The Best of the Legal Hotline: Something Old, Something New

 Tracy Rucka  |    December 04, 2014

During the season of license renewal and REALTOR® renewal, agents consider making changes from one firm to another. This month’s “Best of the Legal Hotline” article questions and answers address how to craft and implement a plan with links to the necessary paperwork to ensure a smooth transition.

The plan

What steps does the agent need to take to terminate the employment relationship with the current broker? 

When an agent considers changing firms or leaving the existing firm to practice independently, the first step is to disengage from the current employing broker. Begin with reviewing and following the terms and conditions in the Independent Contractor Agreement (ICA) and any office policy regarding termination. Although a few broker-agent relationships are employment at will and can be terminated at any time, most are regulated by ICA terms and conditions and may require advance notice. 

The paperwork

After the agent terminates with the broker, which entities need to be notified of a change in brokerage?

The agent first needs to correspond with the Department of Safety and Professional Services (DSPS). Wis. Admin. Code § REEB 17.06 requires an agent to file the Notice of Termination of Employment of Broker or Salesperson Form #766 within 10 days after leaving the previous company. No fee is required to file Form #766, available online at

Second, the agent should contact the local REALTOR® association and the Multiple Listing Service (MLS) if the MLS is a separate entity from the local association to notify the association/MLS of the departure. A copy of the DSPS notice could be sent to the association to facilitate that communication. 

The listings and buyer agency agreements

An agent is considering making a change in companies. At his existing company, the agent has several listings with friends and family and buyer agency agreements too. Can he terminate these agency agreements? 

No. The listings and buyer agency agreements are entered into between the sellers and buyers and the firm — not the agent individually. See lines 66-73 of the WB-1 Residential Listing and lines 197-204 of the WB-36 Buyer Agency Agreement. Standard of Practice 16-20 of the REALTOR® Code of Ethics also prohibits agents from inducing clients of their current firm to cancel agency agreements between the client and the firm. In addition, to do so may put the agent at risk of interference with contract. 

The pending transactions 

An agent has a seller with an accepted offer, and the transaction is scheduled to close after January 1. If the agent leaves the firm before January, can the agent still help the seller with the transaction and the closing? 

No. Once the agent leaves the firm, the agent no longer can provide brokerage services on behalf of the former broker. The broker or another agent assigned by the broker can service the transaction. It would also be possible for the seller to have private legal counsel oversee the transaction. Before leaving the firm, the departing agent should review the office policies and procedures to see what, if any, communication the agent may have with existing clients and customers. After termination, any contact made by the seller should be referred to the former broker or legal counsel to avoid engaging in the unlicensed practice of law. 

The commissions

An agent is moving to a new broker. How will the commission for the pending transactions be paid? 

The entitlement to commission in this situation depends on the contract between the broker and agent, which can be the ICA or the company’s policy and procedures manual. If the contract does not cover the situation, prior actions of the broker in this regard and the prevailing practice in the industry would be factors that would be considered if the matter went to court.

Wisconsin real estate statutes and administrative rules do not address commission policies between a broker and a salesperson. This is an issue of contract law. If the former broker does not pay commission according to the terms of the agreement, the salesperson can attempt to have the dispute arbitrated at the local REALTOR® association, provided the previous broker agrees to arbitrate. This would be considered a voluntary arbitration under Article 17 of the Code of Ethics. If the former broker refuses to arbitrate, the salesperson can bring separate actions in small claims court for each commission due.

Something new

The required paperwork

When an agent is moving to a new broker, what paperwork must the agent fill out?

The first document to complete is the DSPS Notice of Real Estate Employment. A copy of the completed, signed and notarized Notice of Real Estate Employment must be delivered, along with a $10 fee, to the DSPS. The form is accessible online at

In addition, the broker supervision rules require a broker to give licensees a written statement regarding document handling. Wis. Admin. Code § REEB 17.08(1) provides, in part, “Broker-employers shall provide all licensed employees with a written statement of procedures under which the office and employees shall operate with respect to handling leases, listing contracts, offers to purchase and other documents relating to transactions.” Oftentimes, these policies and procedures are contained in an office policy manual, but may be independently provided. The final paperwork is with the local REALTOR® association and any affiliated MLS in which the broker is an MLS participant. 

The "optional" paperwork

An agent interviewed multiple brokers and received different responses about which agreements should be in writing. What is actually required? 

Independent contractor status

When it comes to the ICA, the word “optional” may be a misnomer. The ICA in conjunction with the office policies and procedures manual, if any, detail the parameters of the broker-agent relationship. The DSPS does not require a written agreement between the agent and broker. 

A written ICA agreement will be necessary if the broker and agent want to comply with statutory independent contractor status. The relationship between the broker and the company’s sales associates can be either an independent contractor relationship or an employer/employee relationship. Classification of that relationship is critical for tax purposes: federal and state income tax is generally withheld from wages paid to employees, but not from commissions paid to independent contractors. One of the many benefits of a written ICA is a statement documenting that the agent will be treated as an independent contractor for income tax purposes. Sec. 3508(B) of the Internal Revenue Code provides a safe harbor for real estate licensees. Keeping good records is important since the IRS stepped up enforcement relating to the classification of workers in recent years. 


The ICA not only addresses the issue of status but compensation when the licensee is retained by the broker. A comprehensive commission agreement will address commission for listings, sales, referrals and what to do in the event of termination.
Starting a new brokerage firm

The paperwork

A broker is thinking about starting a new firm. What must the broker do to form a Limited Liability Company (LLC) and ensure it is licensed? 

It is prudent for an entrepreneur to create a business model or business plan in anticipation of beginning a new company. There are many decisions to be made and many options regarding how to structure a company. The broker may consider the WRA Broker Desk Reference ( or the Broker in a Box ( as resources to assist in decision-making and guide any conversations with private legal counsel. 

There are myriad decisions for a broker to make when beginning a company. The business plan will guide the broker to make decisions that will meet the broker’s expectations. For example, in addition to daily operations, accounting and bookkeeping, and E&O and other insurance, a broker should also consider planning for succession and emergency scenarios — see “Business Succession Planning” in the March 2007 Wisconsin Real Estate Magazine at It is prudent to work with legal counsel and a tax advisor to craft and meet the plan. 

An individual with a broker’s license may conduct real estate brokerage as a sole proprietor or may choose to create a business entity such as an LLC. If an LLC is the decision after consulting with legal counsel about the best choice, the broker can create an LLC with the Wisconsin Department of Financial Institutions at Whether or not the LLC is then licensed as a Wisconsin Real Estate Business Entity is the next question. To provide brokerage services out of the entity, the broker must obtain a real estate business entity license. The licensed entity must have a business representative with a broker’s license per Wis. Stat. § 452.12 (see The business entity application is available at

Tracy Rucka is Director of Professional Standards and Practices for the WRA.

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