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Legal Matters
Best of the Legal Hotline - Parade of Homes
by Debbi Conrad and Tracy
Rucka
The following fair housing questions and answers were recently asked of the Legal Hotline:
| Q. Can non-licensed persons host a Parade Home? |
| A. A license is not required if only construction contracts are being sold-not the model home. A construction contract is a contract for goods and services; a real estate license is not required for this type of activity.
If the model, lots or other real estate is being sold, the host would be limited to non-negotiation tasks such as unlocking the house and handing out information sheets, and a real estate licensee would have to be present on the premises to directly supervise the nonlicensee per § RL 17.12. Visitors to an open house will typically expect a host or hostess to provide detailed information and other negotiation services that only a real estate license could provide.
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| Q. Can an agent have a drawing for a prize, such as a television, for anyone that comes to the Parade of Homes? The idea is to get names and e-mail addresses from people during the Parade of Homes. |
| A. The issue is whether such a drawing would be an illegal lottery under Wis. Stat. §§ 945.04(5) & 945.02. A contest is generally defined as a lottery if one must give consideration to enter, and the award is determined by chance. Consideration is anything which would be financial or commercial advantage to the promoter, with some exceptions (send in a coupon, visit a store, etc.).
For example, a contest in which every licensee who showed one of a broker's listings becomes eligible to enter a drawing for a vacation trip at the end of the year is arguably an illegal lottery. The fact that the agents are showing the broker's listings is consideration to the broker, and the drawing is by chance.
On the other hand, the statutes provide that visiting a business location without being required to pay an admittance fee or buy anything is not consideration. Thus a drawing for a prize may be held at an open house provided everyone who attends is eligible to enter the drawing. Because visitors to the Parade of Homes must pay an admittance fee, a drawing for a prize will likely be considered an illegal lottery because consideration for attendance is required.
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| Q. Must the homes included in the Parade of Homes be accessible? |
A. The Americans with Disabilities Act Title III Technical Assistance Manual, in section III-1.2000 Public accommodations, states:
"Are model homes places of public accommodation? Generally, no. A model home does not fall under one of the 12 categories of places of public accommodation. If, however, the sales office for a residential housing development were located in a model home, the area used for the sales office would be considered a place of public accommodation. Although model homes are not covered, the Department encourages developers to voluntarily provide at least a minimal level of access to model homes for potential homebuyers with disabilities. For example, a developer could provide physical access (via ramp or lift) to the primary level of one of several model homes and make photographs of other levels within the home as well as of other models available to the customer."
However, if a model home is available simply for display (as opposed to representing a future development) and a fee is charged, then that home may be subject to the requirements of the ADA as a place of public accommodation. Under the ADA, barrier removal need be accomplished only when it is "readily achievable" to do so. Readily achievable means "easily accomplishable and able to be carried out without much difficulty or expense." Because a Parade of Homes usually only runs for a couple of weeks, permanent solutions would not generally be required. The measures suggested in the Technical Assistance Manual are examples of reasonable steps that can be taken to make sure that all visitors, including those using wheelchairs or other mobility devices, have a means to enter the home and experience the tour.
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| Q. A buyer visited a Parade of Homes house where the listing agent was present. The listing agent informed the buyer that the buyer could purchase the property for less if the buyer wrote an offer to purchase with her instead of a subagent. The listing agent explained that the price difference was due to the seller's commission structure. The buyer does not want to write an offer with the listing agent. The house is listed on the MLS, but there is no disclosure about a variable rate commission. Is this permitted? |
| A. The Code of Ethics, in Standard of Practice 3-4, provides that: "REALTORS(r), acting as listing brokers, have an affirmative obligation to disclose the existence of dual or variable rate commission arrangements (i.e., listings where one amount of commission is payable if the listing broker's firm is the procuring cause of sale/lease and a different amount of commission is payable if the sale/lease results through the efforts of the seller/landlord or a cooperating broker). The listing broker shall, as soon as practical, disclose the existence of such arrangements to potential cooperating brokers and shall, in response to inquiries from cooperating brokers, disclose the differential that would result in a cooperative transaction or in a sale/lease that results through the efforts of the seller/landlord. If the cooperating broker is a buyer/tenant representative, the buyer/tenant representative must disclose such information to their client before the client makes an offer to purchase or lease. (Amended 1/02)"
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| Q. Neither a builder nor his wife are licensees. If the builder signs a listing contract for his Parade of Homes house, can the builder himself hold an open house or host the Parade of Homes tour? Can the builder negotiate terms of the offer without an agent since the builder is the owner? |
| A. Yes, owners may hold open houses, conduct showings, or host the Parade of Homes tour. It should be made clear at an open house that the hosts are not licensees, and any advertising should specify that it is an "owner-hosted" open house. Because the builder is the owner/client, he is not required to take advantage of the agent's assistance when it comes to negotiating an offer to purchase.
