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Legal Matters
Best of the Legal Hotline
by Tracy Rucka & Debbi
Conrad
All listing brokers should ask the seller whether a property has
been previously listed by another broker. Under the terms of the
listing contract, the seller agrees to give a new listing broker the
names of protected buyers - that is, a list of all persons whose
procurement would be earn another broker a commission under prior
listing contracts. The following listing protection questions were
recently asked of the Legal Hotline:
| Q. Is it up to the first listing broker to find out who is going to list the property next and submit the list of protected names accordingly? |
| A. The second listing broker should contact the first listing broker for a list of protected names if the seller is unable to supply this information. In addition to sending the list of protected buyers to the seller, as required by the listing contract, the first listing broker may also give a list of the protected buyers to the second broker as a professional courtesy.
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| Q. The second listing broker has asked the previous listing broker for a list of protected buyers. The previous listing broker has not supplied the list of protected buyers in a timely manner and sellers do not have a copy of it. How to proceed? |
| A. The seller or a second listing broker may make a written request to the previous listing broker for a list of protected buyers per lines 76-77 of the WB-1 Residential Listing Contract. The previous listing broker is contractually obligated to promptly give the seller a written list of all protected buyers. The seller may then forward the list to the second listing broker. If the previous listing broker does not provide this list, he or she may lose all listing protection rights.
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| Q. The property was previously listed with another company. When the listing expired, the first listing broker delivered, within three days, a list of protected buyers to the seller. An agent from that company is now showing the home to buyers on the list and contacting the seller directly. Is that ethical? |
| A. Yes, when a buyer is protected under listing protection, the first listing broker has, in essence, a one-party listing for the protected buyers during the override period. The first listing broker may continue to show the property to the protected buyers, negotiate with the seller with respect to these buyers, and draft offers for these buyers. Any offers from these buyers are presented directly to the seller by the first listing broker. The first listing broker will earn the listing commission if a protected buyer's offer is accepted and closes.
Because these buyers are protected under the first listing contract, they are automatic exclusions from the second listing contract (lines 41-43 of the WB-1 Residential Listing Contract Exclusive Right to Sell). Therefore, the second listing broker has no authority to work with the seller regarding the protected buyers and their offers unless otherwise agreed.
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| Q. A seller had her house for sale FSBO before listing it with a broker. Can the seller exclude people from the listing contract that attended her open house? |
| A. Yes. When entering into a listing the seller may name any buyers she would like to exclude from the listing contract. The seller is not required to give any explanation, but these buyers often include relatives and friends of the seller. Excluded buyers should be listed as exclusions at lines 46-47 of the WB-1 Residential Listing Contract Exclusive Right to Sell. If these buyers inquire about the property they should be referred directly to the seller or legal counsel. The listing broker has no authority under the terms of the listing to provide any services with respect to these buyers.
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| Q. Is the listing protection of a prior broker affected by the fact that the second broker has listed the property on different terms, e.g. a lower list price? |
| A. No. Unless the listing contract language has been modified, the fact that a prior broker has properly protected the buyer will automatically exclude that buyer from the second listing regardless of the terms of the second listing contract (e.g. lower purchase price).
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| Q. The second listing agent wrote an offer that was accepted and it closed. After the closing, it was determined that the buyer was protected under the prior listing and therefore the buyer should have been excluded from the second listing contract. How to proceed? |
| A. Because the first listing broker's right to commission is based upon his listing contract with the seller, the first broker may sue the seller for commission. To avoid litigation, the seller and the two brokers may choose to resolve the issue by mutual agreement. If an agreement cannot be reached, the first listing broker may sue the seller and the seller may join the second broker in the action to try to recover the commission paid to the second listing broker in error. The seller should be referred to legal counsel for advice about listing protection rights and the seller's obligation to pay commission.
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| Q. The sellers have canceled their listing contract with a company that was not providing proper service. The first listing broker is not returning the sellers' calls regarding a CAMR for the offer to purchase. Can the second listing broker take over on this transaction? |
| A. The second listing broker cannot provide brokerage services for the ongoing transaction. The listing contract provides that buyers that would earn a prior broker commission under the previous contract are excluded from the second listing. Therefore the second broker has no legal authority to provide services for the existing transaction.
Unless the seller and first listing broker otherwise agree, the first broker retains the responsibility to provide services for any pending transactions. The second listing broker must refer the sellers to an attorney or the first broker regarding the CAMR on the first offer.
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| Q. A seller provided a handwritten exclusion list with the original listing contract. The list included FSBO buyers, as well as buyers protected under the previous listing. One name from the prior broker's list was "John D. from Illinois." The new listing broker has now received an offer from another broker and one of the buyers is "John Doe from Illinois," who could be the prior broker's exclusion. Since the seller and the prior broker did not provide a complete name, is the buyer considered a legitimate protected exclusion? What are the consequences for the second listing broker? |
A. Any provision entitling a broker to a commission after the listing expires will be strictly read against the broker. The listing contract requires a list of buyers' names. Here the seller's list has only a partial name which does not identically match the name of the buyer now making the offer, although it is similar.
