Supervise This

A discussion of a firm’s supervision and responsibilities


 Cori Lamont  |    May 05, 2016
BrokerSupervision.jpg

This month we focus on supervision in our continued series of articles on the changes made to Wisconsin Statute Chapter 452. The supervision responsibilities by a real estate firm relating to its agents became a discussion during the statutory revisions due to a variety of reasons, including the creation of Wisconsin’s independent contractor safe harbor for real estate licensees, which will be discussed next month. In addition, we looked at the current administrative code supervising requirements and quickly realized the terminology was antiquated and the obligations by the supervising broker almost impossible to meet under a standard of reasonableness. 

Therefore, the decision was made to modernize the supervisory role of the firm and the supervising broker as part of the legislative change. Part of this modernization began with inserting clarity into the requirements. 

Further clarified there is no firm strict liability

A firm has not been, is not currently, and will not be after the law is effective July 1, 2016, strictly liable for the acts of the agents who are associated with it. One of the ways we modernized and reaffirmed this discussion was by updating Wis. Stat. § 452.12(3). See the box below.

Essentially, the revised language in § 452.12(3) states that a firm is responsible for the brokerage services that the agent associated with the firm provides. If the firm fails to supervise the agent as directed under the language of § 452.132 and any Real Estate Examining Board (REEB) rules, then the firm is responsible. 

Therefore, if a supervising broker fails to supervise the agent under ¬ß 452.132(1)‚Äď(3), or does not review the documents given to the supervising broker as required under ¬ß 452.132(4), or the firm does not properly delegate the supervision responsibilities per ¬ß 452.132(5), then the firm is responsible under ¬ß 452.12(3). I will dive more into what those supervision responsibilities include a little later.

Wis. Stat. ¬ß 452.12 (3)‚Äā
FIRM'S RESPONSIBILITY FOR ACTS OF LICENSEES. Subject to s. 452.139 (3), a firm is responsible for the brokerage services provided on behalf of the firm by a licensee associated with the firm only to the extent that the firm fails to comply with s. 452.132 and any rules promulgated under s. 452.07 (1m) with respect to that licensee.

Codified and modernized REEB 17

Broker supervision has existed in Wis. Admin. Code REEB 17 for decades. As previously mentioned in our efforts to modernize real estate practice, we realized that the broker supervision language in Wis. Admin. Code REEB 17 was a bit vague, included archaic terminology and was a little behind the times. While the foundation of the administrative code still remains, the language has been modernized. 

For example, a firm must still supervise the agent’s brokerage services by ensuring a supervising broker for the firm is assigned, and the supervising broker must be a licensed Wisconsin broker. Additionally, the firm is responsible for the custody and safety of all documents and records relating to the transactions submitted to the firm by the agent. 

Firm’s obligations to the agents 

While the firm is not strictly liable for the acts of the agent, the law does require the firm to meet certain supervisory responsibilities. The firm must ensure the agents associated with the firm are: 

  • Supervised as to their brokerage services.
  • Provided reasonable access to a supervising broker for consultation as to practice issues.
  • Provided with a written statement of procedures under which they are to operate with respect to handling transactional paperwork and records. This is often accomplished by way of an office policy manual.
  • Notified where a copy of the administrative code of the rules promulgated by the REEB as to conduct, ethical practice and licensee responsibilities can be found. Also often included by reference in the office policy manual.
  • Confirm the agent holds a valid license before an agent becomes associated with a firm and at the beginning of each biennium.

See Wis. Stat. § 452.132 (1)-(3).

Wis. Stat. ¬ß 452.132 ‚Äā
RESPONSIBILITIES OF FIRMS AND LICENSEES
(1)‚ÄāA firm shall supervise the brokerage service activities of each licensee associated with the firm, including by doing all of the following:
(a) Ensuring that a supervising broker for the firm complies with sub. (4)
(b) Providing a licensee with reasonable access to a supervising broker for the purpose of consultation regarding real estate practice issues.
(2)‚ÄāA firm shall do all of the following:
(a) Provide each licensee associated with the firm with a written statement of the procedures under which the firm and licensees associated with the firm must operate with respect to handling leases, agency agreements, offers to purchase, and other documents and records relating to transactions.
(b) Notify each licensee associated with the firm where a copy of the rules promulgated by the board related to the conduct, ethical practices, and responsibilities of licensees may be obtained.
(c) Before a licensee becomes associated with the firm and at the beginning of each biennial licensure period, ensure that the licensee holds a valid license.
(3)‚ÄāA firm shall be responsible for the custody and safety of all documents and records relating to transactions submitted to the firm as required under sub. (6) (b).

Delegation of supervising broker duties 

The statute continues the administrative code’s discussion on delegation of supervising brokers. A firm that is a licensed business entity must delegate a supervising broker. For a sole proprietor, if a delegation is not made, then supervision defaults to the firm, which basically means it falls to the licensed broker of the firm. 

The statute also now confirms the delegation to supervise may be assigned to more than one broker. Therefore, if a firm had more than one location or had brokers that specialized in certain types of transactions, such as residential and commercial, each broker could be delegated the supervisory responsibility for their respective area of specialty. 

When the delegation is made, it must be: 

  • In writing.¬†
  • Signed by or on behalf of the delegating firm.
  • Identify the duty delegated.
  • Signed by the broker to whom the delegation is made.

See Wis. Stat. 452.132(5).

Wis. Stat. ¬ß 452.132 ‚Äā
RESPONSIBILITIES OF FIRMS AND LICENSEES
(5)(a) A firm that is a licensed broker business entity shall delegate the performance of the duty to supervise licensees associated with the firm to a supervising broker who is a licensed individual broker.
(b) A firm that is not a licensed broker business entity may delegate the duty to supervise licensees associated with the firm to a supervising broker who is a licensed individual broker, but in the absence of a specific supervising broker delegation, the firm itself is deemed to be the supervising broker for that firm.
(c) A delegation under par. (a) or (b) shall be written and signed by or on behalf of the delegating firm, identify the duty delegated, and be signed by the broker to whom the delegation is made.
(d) A firm may delegate the duty to supervise licensees to more than one supervising broker.

