|
|
Legal Matters
Best of the Legal Hotline
by Debbi Conrad
As summer approaches, buyers look for lots where they can build their dream homes and
REALTORSŪ see more new construction on the market. The following new construction questions were recently asked of the Legal Hotline:
Q. Sales of Construction Packages
A licensed real estate sales agent would also like to sell new construction packages for a homebuilder. Can the licensee do this? |
| A. The sales agent may sell construction contracts for the builder as long as the sales do not involve land. A construction or building contract is a contract for goods and services, and does not involve the sale of real estate.
The sales agent cannot sell real estate for the builder because she can be licensed to sell real estate with only one broker. She can only sell real estate through her real estate broker's office. The sales agent also cannot sell any package deals for the builder-lot plus construction or building contract-because these are also viewed as real estate sales.
|
Back to Top
Q. Builder's Model
Can an unlicensed person act as a hostess in a builder's model without a licensee present? |
| A. A license is not required if the only thing being sold is construction contracts-not the model home. A construction contract is a contract for goods and services and a real estate license is not required for this type of activity.
If the model, lots or other real estate is being sold, the agent 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. Typically visitors to an open house will expect a host or hostess to provide detailed information and other negotiation services that only a real estate license could provide.
|
Back to Top
Q. Lot Sales and Referrals to Builders
The listing agent for lots in a subdivision development often gets involved in referring buyers to the builder who is building homes in that development. Can the listing agent receive any commissions or referral fees from the home builder? What disclosures must be made? |
| A. Whether the agent receives any compensation for referring prospects to the builder will depend on whether the agent's company has any policies regulating this activity and whether the agent has an agreement with the builder. Contracts with builders for referral fees should always be in writing and should be specific about what must be done to earn the fee. A construction contract is a contract for goods and services, so a real estate license is not required for this type of activity. Therefore, no real estate commissions would be involved.
If the agent refers the vacant lot purchaser to the builder, Wis. Admin. Code § RL 24.05(3) would require disclosure to the buyer, prior to or when the referral was made, that the agent may receive a referral fee from the builder.
Since the lot is being purchased from a separate seller, the agent's client, at the same time that the referral to the builder is made and the construction contract is negotiated, it could be argued that the agent will be compensated by a "party" other than the agent's client. § RL 24.05(1) would require the prior written consent of all parties if the agent was going to receive dual compensation from the builder as well as the seller/client.
|
Back to Top
Q. Construction Contract
The listing broker wants the selling broker to not use the offer to purchase and to instead complete a construction agreement to sell the home the builder will construct on the lot. Can the cooperating agent complete the construction contract form? |
| A. No. A construction contract will not transfer an interest in the land. An offer to purchase must be used to purchase the real estate. A vacant land offer may be used with the construction or building contract attached as an addendum to the offer. The negotiation of the construction contract will not be part of the real estate transaction because a construction contract is for goods and services; a real estate license is not required for this type of activity.
|
Back to Top
Q. Downpayment
Re: New construction and downpayment/earnest money. The builder/seller that the listing broker is working with has requested that instead of having earnest money kept in a trust account, the builder, with buyer's agreement, will use the money to get the building project started. What is the correct way to handle this? |
| A. The builder/seller may have a nonrefundable downpayment for construction provided that the offer to purchase is modified to reflect that fact. This means lining out the standard earnest money provisions and stating that the money will be paid directly to the builder/seller and will not be held in the broker's trust account. If the money were refundable, then the parties would need an escrow agreement indicating when and how the money would be released. In new construction projects, however, it is not unusual to have the initial money paid by the buyer be nonrefundable.
|
Back to Top
Q. RECR
Is a RECR required on new construction? |
| A. All sellers subject to Wis. Stat. Chapter 709, whether broker-assisted or FSBO, must complete a Real Estate Condition Report (RECR) or risk rescission of the offer to purchase. Chapter 709 generally applies to all persons who transfer real estate containing one to four dwelling units, including condominium units, time share property, living quarters in a commercial property, etc. Chapter 709 does not apply to new construction-real estate which has not been inhabited. It also does not apply to personal representatives, trustees, conservators and other fiduciaries appointed by or subject to supervision by the court, but only if those persons have never occupied the property, and transfers exempt from the real estate transfer fee, e.g. between spouses, foreclosures, probate transfers, etc.
|
Back to Top
Q. Disclosure of Reassessments
Re: Tax prorations. A new construction property closed on Oct. 31, 2001. The taxes were prorated on the 2000 taxes. When the new buyers received the tax bill, it had gone up $1,500. The seller was aware of an increase, but put on the RECR that they were not aware of any other increase other than annual increases. What is buyer's recourse? |
| A. Item C.22 on the RECR states that "I have received notice of property tax increases, other than normal annual increases, or am aware of a pending property reassessment." If the seller received a reassessment notice when the property was reassessed in 2001, the seller arguably should have disclosed it on the RECR. This apparently was not a normal annual increase-it was a substantial reassessment due to completion of new construction. Also see lines 53-63 of the residential offer which call for the seller to disclose any completed or pending reassessment of the property.
