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Legislative Republicans Roll the Dice
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Ten Myths and Facts About Wisconsin's "Smart Growth" Law
	Inside the WRA
Inside the WRA with Bill Malkasian Serve on a WRA Committee for 2004

Inside the WRA

  Inside the WRA with Bill Malkasian

In the last few issues of the Wisconsin REALTOR®, this column presented research from broker focus groups and consumer surveys that has guided the WRA's strategic thinking. This month we have teamed up to present some additional data to you that was derived from a survey we undertook in cooperation with Real Trends and Steve Murray of Colorado, our strategic planning consultant.

The WRA is investigating whether it should expand its legal/risk assessment services to provide members with additional resources to address risks associated with both real estate-related and non-real estate business operation issues within their brokerage firms. In order to determine the best way to address these issues, we undertook a survey of 250 firms within the state to see what we could learn. After about 100 firms responded confidentially through the Murray consulting firm, we identified some of the following issues.

Areas of General Concern

Real Estate Law Risk
Overall, the area of greatest concern for brokers who answered the survey has to do with inspection and disclosure issues. Seventy-eight percent of firms who answered the survey indicated that this is an area of concern for their brokerage. Agency representation is second-most important with 55 percent of the firms seeing this as an area for concern, third is contract preparation and fourth is concern about mold. The low scores for the practice of law may stem from that category not being as clearly defined as agency representation or inspection and disclosure issues.

Listed in the "other" category were several issues relating to business practices (although there was no additional information to provide insight into that category), procuring cause, and the "no call list."

Business Law Risk
Overall, the concerns in the categories of business risk rated lower than those in real estate law risk. While insurance issues rated very highly at 70 percent, and the miscellaneous category-including privacy laws, environmental regulation, advertising law and the Patriot Act-was of concern for about 52 percent of the responding firms, the rest of the areas showed only modest concern, with no other categories being of concern to more than 35 percent of the responding firms. Of interest was the relatively low level of concern regarding RESPA (35 percent). A potential hypothesis is that this may be due to a lack of understanding of the current HUD proposals on one-stop shopping and their potential impact on these firms, or that they are not involved with mortgage, title and other settlement services. 

Areas of Real Estate and Business Risk: Concern and Knowledge

As seen in the chart below, the responding firms indicated relatively higher level of concern than knowledge about both business and real estate law risks. These firms are clearly more concerned, as we saw in the general section previously, with the potential for real estate risk than they are for more general business risk. However, they also feel more knowledgeable about real estate risk than business risk.

There was a significant variety of answers regarding the overall knowledge about various business and real estate risks, as can be seen in the chart below that outlines how brokers perceived their level of knowledge about the various types of risks. Consistent with their overall sense of concern and knowledge about real estate and business risks, brokers seem to feel that they have above average knowledge about contracts, disclosure and agency representation, and below average knowledge about the more business-oriented risks like employment law, the Patriot Act, and landlord/tenant rules. Of interest is the average knowledge about liability, which would seem to go hand in hand with an understanding of disclosure and inspection-type risks.

Actions Taken By Firms to Avoid Risk

The various approaches that firms use to manage risk have been grouped into categories for the benefit of assessment. These include:

1. Attorneys and Insurance
2. Policies and Procedures
3. Assessments
4. Agent Training and Management
5. Off Load Risk

Attorneys and Insurance
Most firms who responded to the survey carry E&O insurance from an insurance company and have outside counsel that they use regularly to advise them on issues of risk management. Ninety-six percent of firms carry E&O insurance through an outside insurer, however, there were several small firms who did not carry E&O insurance at all. Only nine percent of firms self-insure some portion of their E&O insurance and only twelve percent have in-house counsel. 

Back to Actions Taken

Policies and Procedures
A little over 30 percent of the firms that responded do not have written policies or procedures in place, do not provide training in these procedures, nor do they regularly review new disclosure or other rules and regulations. Because there were some small one- or two- person firms, this may seem rational, but this is clearly the starting point for managing risk. Ninety percent of the firms provide regular updates on laws, policy changes or regulations to their agents, although the communication seems to be (at least for 30 percent) informational rather than an incremental opportunity to help train and manage agents and managers for risk avoidance.

Back to Actions Taken

Assessments
Only 22 percent of brokerages use regular (every year or so) assessments of the firm's practices and procedures relating to risk management, Further, only 40 percent actually conduct analyses on the claims that are made in order to develop the means of avoiding these risks in the future.

Back to Actions Taken

Agent Training and Management
Surprisingly few brokerages require that their agents keep transaction logs, considered by more advanced risk managers to be one of the most important steps in defending against claims. Also, while only 27 percent of firms require their agents to keep transaction logs, there are many brokerages (45 percent) who said that they had managers review transaction logs for accuracy and completeness. There are a couple of hypotheses for this seeming inconsistency: that agents have discretion in keeping logs, but when they do, managers will review the logs; or that brokers misunderstood or skipped over the question of requiring logs of their agents. A majority of firms (78 percent) do perform spot checks of their agent files to assure that all required documentation is present and done correctly.

Back to Actions Taken

Off Load Risk
Sixty-two percent of brokers who responded use pre-approved lists of inspectors that carry their own E&O insurance.

The survey team has also proposed a series of recommended practices and programs that the WRA could explore to remedy and assist brokers and agents within real estate and business law management. These practices and programs will be discussed in relation to the WRA operational budget for next year when the WRA's 2003/2004 leadership team meets in Madison on July 10, 2003.

We will recommend to the leadership team that the WRA expand its in-house legal capacities to address many of these new and existing business risk issues. We will also recommend that we redesign our broker and sales agent informational material to better reflect the use of electronic messaging. In addition, we hope to expand our Legal Update information to all agents via electronic distribution methods. In the end, we hope to increase our legal flow of information to brokers in the areas of risk and supervisory management.

Overall, expect the WRA to increase its competency in helping you wade through the business and risk issues facing your real estate brokerage business. We think the WRA is doing a great job in that area now, but we have the ability to do even better. 

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  Serve on a WRA Committee for 2004

The WRA is working on committee assignments for 2003-04. During these challenging times, your involvement is more important than ever before. We need your ideas and opinions about the future of your association.

Make sure you indicate your committee preference. While we will attempt to honor all preferences, we cannot guarantee them due to space limitations. In you are interested, register online by Aug. 29, 2003.

2003-04 WRA Committees

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