Case law supports the conclusion that there is no listing protection under these circumstances. See Dunn & Stringer Inv. Co. v. Krauss, 264 Wis. 615, 60 N.W.2d 346 (1953); Klapinski v. Polewski, 19 Wis. 2d 124, 119 N.W.2d 424 (1963). Consequently, the previous listing broker does not appear to have a protected buyer and the buyer writing the offer is subject to the second listing.
For further discussion of listing protection issues, see Legal Update 99.01
or go to the Legal Hotline Library at www.wra.org/Legal/Hottips/listing/listing_extensions.asp
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NAR Offers MLS Groups Guidelines on Fair Use of IDX, VOW and LR
by Debbi Conrad
While technological tools rapidly offer many new business techniques to
REALTORS®, guidelines for using them have often lagged behind. New techniques are appearing on the scene for advertising (IDX), identifying properties for a buyer (VOW), and helping sellers control their costs (LR). The National Association of
REALTORS® provides general guidelines for these techniques, but final rules in all of these areas rest with the individual MLS.
Internet Data Exchange (IDX)
REALTORS® should no longer be shocked to discover that their competitors are displaying listings from other MLS companies on their Web sites. This is IDX at work.
IDX is advertising. In order to advertise another broker's listings, you need the listing broker's permission. IDX allows participating firms to give each other blanket permission to advertise each other's listings. Each MLS participant giving this permission also receives reciprocal permission from other participants. Participants who opt out of IDX cannot display listings from other participants. Each MLS is required to implement an IDX policy and displaying listings on Web sites is subject to MLS rules.
IDX rules apply to all MLS participants regardless of whether they host a Web site. A participant who withholds listings from IDX is not permitted to display other participants' listings. The MLS may provide a means for participants to withhold listings on a firm-wide basis, on a listing-by-listing basis, or both. The MLS determines whether the addresses of listings should be displayed on the Internet. Most MLS systems allow participants to determine which listings or the type of listings they will display on their Web sites, often using categories such as property type, list price, or geography. NAR's IDX policy recommends that the listing firm and agent be identified, but once again, that is up to the local MLS.
Virtual Office Web site (VOW)
A virtual office Web site (VOW) refers to a business model where a participant's Web site functions as the electronic equivalent of the participant's office. The consumer "walks in," "says her name," "talks to an agent," "shakes hands" and receives access to listing data matching her interests and stated ability to pay. In other words, she visits the site, identifies herself (probably with an e-mail address), interacts with the Web site (a sort of electronic agent), then shakes hands using a Web site ID and/or password. The VOW Web site includes active listings of other MLS brokers (who may or may not participate in IDX), displays listings to qualified buyers interested in the listings, and prevents unqualified, general access to this information through a password barrier or other firewall. It is like having your entire office automated and stationed online.
What distinguishes a VOW from IDX is the registration requirement that visitors must enter an e-mail address and obtain a password prior to accessing MLS listing data. This is no longer strictly advertising, like the IDX - it is automated interaction with a customer. Unlike IDX, some VOWs display every listing and all of the data fields because the broker believes he is entitled to provide visitors with the same listing information via a VOW that could be provided if a consumer were physically present in a broker's place of business. There is no universal agreement about desirability or legitimacy of
VOWs.
VOWs are subject to existing MLS policies, including those governing reproduction and distribution of MLS information (Section 12 of the model MLS rules in the Handbook on Multiple Listing Policy).
For example, MLS rules generally allow participants and their affiliated licensees to reproduce from MLS compilations and provide to prospective purchasers, a "reasonable" number of listings which, in their judgment, potential purchasers may be interested in.
Limited Service or Limited Representation Listings (LR)
Limited service brokers are licensed brokers who offer their seller-clients little or no property marketing services other than submitting the property listing to MLS, often for a flat fee. The listing also commonly provides that the seller will pay a fee to any cooperating broker involved in the sale of the property.
NAR policy requires an MLS to accept legal exclusive right-to-sell or exclusive agency listings that offer compensation to cooperating brokers. By the very nature of the MLS, submitting a listing for inclusion in the MLS constitutes the listing brokers' offer of compensation and/or cooperation to other MLS participants. The MLS may not reject these listings on the basis that the listing broker provides only a limited degree of service to the seller, or even
no service at all other than submission of the listing to the MLS.
It is also inappropriate for an MLS to reject these listings simply because the listing agreement provides that the seller, instead of the listing broker, will pay the cooperating broker. The offer to compensate cooperating brokers is made through the MLS by the listing broker, and the listing broker is obligated to pay, and arbitrate any compensation disputes. The listing contract can, however, provide that the seller will satisfy the listing broker's obligation to compensate the cooperating broker.
