furnish a condition report. Finally, limited liability companies that purchase foreclosed or otherwise distressed properties in order to fix them up and sell them ("flippers") still must furnish a real estate condition report even if they have never occupied the property because § 709.01(2) does not contain an exception for LLCs or their members. Act 338 did not change the scope of Chapter 709 at all.
While the condition reports that sellers of residential real estate and vacant land must complete have substantially changed, it is important to recognize that the scope of Chapter 709 has not. Wis. Stat. § 709.01 (when read in conjunction with Wis. Stat. § 709.02) still requires sellers of residential real estate or vacant land to furnish a real estate condition report unless they have never occupied the property and are either a personal representative of an estate, a trustee of a trust, a conservator, or a fiduciary appointed by a court. If the property is owned by an estate, the personal representative still must furnish a condition report unless he or she has never lived in the property (even as a child). If the sellers have set up a revocable trust or family trust for estate planning purposes and transferred ownership of the property to that trust (as many couples do), they still must furnish a condition report. Finally, limited liability companies that purchase foreclosed or otherwise distressed properties in order to fix them up and sell them ("flippers") still must furnish a real estate condition report even if they have never occupied the property because § 709.01(2) does not contain an exception for LLCs or their members. Act 338 did not change the scope of Chapter 709 at all.
Tuesday, June 19, 2018
Understanding The New Condominium Sales Law
In the next few posts, I will discuss new laws affecting residential real estate sales or residential real estate litigation. This post addresses 2017 Wis. Act. 303.
Effective April 18, 2018, condominium associations may charge condominium unit sellers a fee of up to $50.00 for furnishing the documents that a seller must furnish to a purchaser pursuant to the WB-14 Residential Condominium Offer To Purchase. See Wis. Stat. § 703.20(2)(a). This provision was apparently intended to prevent condominium associations from charging sellers extortionate fees for the required documents, though I suspect that some associations that have never before charged such a fee will now do so because this law expressly authorizes such charges.
Wis. Stat. § 703.33(1) requires condominium unit sellers to furnish certain documents to purchasers not later than 15 days prior to closing. Effective July 1, 2018, the executive summary required under § 703.33(1)(h) must include the amount of the condominium association's reserve account balance when the association maintains such an account for repairs and replacement of the common elements. This law imposes additional obligations on condominium associations rather than on condominium unit sellers, as associations are required to furnish all of the required information to sellers upon written request. See Wis. Stat. § 703.20(2). That being said, this law potentially benefits purchasers and burdens sellers. I could foresee a diligent purchaser (or his tenacious lawyer) seeking to renegotiate the purchase price or void the purchase contract altogether upon disclosure that the condominium association has insufficient funds to finance repairs or replacement of its building roofs or parking lots.
Finally, effective July 1, 2018, Wis. Stat. § 703.335 requires a condominium association to provide a written payoff statement to a condominium unit seller or his agent upon written request. This sounds like a positive development, as purchasers of condominium units often expect reassurances that they will not be responsible for dues and assessments that should have been paid during the prior ownership. Unfortunately, this law has no teeth. Under § 703.335(5), the liability of a condominium association to a seller for failing to provide a payoff statement within the statutory deadline - or at all- is capped at $350.00. A condominium unit seller could sustain damages far exceeding $350.00 if the closing of the sale of his unit is delayed or lost as a result of the association's failure to timely provide the required payoff statement.
Please contact me at rudolphkuss@stevensandkuss.com if you are looking to buy or sell a condominium unit or if you were deceived in your purchase of a condominium unit.
Effective April 18, 2018, condominium associations may charge condominium unit sellers a fee of up to $50.00 for furnishing the documents that a seller must furnish to a purchaser pursuant to the WB-14 Residential Condominium Offer To Purchase. See Wis. Stat. § 703.20(2)(a). This provision was apparently intended to prevent condominium associations from charging sellers extortionate fees for the required documents, though I suspect that some associations that have never before charged such a fee will now do so because this law expressly authorizes such charges.
Wis. Stat. § 703.33(1) requires condominium unit sellers to furnish certain documents to purchasers not later than 15 days prior to closing. Effective July 1, 2018, the executive summary required under § 703.33(1)(h) must include the amount of the condominium association's reserve account balance when the association maintains such an account for repairs and replacement of the common elements. This law imposes additional obligations on condominium associations rather than on condominium unit sellers, as associations are required to furnish all of the required information to sellers upon written request. See Wis. Stat. § 703.20(2). That being said, this law potentially benefits purchasers and burdens sellers. I could foresee a diligent purchaser (or his tenacious lawyer) seeking to renegotiate the purchase price or void the purchase contract altogether upon disclosure that the condominium association has insufficient funds to finance repairs or replacement of its building roofs or parking lots.
