Best of the Legal Hotline: Be Commission Careful


 Debbi Conrad  |    February 07, 2013
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REALTORS¬ģ should ensure that groundwork is in place when a transaction closes and it‚Äôs time for the client to pay commission. Brokers can take certain measures to help ensure payment, particularly in the area of purchases by protected buyers, which are illustrated in Wisconsin case law.

Did the buyer see the home before? 

A property listing expired with one company, and the home is listed with a new company. The first listing broker e-mailed exceptions to the seller. One of those exceptions called the second company for information and a showing appointment nine months later. The buyer and seller were informed that the buyer was on the exceptions list, and they have no idea why the buyer’s name was there. Neither recalled offers, showings, inquiries or discussion of terms during that listing period. Who must prove that the buyer is a legitimate exception? Does the seller have to acknowledge acceptance of the exception for it to be valid?

Listing protection basics
Buyers may be granted protection in one of four ways. If, during the term of the listing, the buyer 1) submitted a written offer to purchase or 2) negotiated directly with the seller, the listing protection is automatic and the first listing broker would not be required to perform additional steps to protect the buyer for the override period. If, during the term of the listing, the buyer 3) attended an individual showing or 4) ‚Äúnegotiated‚ÄĚ with a broker, the buyer will be protected only if the listing broker delivered the buyer‚Äôs name to the seller no later than three days after the expiration of the first listing contract. ‚ÄúNegotiated,‚ÄĚ for these purposes, means the buyer discussed potential terms in which the buyer might acquire an interest in the property. If the buyer were protected under the first listing, the first listing broker would have, in essence, a one-party listing for the protected buyer during the one-year override period. Any offer the buyer writes, accordingly, would be presented to the seller by the first listing broker. The first listing broker would earn the listing commission if this offer was accepted and closed.

Proof
A court may need to determine if the buyer was properly protected. The broker asserting listing protection would need to prove what triggered the protected buyer status, and if it was not automatic protection, that the buyer’s name was properly delivered to the seller. The seller may consult with legal counsel regarding rights and obligations stemming from the original listing agreement.

E-mail delivery
According to the standard delivery language in the WB listing contracts, e-mail is not an authorized form of delivery. However, the first listing broker may have modified the listing to allow for e-mail delivery of the protected buyers list and other documents.

Party acknowledgement of protected buyer not required
In a recent case, the court specifically addressed whether parties must agree that a buyer is protected; the court held that the parties do not need agree that a particular buyer is exception:

‚ÄúThe contract contains no requirement that the parties agree who will be named as protected buyers. Rather, a buyer is protected if it ‚Äėnegotiated to acquire an interest in the Property ‚Ķ during the term of [the] listing‚Ķ‚Äô According to the terms of the contract, then, the broker‚Äôs designation of protected buyers is a unilateral action that does not require the seller‚Äôs assent. A meeting of the minds is unnecessary.‚ÄĚ

See pages 8-10 of the February 2004 Legal Update, ‚ÄúListing Procedures for the Prudent Broker,‚ÄĚ at www.wra.org/LU0402 for further discussion of listing protection issues. Also see the discussion of the Burkett & Associates, Inc., Century 21 v. James M. Teymer case, 2009 WI App 67, on pages 1-2 of the May 2009 Legal Update, ‚ÄúCase Law Update,‚ÄĚ at www.wra.org/LU0905.

Protected buyer list

The subagent of a listing broker showed the property during the listing term. The listing expired on Monday. The subagent drafted an offer on Wednesday and submitted it to the listing agent. On Thursday, the listing agent called and said that the listing expired on Monday, and that the listing broker had delivered the protected buyer list to the seller within three days. The envelope was postmarked on the third day, but the seller didn’t receive it until day four. Is there listing protection, or can the subagent enter into a one-party listing to get the deal done? 

According to the terms and conditions of the listing agreement, the list of protected buyers must be delivered ‚ÄĒ not received ‚ÄĒ no later than three days after the expiration of the listing contract. See the definition of ‚ÄúProtected Buyer‚ÄĚ at lines 220-229 of the WB-11 Residential Listing Contract and the definition of ‚ÄúDelivery‚ÄĚ at lines 192-198. The court in Burkett & Associates, Inc., Century 21 v. James M. Teymer, 2009 WI App 67, www.wisbar.org/res/capp/2009/2008ap001509.htm, includes a discussion about the effect of delivery ‚ÄĒversus the seller‚Äôs receipt ‚ÄĒ of the protected buyer list:¬†

‚ÄúThe Teymers assert that even if the letter was included, it was not delivered within the three days specified by the contract since they received the mailing seven days after the contract terminated. This argument ignores the plain language of the contract: ‚Äėdelivery of documents or written notices related to this Listing may be accomplished by 2) depositing the document or written notice postage or fees prepaid or charged to an account in the U.S. Mail or a commercial delivery system, addressed to the Party, at the Party‚Äôs address.‚Äô The date of delivery, then, is the date of mailing, not receipt. The record contains a certified receipt for mail from Burkett to the Teymers dated January 26, 2005. The court found this mailing contained a cover letter naming protected buyers. Therefore, Burkett complied with the requirement to deliver the names of protected buyers to the seller within three days of the contract‚Äôs termination.‚ÄĚ

When the deadline is in question, the best, absolute proof is a receipt from the post office showing the date and time of mailing.