If the listing agent was aware of this increase and knew that the seller did not list it on the RECR or disclose it in the offer, the listing agent arguably should have disclosed the reassessment to the parties.
The selling agent presumably knew that this property was new construction and arguably should have asked whether there had been any reassessments. Licensees should be knowledgeable about real estate transactions and know that properties are assessed as of the first day of the year and that any time construction is completed after that date, there will be a reassessment the following year.
|
Look for Part Two of the Best of the Legal Hotline's new construction questions in next month's Wisconsin
REALTORŪ.
Back
to Inside This Edition
Return to On-Line
Publications
New Agency Disclosure in "Plain
English" for Customers
At the recent WRA Strategic Planning and Director meetings, agency law and agency disclosure were the subject of significant discussion. While the primary focus of the discussions were concepts for future statutory and administrative revisions, the idea of simplifying the current agency disclosure form was raised. At the direction of the WRA Board of Directors, a draft of a "Plain English" agency disclosure was developed. The draft form consists of two parts, the more-or-less "plain English" first page, which appears to the right, and the second page which contains the statutory language which has been the content of the current forms. This form is designed for customer use only as the agency agreements all contain the formal agency disclosure language. This particular version is intended for buyer customers, and a seller customer form would likely be developed if the concept is ultimately approved. The first page also includes the traditional confidentiality language that is mandated by statute. The entire form can be found on the WRA's Web page at
www.wra.org/Products/Forms/draft_forms.asp.
We would like your input on the concept and the draft. We are in the very early stages of development and are readily able to incorporate member suggestions as the form is revised.
Please e-mail Rick Staff at the WRA with your comments, or fax them to him at
(608) 242-2279.
Back
to Inside This Edition
Return to On-Line
Publications
Does it Have Air?
Answers to Questions About Air Conditioning in Properties
by Tracy Rucka
Q. A REALTORŪ had a listing which she entered on the MLS as having central air because she thought there was. After an offer was accepted and an inspection was done, she found out there is no central air in the property. What is the
REALTORŪ's obligation?
A. A Wisconsin licensee can be found liable to a buyer for making inaccurate statements which appear to the buyer to have been made from the broker's own personal knowledge. In Wisconsin, the law provides that an inexperienced buyer should be entitled to rely on the factual statements made by a professional.
The REALTORŪ may do some investigation to determine what the costs would be to have air-conditioning installed in the property. Once this has been determined, the broker may negotiate with the buyer or have all the parties in the transaction negotiate about allocation of costs. If parties come to an agreement, the offer should be amended to evidence agreement.
Q. A transaction closed on new construction. On the MLS sheet it said there was central air. After moving in, the buyers called and said that the contractor had not yet contacted them about setting up the air conditioning unit. Due to health and financial issues, the contractor is currently unable to provide an air conditioner. The buyers are planning to buy air conditioning. What can the
REALTORŪ do to get an air conditioning unit for the buyers?
A. Although the buyers may elect to buy an air-conditioning unit and have it installed, whether they can sustain a claim for damages or costs from the seller/builder will only be determined by negotiation or litigation. Buyers should be referred to legal counsel for legal advice on claims about the air-conditioning unit because the
REALTORŪ cannot give buyers legal advice about how to best proceed with these issues.
Whether the REALTORŪ becomes involved in the acquisition or installation of the air conditioner will be up to his discretion. Because doing so may incur liability for the
REALTORŪ or his company, he may work with the broker-owner to determine whether the broker wants to be involved in negotiations with the buyer to buy and install an air-conditioning unit.
Q. A REALTORŪ received a listing off of the MLS. The listing sheet said there was central air. The
REALTORŪ showed the house and the people made an offer. It was in the winter and they did not walk around outside. The buyers had a home inspection, but the home inspector didn't check the air conditioning either. The buyers did a walk-through before closing but did not discover that there was no central air until after closing. What are the obligations of the listing broker and the selling broker?
A. Although the misrepresentation was the listing agent's, the other parties to the transaction share some role in the process as well. The buyer is normally expected to perform a reasonably vigilant inspection of the property. Given the property's radiant heat and lack of any suggestion of air conditioning inside or outside, the question must be asked whether the buyer reasonably relied upon the misrepresentation. This issue is more important for the selling agent whose status as a licensee with a duty to perform a reasonably competent and diligent inspection may or may not have been fulfilled given the lack of disclosure of no central air. The seller has, in effect, benefited from the misrepresentation. The buyer indicates that the price included air conditioning and, therefore, the seller may participate in negotiations. If a settlement cannot be reached, the parties should be referred to legal counsel.