Finally, effective July 1, 2018, Wis. Stat. § 703.335 requires a condominium association to provide a written payoff statement to a condominium unit seller or his agent upon written request. This sounds like a positive development, as purchasers of condominium units often expect reassurances that they will not be responsible for dues and assessments that should have been paid during the prior ownership. Unfortunately, this law has no teeth. Under § 703.335(5), the liability of a condominium association to a seller for failing to provide a payoff statement within the statutory deadline - or at all- is capped at $350.00. A condominium unit seller could sustain damages far exceeding $350.00 if the closing of the sale of his unit is delayed or lost as a result of the association's failure to timely provide the required payoff statement.
Please contact me at rudolphkuss@stevensandkuss.com if you are looking to buy or sell a condominium unit or if you were deceived in your purchase of a condominium unit.
Friday, June 24, 2016
Understanding New Wis. Stat. § 452.133(4m)
I have written much recently about the Chapter 452 Modernization Act. In my last post, I introduced the Act's distinction between "firms" and "licensees" to explain real estate firm responsibility for misrepresentations made by licensees associated with that firm. To review, buyers and sellers enter into contracts with real estate firms, such as Shorewest, First Weber, Re/Max, or EXIT. The individual real estate agent providing services to the buyer or seller is known as a licensee - he or she is individually licensed as a Real Estate Broker or Real Estate Salesperson by the State of Wisconsin.
Wis. Stat. § 452.133 has long spelled out the duties of real estate agents. As of right now (most of the Chapter 452 Modernization Act does not take effect until July 1st), this section is titled "Duties of brokers." Wis. Stat. § 452.133(1) spells out broker duties to all parties in a transaction, while § 452.133(2) sets forth broker duties to clients. The word "broker" is somewhat confusing. Wis. Stat. § 452.01(2)(a) defines "broker" in terms of a "person," while the standard WB-1 Residential Listing Contract uses "broker" in terms of a firm with real estate agents.
At first glance, Wis. Stat. § 452.133(1) and (2) appear to clarify that it is the firm that owes duties to parties and clients:
OK, so licensees are responsible for their own misrepresentations, but firms are solely responsible for brokerage services? Not exactly. Enter brand new § 452.133(4m):
While the phrasing is rather clumsy, the gist appears to be that both real estate firms and individual licensees can be held responsible for breaching the duties owed under §§ 452.133(1) and (2). In fact, even licensees affiliated with the firm who do not provide actual brokerage services to anyone in the transaction can still be held personally responsible if they violate confidentiality, provide inaccurate information about market conditions per a party's request, or fail to safeguard trust funds. In sum, personal responsibility (and thus personal liability) for both real estate firms and individual licensees will apparently be the rule under Wis. Stat. § 452.133.
Wis. Stat. § 452.133 has long spelled out the duties of real estate agents. As of right now (most of the Chapter 452 Modernization Act does not take effect until July 1st), this section is titled "Duties of brokers." Wis. Stat. § 452.133(1) spells out broker duties to all parties in a transaction, while § 452.133(2) sets forth broker duties to clients. The word "broker" is somewhat confusing. Wis. Stat. § 452.01(2)(a) defines "broker" in terms of a "person," while the standard WB-1 Residential Listing Contract uses "broker" in terms of a firm with real estate agents.
At first glance, Wis. Stat. § 452.133(1) and (2) appear to clarify that it is the firm that owes duties to parties and clients:
(1) Duties to all parties to a transaction. A firm providing brokerage services to a party to a transaction owes all of the following duties to the party:
(a) The duty to provide brokerage services honestly and fairly.
(b) The duty to provide brokerage services with reasonable skill and care.
(c) The duty to timely disclose in writing all material adverse facts that the firm knows and that the party does not know or cannot discover through reasonably vigilant observation, unless the disclosure of a material adverse fact is prohibited by law.
(d) The duty to keep confidential any information given to the firm in confidence, or any information obtained by the firm that the firm knows a reasonable person would want to be kept confidential, unless the information must be disclosed by law or the person whose interests may be adversely affected by the disclosure specifically authorizes the disclosure of particular information. The firm shall continue to keep the information confidential after the transaction is complete and after the firm is no longer providing brokerage services to the party.
