The Best of the Legal Hotline: Open Houses


 Tracy Rucka  |    March 03, 2011
Legal_HotlineLRG

Open houses are a favorite marketing technique of many sellers. Although some REALTORS¬ģ have reservations about their benefits, others believe the exposure gained from open houses contributes to a successful marketing strategy. Many agents swear by staging and freshly baked cookies, but the fundamental pointers remain the same.

Preparing the property for showing

The seller instructed the listing agent that no children would be allowed at showings. The seller had no problem selling to families with children, but just doesn’t want children present in the home for the showings. Might the seller’s position be construed as discrimination against a protected class?  

Although the seller may be concerned that children would damage the property or be disruptive, this type of prohibition may not be the best way to accomplish the seller’s objectives. If the seller excludes children from showings and open houses, this may indirectly send the message that families with children are not welcome or desired as purchasers. This might result in de facto discrimination where the actual effect was not the intended result but is nonetheless illegal.

The listing agent may wish to caution the seller that not allowing children at showings may be a violation of fair housing laws and suggest that the seller consult with an attorney. In addition, the listing contract assigns the responsibility for preparing the house to minimize the likelihood of injury, theft, or property damage to the seller. Storing valuable items and monitoring attendees may better accomplish seller‚Äôs purpose. (See additional story, ‚ÄúBitter Pill to Swallow,‚ÄĚ on page 16)

Unlicensepersons

The builder is also a real estate broker and has his spec home listed. Can he pay his unlicensed personal assistant to host the open house?  

Per Wis. Admin. Code § RL 17.12(2), an unlicensed personal assistant or secretary would need to have on-site supervision by the broker or another real estate licensee to host an open house for a spec home. This rule provides:

2) An unlicensed personal assistant may not assist a licensee at an open house for the sale of real estate or a business without the direct, on-premises supervision and presence of a real estate licensee, and may not provide any services at an open house for which a license under ch. 452, Stats., is required.

Note: This rule does not prevent an owner from showing holding an open house regarding his or her own residence, for example, or from permitting a non-compensated person, such as a relative or neighbor, from showing or holding an open house on the owner’s behalf.

See the January 1998 Legal Update, ‚ÄúNew Personal Assistant Rules and Forms,‚ÄĚ at www.wra.org/9801for more information about personal assistants.

Seller-advertised open house

The broker has a home listed. Can the seller place an ad in the paper for an open house that does not reference the listing company in any way? The seller will be holding the open house on her own. Can this be done?  

The standard WB-1 Residential Listing Contract is an exclusive right to sell listing wherein the listing broker is given the exclusive right to market and advertise the property. A seller who is not a real estate licensee may advertise the sale of his property independently and conduct open houses. This activity, however, should be noted in the listing contract because the marketing provisions in an exclusive-right-to-sell contract give the listing broker exclusive marketing authority, unless otherwise provided therein. An addendum to the listing contract may work best for this purpose.

Typically, prospective buyers to an open house with a broker’s sale sign in the yard will expect a real estate licensee at the open house. The seller should let the potential buyer know that she is the seller and request the buyer’s name and contact information to forward to the listing broker. The listing broker can remind the seller that per the listing contract the seller is to inform the broker in writing any buyer inquiries to meet their obligation in the listing contract and allow the broker to follow up and assist the buyer.

Are you working with a REALTOR¬ģ?

As a REALTOR¬ģ, does a broker holding an open house have an obligation to ask prospects who come through if they are working with a REALTOR¬ģ? ¬†

If the broker at the open house will not provide any substantive services to buyers who attend, then the broker is not required to ask if each buyer at an open house is represented. The REALTOR¬ģ obligation is set forth in the Code of Ethics.

Standard of Practice 16-13 provides, in relevant part, that:

Before providing substantive services (such as writing a purchase offer or presenting a CMA) to prospective purchasers, sellers, tenants or landlords (‚Äúprospects‚ÄĚ), REALTORS¬ģ shall ask prospects whether they are parties to any exclusive representation agreement. REALTORS¬ģ shall not knowingly provide substantive services concerning a prospective transaction to prospects who are parties to exclusive representation agreements, except with the consent of the prospects‚Äô exclusive representatives or at the direction of prospects.

It may be advantageous for a broker hosting an open house to ask a buyer if they are working with another agent. In some circumstances it may be advantageous to the buyer to accept assistance from another REALTOR¬ģ, such as the open house host, when the buyer has fallen in love with a hot property and needs to act quickly and write an offer. But other times, it may not be advantageous for the buyer. When another REALTOR¬ģ steps in to write an offer that the buyer‚Äôs agent could have done in just as competent and timely a manner, the only difference may be that it costs the buyer more to work with the other REALTOR¬ģ because both the buyer‚Äôs agent and the REALTOR¬ģ may need to be compensated.