To hold the seller liable, the buyer will generally need to demonstrate that the seller knew there was no air-conditioning, which she concealed or failed to disclose. Broker liability, on the other hand, generally arises in one of three ways: misrepresentation (including failure to disclose where this is required), failure to meet a licensing standard which has become a standard of performance (for example, failing to investigate and disclose as required by Wis. Admin. Code § RL 24.07), and undertaking the performance of a specific duty and failing to do it properly. Misrepresentation would be involved if the broker had stated incorrectly that the particular part of the property was in good condition. Liability for misrepresentation could be founded on fraud (intentional), negligence, or strict responsibility. It would be considered failure to meet a licensing standard if the problem could have been detected by a reasonably competent and diligent investigation and it was not; or, if found, it was not disclosed (also a species of misrepresentation). Volunteering to do something, such as having an expert check the septic system, and not doing it properly (selecting an incompetent person to do it, for example) could also give rise to liability for property conditions.
Q. A REALTORŪ has buyers who have an accepted offer, and the inspection was done yesterday. The sellers told the listing agent that there was central air, so the MLS sheet says there is. During the inspection, it was discovered the property does not have central air. The
REALTORŪ and the listing agent are trying to work out a solution (adjust price or have the sellers pay closing costs). The listing agent left the
REALTORŪ a message saying that there is a secondary offer coming in and that the sellers are now unwilling to do anything about the central air. Are the sellers liable? Can they cancel the buyers' offer?
A. Whether the buyer would have a claim for misrepresentation must be reviewed in light of all the facts in the transaction. The basic elements in misrepresentation are: (1) the defendant must make a material factual representation, (2) which is not true, and (3) the plaintiff must believe the representation is true and reasonably rely on the representation to his or her detriment.
Now that the buyer is aware that there is no central air, negotiations must be undertaken before closing or the buyers will forgo their claim to misrepresentation. Although the parties may agree to negotiate or agree to a cancellation agreement and mutual release, the seller cannot unilaterally cancel the offer to purchase to proceed with the secondary offer. Legal counsel may be consulted to give advice on how each of the parties should proceed in the transaction.
Q. A buyer is buying a house that was not indicated on the MLS to have central air. When the home was shown, the central air unit was outside and it was connected to the furnace. It could not be turned on because it was under 54 degrees. The condition report did not say anything concerning the central air. During the home inspection the tenant told the
REALTORŪ that the central air is not working and has not worked for over a year. The home inspection time frame is over. The listing agent has said that the seller told her at the time of the listing that the central air did not work, so that is why they left it off the MLS listing information. The listing agent thinks that she has done nothing wrong and that the buyer has to take the house as it is.
A. The seller is required to make disclosures about defects in the real estate condition report and the broker is required to make disclosures of material adverse facts. The fact that the seller was aware of the defect and failed to disclose could be considered concealment and may be material and grounds for rescission of the offer to purchase. The parties may try to determine what is wrong with air conditioning and have bids on costs to replace or repair it. Once this information is determined, the parties may elect to renegotiate the offer to purchase.
Whenever a real estate licensee knows that a seller's representations on a real estate condition report are inaccurate or incomplete, the broker is required to make disclosures of material adverse facts. If the seller did not disclose the fact that the air-conditioning did not work, item C 13 on RECR, the broker should have disclosed the information in writing in a timely manner.
Q. A REALTORŪ has a buyer agency and has an accepted offer on a manufactured home. The floor plan sheet that the buyer was given from the listing agent had listed things included with the home. Handwritten on the sheet was central air and a lower level patio door. The closing is coming up and the listing agent is saying they are not going to include central air. Can they do this? It was not specifically mentioned in the offer.
A. The terms of the offer, as negotiated, will dictate whether the seller will be obligated to include central air. The parties will have to determine if the package described in the offer included central air. If the floor plan sheet was properly incorporated into the offer, the air and patio doors would be made a part of the transaction. If the seller refuses to include central air and the buyer believes a misrepresentation occurred, the buyer should consult legal counsel prior to closing.
Q. A REALTORŪ closed on a duplex property in which the seller occupied the upper unit. In the initial offer, only one window air conditioner was listed in inclusions. Now the buyer is asking for a second air conditioner for the seller's unit. Is a window air conditioner a fixture?
A. Only central heating and cooling units are itemized as fixtures in the offer to purchase. Therefore, whether this specific window air conditioner is a fixture would be determined by the general definition of fixture in the offer to purchase. A fixture is an item of property which under certain circumstances may be treated legally as personal property but which has become so attached to land or buildings, or is used in such close association with the land or buildings, that it is treated as a part of the land. The courts have attempted to lay down certain tests to determine when an article takes on the character of a fixture. (1) Is the article physically attached? Is it easily removable without damage to the premises? If it cannot be removed without serious damage either to the item or premises, it is practically conclusive that it is a fixture. (2) Is there a special adaptation between the article and the premises? (3) What is the intent of the person attaching the article to the premises? Are there general community "customs"?
None of these tests are conclusive on their own nor do they operate mechanically. When in doubt, the parties should clearly agree in advance on the nature of such items. The seller must expressly reserve the |