An MLS may, in its discretion, adopt a "disclosure rule" whereby the listings of limited service brokers are identified in the MLS so that cooperating brokers know at the outset that they may have to provide more services than "usual." NAR has developed suggested language for an MLS to consider if it wishes to apply such a rule. This language may be adopted as is or as amended by the local MLS:
Any listing with respect to which the listing broker is not obligated to provide, and will not be providing, any "substantial services," as defined herein, must be designated by the code "LR," Limited Representation. Use of that code serves only to distinguish such a listing from other listings with respect to which listing brokers will provide substantial services, regardless of whether the listing is an exclusive agency or exclusive right-to-sell listing. For purposes of this rule, the term "substantial services" includes, but is not limited to, the listing broker's participation in presentation of offers to purchase the listed property to the seller, the seller's consideration of such offers, or the seller's making any counteroffers.
REALTORS® should be familiar with the current rules of their local MLS. Detailed information on IDX policy, and on IDX technology solutions, can be found on the Law and Policy site of REALTOR.org. Also see NAR's Field Guide to Internet Data Exchange (IDX) and Virtual Offices Websites
(VOWs), click
here.
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REB Update
The REB met in Madison on August 22. The REB was presented with the reports from the Curriculum Council and the DRL’s Real Estate Law Review Committee. The Law Review Committee report included recommendations for revised broker supervision rules and a clarification of the timing of agency disclosure at open houses and at first meetings with buyers which occur at a property to be shown.
The Curriculum Council is proposing significant improvements to the pre-license sales and broker curriculum to make each more practice orientated. The Council also offered a proposal for the nest biennium’s continuing education curriculum. Finally, the Council recommended that persons attending
SIOR, CCIM and CPM designation courses be able to apply the designation course work for up to 9 hours of the continuing education requirements for the 2003 - 2004 biennium. The REB accepted the report of the Curriculum Council.
The new rules and the prelicense curriculum will take several months to finalize. Please review the material and provide comments to Rick Staff at the WRA.
The Curriculum Council Minutes, Outline 2003-2004 CE Curriculum and Proposed Broker Supervision and Agency Disclosure Rules are posted on the WRA’s Web site at:
Curriculum Council Minutes
Outline 2003-2004 CE Curriculum (outline only)
Proposed Broker Supervision and Agency Disclosure Rules
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Letter Does Not Put An End To HUD Administrative Fee Issue
Despite recent correspondence with HUD Secretary Martinez, the debate regarding
REALTORS® charging fees which are not associated with services to customers remains.
At right is the text of Martinez' letter regarding the debate over
REALTORS® charging administrative fees. WRA and NAR staff have discussed the letter and agree that it does not eliminate issues regarding
REALTORS® charging fees which are not associated with services to consumers.
Laurie Janik's advice to the Virginia REALTORS® Association follows. The concern shared by WRA staff is that mere disclosure of fees, which HUD may later declare violates RESPA, may not be adequate protection against attorneys seeking class action lawsuits against Wisconsin brokers.
A more conservative position would be to identify any fees which cannot be directly related to a specific consumer service as commissions.
REALTORS® may wish to review their fee policies with legal counsel as HUD has done little to clarify its position on this issue for the real estate industry.
Janik Clarifies New RESPA Rules For Virginia Association
NAR General Counsel Laurie Janik wrote to VAR recently to clarify that the letter from HUD Secretary Martinez to NAR President Martin "does not say that transaction fees are not settlement fees, as I've read reported by some of the real estate press."
"All the letter said is that HUD was not thinking about real estate brokers' transaction fees at the time it developed the policy statement last fall. In other words, we were not the reason they wrote the policy statement. They were directing it at a different problem, which is markups by lenders of third party charges. For example, when a consumer gets a loan, and a credit check is required, may the lender lawfully mark up the cost that lender paid for the credit check and charge the consumer more? HUD's policy was directed at this practice, which it thinks ought to be prohibited."
"The letter from HUD does not say that last fall's policy statement does not apply to real estate broker transaction fees. That is what we asked HUD to say, and Martinez couldn't do it. The letter merely says they weren't thinking of us when they wrote the policy."
"To me, this means real estate brokers should have no worries that HUD will be bringing any actions challenging their transaction fees. It should also signal to others who might have been thinking about challenging the fees that they won't be able to argue that the HUD policy was directed at transaction fees. Brokers should continue to disclose these fees in writing to buyers or sellers (whoever is paying the fee) up front and should also include the fees on the HUD - 1 forms." |
HUD Secretary Martinez' Letter:
July 18, 2002
Mr. Martin Edwards, Jr.
President, National Association of REALTORS®
430 North Michigan Avenue
Chicago, IL 60611-4087
Dear Mr. Edwards:
Thank |