Open houses and procuring cause

The buyer signed in at the open house and when asked told the listing broker he was represented by a buyer’s agent. The listing broker conducted the open house, spending over an hour with the buyer. He answered questions about the home and offered to draft an offer. The buyer, who needed to contact his lender, left the open house saying he did want to purchase but didn’t know about the financing. Later, the buyer’s agent wrote the offer. She believes she is the procuring cause because she is the buyer’s agent and wrote the offer. Is she correct?  

There is no simple answer to this question because procuring cause analysis looks at the entire series of events in a transaction and can only be determined after consideration of all the facts and circumstances.

A buyer agency agreement does not supersede or dictate procuring cause. The buyer’s agent is not automatically procuring cause just because she wrote the offer; nor is she procuring cause just because she is the buyer’s agent. Likewise, the listing broker is not automatically procuring cause because he invited the buyer over the threshold of the home or hosted the open house.

Other factors that may be relevant include how did the buyer come to attend the open house in the first place ‚Äď who identified the property to the buyer? Did the viewing at the open house and/or something the open house agent did or said convince the buyer to purchase the property? Did the buyer‚Äôs agent do or say something that bears greater significance in the process of the buyer becoming sufficiently interested in the property to write an offer to purchase?

What must be determined is who caused the buyer to make the offer that resulted in the sale of the property and whether there was an uninterrupted series of events that resulted in the sale of the property to the buyer. One way to address the issue, without arbitration, is for the brokers to negotiate and determine if a compensation agreement can be reached, i.e., a split of the commission, once the transaction successfully closes. If the brokers cannot agree about entitlement and/or division of the selling commission, the dispute should be submitted to the local REALTOR¬ģ association for resolution by mediation or arbitration.

See the April 2010 Legal Update, ‚ÄúCooperative Commissions and Procuring Cause,‚ÄĚ at www.wra.org/LU1004, and the February 2004 Legal Update, ‚ÄúWhat is Procuring Cause?‚ÄĚ at www.wra.org/LU0204.

Open houses and listing protection

The broker had a listing that expired at the end of the month and the broker sent the seller a list of protected buyers. One listed buyer had come through two open houses and the listing broker spoke to him about price and contract terms and they had talked extensively about the home. The buyer has his home listed with another broker who is telling the buyer that he is not a protected buyer because the listing broker did not take him through the home on a private showing.  

A buyer does not become a protected buyer by the mere attendance at an open house. However, if during the visit‚ÄĒor in this case, visits‚ÄĒthe buyer engages in negotiation about the property, the buyer may become a protected buyer. According to the listing, buyers may be protected for listing protection in one of four ways. If (1) the buyer submitted a written offer to purchase or (2) negotiated directly with the seller, the listing protection is automatic and the listing broker would not have been required to perform any additional steps to protect the buyer for the override period. If, during the term of the listing (3) the buyer attended an individual showing or (4) negotiated with a broker, the buyer will be protected only if the listing broker delivered the buyer‚Äôs name to the seller within three days of the expiration of the first listing contract. The key here is whether the extensive communication between the buyer and the broker rises to the level of negotiation as defined in the listing.

Open house drawing

In an effort to get more people to open houses, the broker would like to offer a free drawing. Anyone stopping at one of the company’s open houses could drop their name into a box and names would be pulled out of the box and given gift cards to a local restaurant. Is this legal?  

The issue is whether such a drawing would be an illegal lottery under Wis. Stat. §§ 945.04(5) & 945.02. A contest is generally defined as a lottery if one must give consideration to enter, and the award is determined by chance. Consideration is anything which would be financial or commercial advantage to the promoter, with some exceptions (send in coupon, visit store, etc.).

For example, a contest where every licensee who showed one of a broker’s listings is eligible to enter a drawing for a vacation trip is arguably an illegal lottery. The fact that the agents are showing the broker’s listings is consideration to the broker, and the drawing is by chance.

On the other hand, the statutes provide that visiting a business location without being required to pay an admittance or buy anything is not consideration. Thus, a drawing for a prize may be held at an open house provided everyone who attends is eligible to enter the drawing.

Open house safety tips

  • Work with another person
  • Ensure your cell phone is fully charged and accessible
  • Explore all escape routes in the home
  • Have all visitors show ID and sign in upon arrival
  • Always walk behind the prospect
  • Call your office every hour
  • Ask neighbors to be watchful¬†

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

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