Conversation to establish negotiation

The buyer called the office several times and spoke each time to the agent on floor duty. Each time, the buyer asked about a property feature or the closing schedule or when they would have to have their loan. The listing is about to expire, and the broker wonders whether this buyer should be listed as protected? 

In First Weber Group v. Guyant, 2011 WI App 84 at www.wisbar.org/res/capp/2011/2010ap001140.htm, a prospective buyer stopped by the property after seeing it online and asked if the sellers would sell without a REALTOR¬ģ. Mrs. Guyant told the listing agent about the prospect‚Äôs visit and the conversation, but refused to give the prospect‚Äôs contact information so the agent could contact her before the expiration of the listing. After expiration, Mrs. Guyant called the prospect and arranged a showing. The home was listed with another brokerage, and the prospect bought the home. To determine whether the buyer was protected under the first listing, the court applied the listing contract definition of ‚Äúnegotiate‚ÄĚ to the facts: did the Guyants and prospect discuss potential terms by which the prospect might purchase the property? The court found the requisite two-way communication within their discussion of: 1) whether the prospect would purchase the home if a broker was involved, and 2) when such a sale might occur (the sellers were to contact the prospect after the listing expired). The potential purchase terms discussed do not need to include price, the court noted, although the extent of broker involvement potentially affects price.

Note that the elements of ‚Äúnegotiate‚ÄĚ in the case are the bare-bones minimum and that REALTORS¬ģ are best served by engaging in as much dialog as possible when discussing a prospect‚Äôs possible purchase. Sending the MLS data sheet, RECR, survey maps and other information to the prospect with a follow-up discussion in writing may be one good way to leave ‚Äútracks‚ÄĚ and protect commissions. Brokers are well-served to use e-mail or other written communication and save records of communications with prospects just in case the day comes when proof of negotiation is needed.

Protected buyers list not received

The listing agent accidentally sent the list of protected buyers to the wrong address for the sellers, and the mail was returned to him. Are those buyers protected? 

In Immobolia GB, Inc. v. Titletown REALTORS¬ģ, Inc. (No. 2009AP3135, Ct. App. 2011) www.wisbar.org/res/capp/2011/2009ap003135.htm, when the new agent went to send the protected buyer‚Äôs name to the seller, she found that the prior agent had not filled in the sellers‚Äô address on the listing contract. She sent the protected buyer list to the sellers‚Äô old address, writing ‚Äúplease forward‚ÄĚ on the envelope. When the broker sued for commission, the court found for the second listing broker because the notice was not delivered per the contract standards and instead was knowingly sent to an incorrect address. This emphasizes the importance of agents completing lines 265-279 with all relevant contact information available. In instances where no address is provided, it is wise to use another delivery method, such as personal delivery, to avoid disputes regarding the delivery of protected buyers lists.

Commission lien

What is the process for submitting a broker lien on a property, a timeline for the process, and the procedures in doing so?

A broker cannot put a lien on a property for a residential transaction. The types of real estate that can be made subject to a broker commission lien are categorized in Wis. Stat. ¬ß 779.32(1)(b) as commercial real estate. Commercial real estate is defined as all real estate except ‚Äúreal property containing 8 or fewer dwelling units, real property that is zoned for residential purposes and that does not contain any buildings or structures, and real property that is zoned for agricultural purposes.‚ÄĚ

To put a lien on commercial real estate:

  1. Notice of broker lien rights language must be included in the agency agreement: sales listing contract, buyer agency agreement, lease listing contract, property management agreement or tenant representation agreement.
  2. For sale and purchase transactions, a notice of interest must be recorded at least 30 days before closing and a commission lien must be recorded no later than 30 days after the recording of the closing documents.
  3. For lease and property management transactions, a commission lien must be recorded no later than 90 days after the commission is earned or the broker receives notice that the commission is earned.
  4. A copy of the commission lien must be mailed to the property owner or acquirer within 72 hours of recording.

To read more about commission liens for commercial property and property management, see the June 2010 Legal Update, ‚ÄúImproved Broker Commission Lien Law,‚ÄĚ at www.wra.org/LU1006.

Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.

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