The Best of the Legal Hotline: Direct Dealings with the Other Party


 Debbi Conrad  |    November 07, 2005

Incentive Offered to Limited Service Broker’s Client

Q. Is it legal or ethical for a company to offer to pay a prospective seller for any costs that seller may have incurred while trying to sell the property while listed with a limited service broker? The broker made this offer to the seller during the term of the limited service broker’s listing.

A. Incentives may be offered to sellers or buyers to induce them to sell or purchase real estate. Seller or buyer incentives can be offered in any amount as cash or as an item of personal property such as a home warranty plan, a savings bond, a gift certificate, an appliance or some other item. Such party incentives must be clearly documented in advance ‚Äď prior to closing. This advance documentation of the party incentive is necessary to establish that the incentive is not a fee-splitting arrangement with a non-licensee, which would be illegal under Wisconsin law. The parties must have a clear and thorough understanding of the terms and conditions of the incentives.

Standard of Practice 16-4 provides, ‚ÄúREALTORS¬ģ shall not solicit a listing which is currently listed exclusively with another broker. However, if the listing broker, when asked by the REALTOR¬ģ, refuses to disclose the expiration date and nature of such listing; i.e., an exclusive right to sell, an exclusive agency, open listing, or other form of contractual agreement between the listing broker and the client, the REALTOR¬ģ may contact the owner to secure such information and may discuss the terms upon which the REALTOR¬ģ might take a future listing or, alternatively, may take a listing to become effective upon expiration of any existing exclusive listing. (Amended 1/94)‚ÄĚ

While a broker may offer an incentive to secure a listing, a broker may not solicit an existing listing unless the seller initiated the discussions with the broker. For information on limited service listings in general please review the November 2004 Legal Update, online at www.wra.org/LU0411.

In Search of a Listing Broker
 

Q. According to the MLS, the listing for a particular lot has been withdrawn. The listing agent is not available and may be incarcerated. There is another broker trying to answer calls for the missing listing agent, but he is uncertain whether there is a viable listing. The other broker has directed a cooperating agent to contact the seller directly. Is this appropriate?

A. Brokers are required by license law to conduct negotiation with the seller though the listing broker unless reasonably compelled to contact the seller directly. Under certain conditions, however, a cooperating broker may negotiate with a seller directly.

Wis. Admin. Code ¬ß RL 24.13(5) provides, ‚ÄúNEGOTIATION THROUGH BROKER. A licensee may not negotiate a sale or lease of real estate directly with a party if the licensee knows that the party has an unexpired written contract in connection with the real estate which grants to another licensee an exclusive right to sell, lease or negotiate. All negotiations shall be conducted with the broker holding the exclusive right to sell, and not with the party, except with the consent of the broker or where the absence of the broker, or other similar circumstances, reasonably compels direct negotiation with the party. A listing broker has no duty to investigate whether a buyer has granted a buyer‚Äôs agent an exclusive right to negotiate.‚ÄĚ

Given this situation, it appears that the cooperating agent may negotiate directly with the seller. Arguably, the agent is compelled to negotiate directly with the seller due to the absence of the broker, pursuant to the consent of the listing broker given by the broker apparently acting on his behalf or because there may be no valid listing with the seller. Because it is unclear if the seller is subject to a valid listing, the cooperating agent may elect to enter into a buyer agency agreement before negotiating with the seller.

Work With Me, But I Have a Buyer Agency Agreement

Q. A prospect left a telephone message for an agent, asking if she would show him houses. However, this prospect recently signed a buyer agency agreement with another broker. Can the agent return the prospect’s call during the term of the buyer agency agreement?

Under the WB-36 Buyer Agency Agreement, it is possible that the prospect may request another agent’s help to locate and show properties. However, the buyer’s broker’s success fee would be due if the prospect purchases a property during the term of the WB-36, regardless of who locates the property or negotiates the offer.

In addition, if the WB-36 were modified to create an exclusive right to locate and negotiate contract, the prospect may be in breach if he works with the agent. Accordingly, the agent may wish to alert the prospect that he may have obligations under the WB-36 and suggest that he discuss the situation with his buyer’s agent or take his agreement to an attorney for advice.

On the other hand, there is nothing wrong per se with showing properties to a prospect who is a party to an unmodified WB-36 if the prospect asks the agent to do so. Standard of Practice 16-13 provides that, ‚ÄúAll dealings concerning property exclusively listed, or with buyer/tenants who are subject to an exclusive agreement shall be carried on with the client‚Äôs agent or broker, and not with the client, except with the consent of the client‚Äôs agent broker or except where such dealings are initiated by the client. (Adopted 1/93, Amended 1/98)‚ÄĚ An unmodified WB-36 is not considered to be an exclusive agreement for purposes of this rule.
For additional information regarding the WB-36 Buyer Agency Agreement and buyer agency practice, see Legal Update 99.06, ‚ÄúRevised WB-36 Buyer Agency/Tenant Representation Agreement,‚ÄĚ www.wra.org/LU9906, and Legal Update 05.09, ‚ÄúBuyer Agency Practice,‚ÄĚ www.wra.org/LU0509.

A Tale of Two Listings

Q. A seller called a licensee and asked the licensee to list her property. At that time, the property was listed with another agency. The licensee dated the listing contract for the day after the expiration of the other agency’s listing contract. The other agency, with full knowledge of the licensee’s new listing contract, extended their listing contract with the seller, leaving the seller with two active listing contracts. The seller now said that she wants to cancel the listing contract with the licensee. Did the other agency interfere with the licensee’s contract? Is this ethical behavior on the part of the other agency?

A. Article 16 of the Code of Ethics prohibits REALTORS¬ģ from engaging in any practice or taking any action inconsistent with exclusive representation that another REALTOR¬ģ has with a client. Standard of Practice 16-9 creates an affirmative obligation to make reasonable efforts to determine if the client is subject to a current valid exclusive agreement. Provided the first agency knows of the licensee‚Äôs listing and proceeds to extend their listing to overlap the licensee‚Äôs new listing, it appears to be a violation of Article 16.

Standard of Practice 16-6 and 16-8 specifically provide that a REALTOR¬ģ, when contacted by the client of another broker, may discuss terms upon which they may enter into a future agreement. The REALTOR¬ģ is not precluded from entering into a listing with a client after the expiration of the first listing.

Finally, Standard of Practice 16-14 provides that REALTORS¬ģ may enter into a contractual relationship with a client not subject to an exclusive agreement, but the REALTOR¬ģ shall not obligate the client to pay more than one commission without informed consent. There is no indication that the seller was advised of her position and acted with informed consent when she extended the first listing to create a double listing situation.

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