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| Q. A builder and an agent's real estate company have an arrangement where any real estate agent who sells a "contract" to build on the buyer's lot will earn a commission from the builder. How does the agent write an offer to purchase for a model home to be built on a lot owned by the buyer? Can an agent modify the offer to purchase to include an exhibit of style, colors, etc.? Or does the agent just write a simple builders contract and include some terms of the offer? |
| A. The Department of Regulation and Licensing offer to purchase should not be used because this is not a sale of real estate. Instead a builder's construction contract is appropriate. However, because real estate agents are not attorneys they are not authorized to draft such a contract. Preferably, the builder or his staff will negotiate the building contract. The builder and broker may have a referral agreement whereby the builder pays a fee for a referral by an agent that results in a building contract. Any such referral agreement should be in writing and specify exactly what the agent must do to earn the fee and when the builder must pay the fee. If the agent makes the referral to a buyer who is a party to a real estate transaction, e.g., the buyer is purchasing a lot from another party, then the real estate agent must disclose that fact that he may receive compensation for the referral per § RL 24.05(3).
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FTC Announces Federal "Do Not Call" Implementation Schedule
by Debbi Conrad
The Federal Trade Commission (FTC) released its schedule for creating and implementing the national "do not call" list, required by the agency's amended Telemarketing Sales Rule (TSR).
- In July, consumers may begin registering for free online or by calling a toll-free number. Telephone registrations will be phased in, region-by-region, over an eight-week period.
- In September, telemarketers and other sellers will have access to the registry.
- In October, FTC and state enforcement will begin. Violators are subject to a fine of up to $11,000 per violation.
The FTC will not allow private companies or other such third parties to "pre-register" consumers for the national "do not call" registry. Web sites or phone solicitations that claim they can or will register a consumer's name or phone number on a national list-especially those that charge a fee-are a scam.
The FTC also announced proposed TSR amendments. These amendments include requiring only sellers to pay the annual fee for access to the national registry, establishing an annual fee of $29 per area code with a maximum annual fee of $7,250, allowing access to up to five area codes for free; and setting an October 1, 2003 effective date for the "do not call" provisions.
Once a seller pays the required fee, the FTC will provide the seller with a unique account number that can be used to gain direct access to the national registry. The seller can then provide this account number to any telemarketer with which it does business. Additionally, telemarketers who engage in telemarketing only on behalf of others (e.g., sellers) would not be required to pay a separate fee for their access to the registry. The only information that companies will receive from the national registry is each registrant's telephone number.
The TSR applies to telemarketing, that is, any plan, program or campaign to sell goods or services through interstate phone calls. The TSR applies to telemarketers who solicit consumers, often on behalf of third party sellers. It also includes sellers, such as real estate licensees, who provide, offer to provide, or arrange to provide goods or services to consumers in exchange for payment.
A telemarketer or seller may call a consumer with whom it has an established business relationship for up to 18 months after the consumer's last purchase, delivery, or payment-even if the consumer's number is on the national "do not call" registry. In addition, a company may call a consumer for up to three months after the consumer makes an inquiry or submits an application to the company. And if a consumer has given a company written permission, the company may call the consumer even if the consumer's number is on the national "do not call" registry.
For additional information about the federal do not call registry and rules, go to
Legal Update 03.03, or go to the FTC Web site
www.ftc.gov/bcp/conline/edcams/donotcall/index.html
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Homebuyers Must Shop for Insurance Early
by Debbi Conrad
Most homebuyers typically take the task of obtaining homeowner's insurance for granted. It is the job of the
REALTORŪ to make sure that this important step in the home-buying process is given priority and is addressed early in the home buying process. Insurance premiums are on the rise and the insurance industry is becoming increasingly cautious about what risks they will cover. For example, Wisconsin properties with 60 amp electrical service or water damage claims may be insurable only at a very high premium, if at all.
Unbeknownst to most consumers, insurance risk evaluations consider not only the property condition, but also the claims history on the property, past insurance claims made by the buyer and the credit history of the buyer. The claims history information that insurance companies use often comes from the Comprehensive Loss Underwriting Exchange (CLUE) database that tracks claims on properties and property owners. This claim information is shared by the 90 percent of insurance companies who report claim and inquiry information to the database.
CLUE reports detail every claim and most inquiries made over the past five years. A CLUE report may be obtained by a property owner from the Choice Point Web site
www.choicetrust.com for $12.95. Insurance companies use these reports and so should
homebuyers-REALTORSŪ should tell buyers to order the CLUE report on themselves and to require that sellers provide the CLUE report on the property being purchased. Buyers can find out about prior property damage and be prepared if there is going to be difficulty obtaining affordable insurance on the home.
