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Legal Matters
Best of the Legal Hotline - Advertising Issues
by Debbi Conrad &
Tracy Rucka
The following advertising questions were recently asked of the
Legal Hotline:
| Q. Can a broker put a "for sale" sign
on a property that is not listed? |
| A. No signs may be placed on a seller's
property without a current listing contract. Real estate
licensees cannot provide brokerage services, including
advertising, without proper agency authority. |
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| Q. What is the rule for the
placement and size of the agent's name in an ad for a listed
property? Can the agent's name appear at the top of the ad with
the broker's name at the bottom? Can the agent's name be bigger
than the name of the company? |
| A. § RL 24.04 requires that advertising clearly state
the broker's name exactly as it printed on the broker's license
or disclose a trade name previously filed with the DRL. The DRL
does not regulate relative placement of agents' and brokers'
names, font size, color or other features in ads. |
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| Q. How much money can a broker
give to a client as a gift for listing or selling a house? Can
the gift be in the form of cash, item or certificate? |
| A. Incentives may be offered to sellers and/or buyers
to induce them to sell or purchase real estate. Seller or buyer
incentives can be offered in any amount as cash or as an item of
personal property such as a home warranty plan, a savings bond,
a gift certificate, an appliance or some other item. Such
incentives must be clearly documented in advance - prior to
closing. The parties must have a clear and thorough
understanding of the incentive's terms and conditions. This
advance documentation of the party incentive is necessary to
establish that the incentive is not a fee-splitting arrangement
with a non-licensee, which would be illegal under Wisconsin law. |
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| Q. A broker would like to put an
ad in the paper with a coupon that says the broker will give the
seller $200 at closing if the seller lists with the broker. |
| A. Standard of Practice 12-3, which interprets
Article 12 of the Code of Ethics, provides that: "REALTORS shall
be careful at all times to present a true picture in their
advertising and representations to the public. The offering of
premiums, prizes, merchandise discounts or other inducements to
list, sell, purchase, or lease is not, in itself, unethical even
if receipt of the benefit is contingent on listing, selling,
purchasing, or leasing through the REALTOR making the offer.
However, REALTORS must exercise care and candor in any such
advertising or other public or private representations so that
any party interested in receiving or otherwise benefiting from
the offer will have clear, thorough, advance understanding of
all the terms and conditions of the offer." This standard
assumes that the omission of even one detail may cause the
advertisement to present less than a true picture. This may be
disputable should someone bring an ethics complaint concerning
an ad for party incentives that does not contain every detail -
the issue will be whether the ad presents a true picture of the
offered incentive. An ad that states, "see broker for details,"
however, is like a red flag waving in the face of a competitor
who lives by the Standards of Practice - it may be seen as an
admission that less than a true picture has been presented in
the ad. |
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| Q. Can an agent advertise
in the newspaper for a property if she is working with a buyer
as a buyer's agent? |
| A. Yes, if the broker has an actual buyer and the ad
is for property that would meet the buyer's criteria.
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| Q. When can a sold sign go
on a property? |
| A. Under the Code of Ethics and the DRL rules, a
broker must have a listing before placing a lawn sign on a
property. Lawn signs suggest to the public and other licensees
that the broker placing the sign has an active listing.
Therefore, placing a lawn sign without a listing contract would
be misleading advertising. A lawn sign, even if it has been
stickered or otherwise modified to indicate the property has
been sold, must be removed when the listing contract expires
upon closing. After closing, the listing broker's permission
from the seller to advertise by posting a lawn sign is no longer
effective because the property is now owned by the buyer. DRL
policy, however, permits brokers to have a sold sign on a
property for a reasonable number of days following the closing
if the broker obtains the permission of the buyer. § RL 24.04
prohibits false, deceptive and misleading advertising. Sold
signs can be put on a property after the transaction closed
without violating this rule. The DRL Real Estate Board also has
interpreted this rule to mean that a sold, contract pending or
similar sign may be posted only when all contingencies have been
met or removed and the seller has given approval, knowing that
these types of signs will likely have the result of slowing or
stopping sales activities on the property.
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| Q. Can the selling agent
send a post card to the neighborhood saying that they sold
another broker's listing in the area? |
| A. Standard of Practice 12-7 provides that "Only
REALTORS who participated in the transaction as the listing
broker or cooperating broker (selling broker) may claim to have
sold the property. Prior to closing, a cooperating broker may
post a 'sold' sign only with the consent of the listing broker."