(e) The duty to provide accurate information about market conditions that affect the transaction, within a reasonable time after a request for such information by the party, unless disclosure of the information is prohibited by law.
(f) The duty to safeguard trust funds and other property held as required by rules promulgated under s. 452.13 (5).
(g) When the firm is negotiating on behalf of a party, the duty to present contract proposals in an objective and unbiased manner and disclose the advantages and disadvantages of the proposals.
(2) Duties to clients. A firm providing brokerage services to a client owes the client the duties that the firm owes to a party under sub. (1) and all of the following additional duties:
(a) The duty to loyally represent the client's interests by doing all of the following:
1. Placing the client's interests ahead of the interests of the firm.
2. Placing the client's interests ahead of the interests of persons in the transaction who are not the firm's clients by not disclosing to persons in the transaction other than the firm's clients information or advice the disclosure of which is contrary to the interests of a client of the firm, unless the disclosure is required by law.
(am) The duty to provide, when requested by the client, information and advice to the client on matters that are material to the client's transaction and that are within the scope of the knowledge, skills, and training required under this chapter.
(b) The duty to disclose to the client all information known by the firm that is material to the transaction and that is not known by the client or discoverable by the client through reasonably vigilant observation, except for confidential information under sub. (1) (d) and other information the disclosure of which is prohibited by law.
(c) The duty to fulfill any obligation required by the agency agreement, and any order of the client that is within the scope of the agency agreement, that is not inconsistent with another duty that the firm has under this chapter or any other law.
(d) The duty to negotiate on behalf of the client.
OK, so licensees are responsible for their own misrepresentations, but firms are solely responsible for brokerage services? Not exactly. Enter brand new § 452.133(4m):
Duties and prohibitions; application to licensees.
(a) Subject to par. (d), a firm's duties under sub. (1) extend to each licensee associated with that firm, and each licensee associated with a firm owes the same duties to a party that the firm owes to that party under sub. (1).
(b) Except as provided in s. 452.134 (3) (b) and subject to par. (d), a firm's duties under sub. (2) extend to each licensee associated with that firm, and each licensee associated with a firm owes the same duties to a client of the firm that the firm owes to that client under sub. (2).
(c)
1. Subject to par. (d), a subagent's duties under sub. (4) (a) extend to each licensee associated with that subagent, and each licensee associated with a subagent owes the same duties to a party that the subagent owes to that party under sub. (4) (a).
2. Subject to par. (d), the prohibitions that apply to a subagent under sub. (4) (b) extend to each licensee associated with that subagent, and no licensee associated with a subagent may take any action that the subagent is prohibited from taking under sub. (4) (b).
(d) The duties and prohibitions under pars. (a) to (c) extend only to a licensee providing brokerage services to a party to the transaction.
While the phrasing is rather clumsy, the gist appears to be that both real estate firms and individual licensees can be held responsible for breaching the duties owed under §§ 452.133(1) and (2). In fact, even licensees affiliated with the firm who do not provide actual brokerage services to anyone in the transaction can still be held personally responsible if they violate confidentiality, provide inaccurate information about market conditions per a party's request, or fail to safeguard trust funds. In sum, personal responsibility (and thus personal liability) for both real estate firms and individual licensees will apparently be the rule under Wis. Stat. § 452.133.
Sunday, June 5, 2016
Wis. Stat. § 452.12(3) - Firm Responsibility For Agent Misrepresentations
In my last post, I discussed seller liability for misrepresentations made by real estate agents. Today, I discuss firm responsibility for these misrepresentations.
In my series of posts discussing the Chapter 452 Modernization Act, I have consistently used the legally meaningless term "real estate agent" because I wanted to focus on the important changes to Chapter 452 rather than the technical distinctions between "licensees," "brokers," and "firms." As a practical matter, buyers and sellers need to know that their listing contract or buyers' agency agreement is not with an individual real estate agent. Buyers and sellers contract with business entities such as Shorewest REALTORS, First Weber Group, RE/MAX, and EXIT Realty. Your individual real estate agent is an associate of the business entity that you contracted with. That's an important distinction for buyers and sellers to bear in mind in the event that they want to terminate their contract.
The Chapter 452 Modernization Act reduces the broker or real estate firm's responsibility for the actions of its real estate agents.
Wis. Stat. § 452.12(3) used to state the following: "Subject to s. 452.139 (3), each broker shall supervise, and is responsible for, the brokerage services provided on behalf of the broker by any broker, salesperson, or time-share salesperson who is an employee of the broker."