Role of the supervising broker

The role of the supervising broker was also placed in the statute. The supervising broker must review agency agreements, offers, leases and other executed documents as well as records relating to the transaction used by the licensee and submitted to the firm, including trust account records. 

Reasonable review has been modified

Wis. Admin. Code ¬ß REEB 17.02(4g), provides reasonable review as the standard in which the supervising broker had to review the documents. Per the definitions section of REEB 17.02: ‚Äú‚ÄėReasonable review‚Äô means the timely review of a document or record to detect and correct errors which include ambiguous, omitted or incomplete portions of a document or record, or incorrect words, numbers, phrases, legal descriptions, terms or conditions. ‚ÄėReasonable review‚Äô does not include the detection and correction of an error which is not apparent on the face of the document or record, unless the supervising broker knows or has reason to know of the error.‚Ä̬†

Arguably, this definition is a very high, frankly unreasonable, and in some circumstances, almost unattainable standard. For example, the supervising broker must ‚Äúdetect and correct errors ‚Ķ which include omitted or incomplete portions of a document or record, or incorrect ‚Ķ numbers, phrases ‚Ķ‚Ä̬†

How could a supervising broker be required to detect and correct omitted or incomplete portions of a document as well as incorrect numbers and legal descriptions? It is implausible to think a supervising broker reviewing a document and having no conversation with the consumer would know the agent failed to include a radon contingency or draft the offer for $250,000 rather than $255,000. While the objective of the review is laudable and important, the execution of the language failed to accurately reflect reasonable expectations for the supervising broker. 

The new statutory standard of review has been narrowed and clarified. Review by the supervising broker now involves: 

  • Confirmation that written disclosure to customers or clients was given.
  • Confirmation that any applicable form approved by the REEB has been used.
  • Forms have been completed by filling in the blanks in a manner consistent with the structure of the form.¬†
  • Communicate to the licensee any error in how the forms were completed that was:¬†
    • Apparent on the face of the document.¬†
    • Known to the supervising broker reviewing the document.
Agent’s role 

The statute now requires the actions by the agent associated with the firm to better assist in the firm’s supervision and communication to the consumer as to potential concerns. 

The agent: 

  • Must be responsible for discussing with the party with whom they are working or representing the error communicated to them by the supervising broker.
  • Once the agent discusses this with the party, the party determines if they wish to request any changes to address the error.
  • The agent must submit to the firm in a timely manner essentially all documents and records related to the brokerage services used or received by the licensee in the transaction. This would include documents drafted by the agent, cooperating agents, attorneys, sellers or relocation companies used or received in the transaction. There is not a definition of timely manner in the statute; therefore, the firm may choose to create an office policy as to the expectation of timely manner.¬†
Example of the new review

The agent drafts an offer to purchase for the buyer. The agent provides the supervising broker all of the documents used or received by the agent in the transaction. Sometime prior to closing, the supervising broker reviews the documents associated with the transaction. The supervising broker confirmed: (1) the disclosure to customer form was provided to the buyer, (2) the WB-11 and other state-approved forms were used; (3) noted during the review that line 305 of the Closing of Property Contingency did not include a specific deadline. The supervising broker communicates the lack of the deadline in the contingency even though the contingency was checked. The agent communicates the lack of the deadline in the contract to the buyer. Depending on the circumstances, the buyer may request the agent draft an amendment to see if the other party will modify the contract to provide a deadline. Alternatively, the buyer may say, ‚Äúthere is no need to modify the agreement because I just accepted a cash, contingency-free offer on my property with a closing date in 30 days and was going to direct you to send something over regarding removing the contingency.‚Ä̬†

Both the supervising broker and agent have met their obligations, and at the end of the discussion, the party to the transaction determines whether they want to attempt to make a change to address the error in the agreement. See Wis. Stat. § 452.132 (4a) and (6). 

Next month, watch for the conclusion of this series as we discuss the measures taken to protect your independent contractor status.

Wis. Stat. ¬ß 452.132 ‚Äā
RESPONSIBILITIES OF FIRMS AND LICENSEES
(4)(a) A supervising broker for a firm, as determined under sub. (5), shall review all of the following prior to the closing of a transaction in accordance with par. (b):
1. All agency agreements, offers to purchase, leases, and other documents that are executed by the parties and records relating to the transaction that are used by a licensee associated with the firm and submitted to the firm as required under sub. (6) (b).
2. All trust account records relating to the transaction.
(b) The review under par. (a) shall be limited to confirming that a written disclosure statement to a customer or client has been provided by a licensee associated with the firm in accordance with s. 452.135, confirming that any applicable form approved by the board has been used and the forms have been completed by filling in the blanks in a manner consistent with the structure of the form, and communicating to the licensee any errors in how the forms were completed that are apparent on the face of the document and known to the person reviewing the document.

Wis. Stat. ¬ß 452.132 ‚Äā
RESPONSIBILITIES OF FIRMS AND LICENSEES
(6)(a) A licensee associated with a firm shall be responsible for discussing with the party with whom the licensee is working with or representing any error communicated to the licensee as provided in sub. (4) (b), and the party shall determine whether to request any changes to address the error.
(b) A licensee associated with a firm shall submit to the firm in a timely manner all agency agreements, offers to purchase, leases, and other documents that are executed by the parties and records related to the brokerage services provided on behalf of the firm and transactions that are used or received by the licensee.


Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.

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