The references to cooperating brokers in this standard include
selling brokers (subagents) and buyer's brokers. Accordingly,
there may be two different brokers claiming to have sold the
same property: the listing broker and the cooperating broker. |
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| Q. A California lender has
acquired a property via foreclosure and has listed the property
on eBay. The lender is demanding that offers be submitted via
eBay bids. The listing agent has a formal written offer, but the
seller wants it submitted through eBay. Is it permissible for
the listing agent to submit the offer on eBay and then follow up
with the written offer? |
| A. Although sellers may elect to use additional
methods to advertise property for sale, including eBay,
Wisconsin licensees must abide by Wisconsin law and generally
must use approved forms when acting as an agent in a real estate
transaction. However, § RL 16.04(3) provides that a real estate
licensee may negotiate an agreement between the parties and
permit the parties or an attorney to prepare the written
contract. Arguably, if the use of eBay does not constitute
negotiation, and the submission of a bid is not an offer to
purchase, the broker could use eBay for the transmission of an
offer. The buyer or buyer's attorney are not precluded from
entering their bid on eBay.
Before using eBay or other Web-based services, the agent
should work with his broker and the broker's legal counsel to
evaluate whether Wisconsin licensees can lawfully use eBay for
implementing real estate transactions. |
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| Q. If an agent advertises
100 percent financing on a sign, does that trigger Regulation Z?
What about in a newspaper? |
| A. Regulation Z, also known as the "Truth-in-Lending"
regulation, contains disclosure rules applicable to REALTORS who
advertise real estate financing terms. If an ad contains any of
the triggering terms, then the ad must also contain (1) the
dollar amount or percentage of the down payment; (2) all of the
repayment terms including the number and amount of the payments
and the period of repayment; and (3) the "annual percentage
rate," using that term or the abbreviation "APR." Triggering
terms include the dollar amount or percentage of the down
payment, the number of payments, the period of repayment, the
amount of any payment, or the amount of any finance charge.
There is, however, a little-known exception to the general rule.
The use of the down payment by itself in an ad does not trigger
the Regulation Z disclosure requirements unless the transaction
is a credit sale. A credit sale will be present in residential
real estate transactions only when the seller is offering seller
financing and the seller has provided seller financing in
residential transactions more than five times in the current or
preceding calendar year.
Mortgages from banks and other lenders are loans, not credit
sales. Thus, an ad placed by a real estate agent containing only
the down payment percentage for a mortgage available through an
area lender is not subject to Regulation Z. If such a financing
ad also includes any other triggering term, for example, the
monthly payment amount, the additional disclosures required
under Regulation Z would be triggered. |
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| Q. A broker is working with
a seller who has a two-bedroom home with a finished lower level.
There are also two bedrooms in the basement. The broker told the
seller that she could not call these bedrooms because of the
window size. The seller wants to know if this is a law. When can
a broker advertise basement rooms as bedrooms? |
| A. A frequently raised question is whether or not a
"legal" bedroom can be located in the lower level of a home. The
following are requirements from the Department of Commerce
administrative rules concerning "habitable rooms" (including
bedrooms) located below grade. Exits
- In general, all basements and ground floors must have at
least one exit that is either a door to the exterior of the
building or a stairway or ramp that leads to the floor above.
- If there is a bedroom in the basement or ground floor,
there must be at least two exits located as far apart as
practical.
- In addition to the required first exit above, the second
exit can be a door to the exterior of the dwelling, a stairway
or ramp that leads to the floor above, a stairway that leads
to a garage provided the garage has an exit door other than
the overhead door, or an egress window (see below for the
requirements of an egress window).
Windows
- In general, all habitable rooms must have natural light by
means of glazed openings. The area of the glazed openings must
be at least eight percent of the net floor area of the
habitable room.
- If the window is used for exit purposes ("egress window"),
it must be openable from the inside without the use of tools
or the removal of a sash (storm windows and screens must also
be openable from the inside).
- The size of the net clear window opening of an egress
window must be at least 20 inches by 24 inches (irrespective
of height or width).
- The lowest point of the clear opening of an egress window
must not be more than 60 inches above the floor.