The new § 452.12(3) says, "Subject to s. 452.139 (3), a firm is responsible for the brokerage services provided on behalf of the firm by a licensee associated with the firm only to the extent that the firm fails to comply with s. 452.132 and any rules promulgated under s. 452.07 (1m) with respect to that licensee."
While the old statute appeared to presume broker or firm responsibility for the acts of individual real estate agents, the new statute appears to presume the exact opposite.
The "shall supervise" language from the old statute is gone, though it has been replaced by Wis. Stat. § 452.132:
In short, the Chapter 452 Modernization Act clearly tells real estate firms what they must do in order to properly supervise their licensees and avoid liability for negligent supervision. None of these supervisory requirements appear designed to prevent misrepresentations made by individual real estate agents.
While it is tempting to cite this provision of the Chapter 452 Modernization Act as another example of how the legislature protected campaign contributors at the expense of Wisconsin homeowners, we must bear in mind that real estate agents are independent contractors. Imposing broad supervisory requirements on real estate firms creates the risk that independent real estate agents will be treated as employees for tax and regulatory purposes. While I continue to believe that real estate agents should be allowed to pursue wage claims against their firms for unpaid commissions, many other labor laws make absolutely no sense as applied to real estate agents, such as minimum wage laws. The application of labor laws to independent real estate agents would deter real estate firms from using such agents, which would in turn reduce the number of real estate agents that buyers and sellers can choose from. The risk of courts and federal agencies treating independent real estate agents as "employees" is real, see, e.g., Monell v. Boston Pads LLC, 471 Mass. 566 (2015), so I can understand why the WRA acted to preserve the independent contractor status of real estate agents through convincing the legislature to amend Wis. Stat. § 452.12(3) and enact Wis. Stat. §§ 452.132 and 452.38.
In my series of posts discussing the Chapter 452 Modernization Act, I have consistently used the legally meaningless term "real estate agent" because I wanted to focus on the important changes to Chapter 452 rather than the technical distinctions between "licensees," "brokers," and "firms." As a practical matter, buyers and sellers need to know that their listing contract or buyers' agency agreement is not with an individual real estate agent. Buyers and sellers contract with business entities such as Shorewest REALTORS, First Weber Group, RE/MAX, and EXIT Realty. Your individual real estate agent is an associate of the business entity that you contracted with. That's an important distinction for buyers and sellers to bear in mind in the event that they want to terminate their contract.
The Chapter 452 Modernization Act reduces the broker or real estate firm's responsibility for the actions of its real estate agents.
Wis. Stat. § 452.12(3) used to state the following: "Subject to s. 452.139 (3), each broker shall supervise, and is responsible for, the brokerage services provided on behalf of the broker by any broker, salesperson, or time-share salesperson who is an employee of the broker."
The new § 452.12(3) says, "Subject to s. 452.139 (3), a firm is responsible for the brokerage services provided on behalf of the firm by a licensee associated with the firm only to the extent that the firm fails to comply with s. 452.132 and any rules promulgated under s. 452.07 (1m) with respect to that licensee."
While the old statute appeared to presume broker or firm responsibility for the acts of individual real estate agents, the new statute appears to presume the exact opposite.
The "shall supervise" language from the old statute is gone, though it has been replaced by Wis. Stat. § 452.132:
(1) A firm shall supervise the brokerage service activities of each licensee associated with the firm, including by doing all of the following:
(a) Ensuring that a supervising broker for the firm complies with sub. (4).
(b) Providing a licensee with reasonable access to a supervising broker for the purpose of consultation regarding real estate practice issues.
(2) A firm shall do all of the following:
(a) Provide each licensee associated with the firm with a written statement of the procedures under which the firm and licensees associated with the firm must operate with respect to handling leases, agency agreements, offers to purchase, and other documents and records relating to transactions.
(b) Notify each licensee associated with the firm where a copy of the rules promulgated by the board related to the conduct, ethical practices, and responsibilities of licensees may be obtained.
(c) Before a licensee becomes associated with the firm and at the beginning of each biennial licensure period, ensure that the licensee holds a valid license.
(3) A firm shall be responsible for the custody and safety of all documents and records relating to transactions submitted to the firm as required under sub. (6) (b).
(4)
(a) A supervising broker for a firm, as determined under sub. (5), shall review all of the following prior to the closing of a transaction in accordance with par. (b):
1. All agency agreements, offers to purchase, leases, and other documents that are executed by the parties and records relating to the transaction that are used by a licensee associated with the firm and submitted to the firm as required under sub. (6) (b).