All consumers should be aware that the insurance companies not only report claims to the CLUE database when the insurer paid out on a loss, they will also report telephone calls where the policy holder calls to ask an insurance agent what coverage and deductibles apply in a given situation. If any damage or loss is mentioned, it may end up in the CLUE database, even though the insured never made a claim and the insurer never paid any money. Thus it may be unwise for consumers to contact their insurers unless they are sure that they will file a claim.
Another piece to the homeowner's insurance puzzle is the insurance score, which is calculated based upon a person's credit history. The insurance companies assert that there is a correlation between a person's credit history and the likelihood that they will file an insurance claim. Rather than use a person's credit report to make this evaluation, the insurance companies streamline the process and use either the credit scores often used by lenders and credit card companies, or insurance scores. Credit scores and insurance scores are both based on credit history information, but computed using different computer programs - the credit score is designed to predict whether a person will pay their bills on time while the insurance score is designed to predict whether a person will have insurance claims.
A person may obtain his or her insurance score, along with a copy of his or her credit report, from the Choice Point Web site
www.choicetrust.com for $12.95. Buyers should be armed with this information even before they begin to shop for homes because their credit report information will impact their ability to obtain a mortgage as well as their ability to obtain affordable homeowner's insurance.
For further information about homeowner's insurance issues, see the
WRA's
Wisconsin Homeowner's Insurance Resource Page and Legal Update 03.04, Addressing Transactional Property Insurance Issues in Wisconsin
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WRA License Law and Forms Task Force Update
by Rick Staff
Forms Task Force Makes Improvements to Forms
The WRA Forms Task Force has been working on a potential new format for future DRL-approved forms. The Forms Task Force began with the goals of making the forms more readable, understandable and efficient. It is early in the development process but drafts of these preliminary forms are available for your review at
www.wra.org/Products/Forms/draft_forms.asp.
Among the individual decisions made by the task force was an increase in the font size of the print to improve readability. A second decision was to group the key transaction issues on the first page of the form. The task force is proposing to move parts of the offer which may not be used in every transaction from the body of the offer to addenda so that the length of the offer itself can be shortened. Provisions such as the various optional contingencies would be put in addenda allowing further refinement of the contingencies given the additional space afforded by the addendum concept. Each page of the offer would have lines for the parties to initial. An interesting concept being explored would be to have a single DRL-approved offer for most types of transactions. The basic form would become specialized with use of addendum for residential, vacant land, farm, condo, etc. This approach would make the offers used in the various transactions more consistent and easier to use.
The task force will be looking for your input. Again, these forms are early drafts requiring a great deal more development but please provide any comments or suggestions to Rick Staff at
rickstaff@wra.org.
Note: There is no attempt to make substantive language changes at this point in the process. If the forms do include any substantive changes, they are only included to raise questions for the task force to discuss.
License Law Task Force
The WRA's License Law Task Force was convened by Chairman Bob Weber for the purpose of reviewing Chapter 452 to determine if Wisconsin's real estate license law effectively protects consumers and guides licensees in the current marketplace. The task force is the successor to the License Law Task Force of a decade ago which led the nation in developing a statutory agency model which addressed some of the confusion and conflicts inherent in the application of generic common law principles to real estate practice.
The current task force has begun with several underlying goals:
- Ensure that the license law provides consumers the services that they expect from a real estate broker.
- Ensure that the license law provides brokers with a regulatory scheme which ensures consumer protection and which facilitates competent brokerage practices.
- Simplify the license law. As a general rule consumers and licensees benefit from a simpler license law model. As an example, the complexity of the current agency disclosure severely limits its effectiveness as an education tool.
With these broad goals in mind the License Law Task Force has developed an initial draft for discussion purposes. A copy of this preliminary draft can be found at
www.wra.org/Products/Forms/draft_forms.asp. Concepts addressed in the discussion draft include:
- The remnants of common law agency (dual agency, abstract standards such as loyalty) have not served the public or the industry and should be eliminated in favor of concise statutory principles.
- The current customer/client paradigm does not reflect the expectations or needs of consumers, nor is it consistent with competent real estate practice. For example, the most common way the industry distinguishes between client and customer relationships is that clients are given advice, customers only get information. In reality, customers are and should be provided advice relating to the broker's expertise in the real estate transaction. The task force is proposing to eliminate the dual statutory standards for duties owed to clients and all parties in favor of a single statutory model which establishes the minimum duties owed by licensees to all parties. Higher level duties would be established contractually in agency agreements.
- The task force is focusing on a "brokerage" model. This paradigm shift results in a variety of changes such as renaming the current salesperson license a "broker" license and the current broker license to something like "broker-employer" (this term may not be the final term). Additionally, more emphasis shall be given to the broker's primary function of using their professional brokerage skills to assist the party with whom the broker is working to accomplish the party's goal in the transaction.
- The task force will clarify the role of the broker (company), supervising brokers, brokers of record (the broker who puts up his or her license to license the entity), and brokers (salespeople) regarding their relative duties relating
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