- If the lowest point of the clear opening of an egress
window is more than 46 inches above the floor, a permanent
platform at least 20" wide x 9" deep and capable of supporting
at least 200 pounds must be installed so that the top of the
platform is no more than 46 inches below the clear opening and
not more than 24 inches above the floor.
Ceiling Height
Bedrooms shall have a ceiling height of at least seven feet.
However, a bedroom may have ceiling heights of less than seven
feet if at least 50 percent of the bedroom's floor area has a
ceiling height of at least seven feet.
Other Issues
- Is there proper electrical service (outlets, switches,
etc) in the bedroom?
- Is there proper ventilation and interior circulation?
- If the property is served by a private waste disposal
system (i.e., septic, mound, other), is that system sized and
approved for another bedroom?
- What is the heating source for the bedroom?
- What is the degree of finishing of adjacent areas and the
areas used to access the bedroom?
- Is the size of the room sufficient to meet the needs of
use as a bedroom?
As always, the parties are encouraged to consult with
appropriate third parties to ensure all necessary requirements
are met. |
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Dealing
With Mortgage Funding Problems
by Rick Staff
An increasingly common problem in Wisconsin real estate
transactions is the failure of buyers to have mortgage funds available
at closing. Although this problem is usually out of the control of the
buyer, it is the buyer's obligation (under DRL offer language) to pay
the seller the purchase price at the time of closing.
Delays in funding are the result of the fact that many lenders now
use funding mechanisms that do not allow the loan closer to disburse
without approval by the funding source and/or receipt of wired funds.
A common WRA Legal Hotline call involves a loan funded by a California
company that wires funds exclusively at noon and 4:00 p.m. Pacific
time. Loans closing at 4:00 p.m. Central time will close after the
noon wire (2:00 p.m. Central) and before the 4:00 p.m. Pacific wire
(6:00 p.m. Central). Unfortunately the 4:00 p.m. Pacific wire arrives
after the Wisconsin lender's bank has closed for the day and the funds
are not available until the next day. Given that most large states
close transactions in escrow, it is not too surprising that the need
of Wisconsin buyers to have loan proceeds at closing is not high on
the radar screen of many lenders. However, it is an important enough
problem that buyers, lenders and brokers will need to work together to
avoid unnecessary problems.
Various ways of addressing the problem exist, ranging from contract
provisions that require buyers to use lenders that disburse funds
directly at the closing table, cautioning the buyer to verify that
funds will be available at the time of closing, and careful planning
of closing times based on the procedures of the funding entity.
While the concept of contract provisions requiring buyers to use
lenders that disburse funds directly at the closing table is
appealing, there are a number of problems associated with this
approach. First of all, this approach will substantially limit the
number of lending sources available to the buyer. Secondly, many loan
originators will not determine which company will buy the loan and
therefore what company will fund the transaction until close to the
date of closing. Drafting contract language to address the numerous
permutations of the problem can be difficult. Perhaps these are the
reasons that the Legal Hotline has yet to see effective contract
limitations to resolve this problem.
Cautioning the buyer to verify that their lender will have funds
available at the time of closing is simple and may be helpful. One
example of this kind of caution is:
"Buyer is obligated to have the total purchase price including
mortgage loan proceeds available at the time of closing. Buyer agrees
to determine how and when buyer's loan proceeds will be funded to
ensure that the funds will be available at the time of closing."
Careful planning of closing times based on the procedures of the
funding entity (as well as good communication with the parties) may be
the most effective approach. Unless the buyer has been able to confirm
that funds will be at the closing table it make good sense to schedule
all closings in the morning (admittedly not always possible). If
closing must be in the afternoon, the earlier the better. As closing
approaches the buyer should be able to determine what process the
lender will use to fund the loan.
Other ideas:
- Don't schedule back-to-back closings.
- Caution parties that delays may occur.
- Establish liquidated damages, e.g. $__ per hour/day/partial day
that the buyer is in breach for not having funds available within __
hours of completion and execution of all closing documents.
- Another approach that may be effective is to build a list of
lenders that do fund at the closing table. A list of these lenders
can be made available to the parties either as an option for buyers
mindful of their obligations under the DRL offer language or to
avoid the penalties under stronger contract provisions negotiated in
the transaction.
At this time there is no perfect answer to this problem, but as
with insurability issues, educating the parties and providing some
heightened caution can minimize the difficulties in most transactions.
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