2. All trust account records relating to the transaction.
(b) The review under par. (a) shall be limited to confirming that a written disclosure statement to a customer or client has been provided by a licensee associated with the firm in accordance with s. 452.135, confirming that any applicable form approved by the board has been used and the forms have been completed by filling in the blanks in a manner consistent with the structure of the form, and communicating to the licensee any errors in how the forms were completed that are apparent on the face of the document and known to the person reviewing the document.
(5)
(a) A firm that is a licensed broker business entity shall delegate the performance of the duty to supervise licensees associated with the firm to a supervising broker who is a licensed individual broker.
(b) A firm that is not a licensed broker business entity may delegate the duty to supervise licensees associated with the firm to a supervising broker who is a licensed individual broker, but in the absence of a specific supervising broker delegation, the firm itself is deemed to be the supervising broker for that firm.
(c) A delegation under par. (a) or (b) shall be written and signed by or on behalf of the delegating firm, identify the duty delegated, and be signed by the broker to whom the delegation is made.
(d) A firm may delegate the duty to supervise licensees to more than one supervising broker.
(6)
(a) A licensee associated with a firm shall be responsible for discussing with the party with whom the licensee is working with or representing any error communicated to the licensee as provided in sub. (4) (b), and the party shall determine whether to request any changes to address the error.
(b) A licensee associated with a firm shall submit to the firm in a timely manner all agency agreements, offers to purchase, leases, and other documents that are executed by the parties and records related to the brokerage services provided on behalf of the firm and transactions that are used or received by the licensee.
In short, the Chapter 452 Modernization Act clearly tells real estate firms what they must do in order to properly supervise their licensees and avoid liability for negligent supervision. None of these supervisory requirements appear designed to prevent misrepresentations made by individual real estate agents.
While it is tempting to cite this provision of the Chapter 452 Modernization Act as another example of how the legislature protected campaign contributors at the expense of Wisconsin homeowners, we must bear in mind that real estate agents are independent contractors. Imposing broad supervisory requirements on real estate firms creates the risk that independent real estate agents will be treated as employees for tax and regulatory purposes. While I continue to believe that real estate agents should be allowed to pursue wage claims against their firms for unpaid commissions, many other labor laws make absolutely no sense as applied to real estate agents, such as minimum wage laws. The application of labor laws to independent real estate agents would deter real estate firms from using such agents, which would in turn reduce the number of real estate agents that buyers and sellers can choose from. The risk of courts and federal agencies treating independent real estate agents as "employees" is real, see, e.g., Monell v. Boston Pads LLC, 471 Mass. 566 (2015), so I can understand why the WRA acted to preserve the independent contractor status of real estate agents through convincing the legislature to amend Wis. Stat. § 452.12(3) and enact Wis. Stat. §§ 452.132 and 452.38.
Monday, May 30, 2016
Seller Liability For Agent Misrepresentations
Buyers of residential real estate in Wisconsin typically receive a Real Estate Condition Report from the previous owners (or sellers) of the property. In this Real Estate Condition Report, the sellers are required to disclose their awareness of defects or adverse conditions affecting the property. While the sellers tell buyers everything that is wrong with their home, their real estate agent tells buyers (or their agents) everything that is supposedly good. The sellers' real estate agent advertises the property on her website; the Multiple Listing Service; other real estate websites such as Realtor, Zillow, and Trulia; and social media. Could the buyers hold the sellers liable if the real estate agent misrepresents the acreage, the square footage, the number of bedrooms or bathrooms, the age of the roof, the warranty on foundation repairs, the materials used to remodel the kitchen or bathroom, or lake access?
Wis. Stat. § 452.139(2)(a) attempts to answer this very question:
A client is not liable for a misrepresentation made in connection with the provision of brokerage services by a firm or any licensee associated with the firm, unless the client knows or should have known of the misrepresentation or the firm or licensee is repeating a misrepresentation made by the client.
At first blush, this statute appears to absolve sellers from liability from most real estate agent misrepresentations. Trouble is, the standard WB-1 Residential Listing Contract includes provisions under which sellers specifically authorize their real estate agent to market the property using certain media and to "do those acts reasonably necessary to effect a sale. . . ." One could use this language to argue that the sellers should have known of their agent's misrepresentations because they specifically authorized - and even demanded - that their agent advertise their home a certain way.
In order to reduce this risk, I recommend that sellers demand that their listing contract include a provision giving them the right to approve or disapprove the content of all advertising prior to its publication.
Are you considering selling your home? Please email me at rudolphkuss@stevensandkuss.com for a free initial consultation.
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