The Best of the Legal Hotline: Listing Protection and Protected Buyers


 Tracy Rucka  |    November 12, 2018
Best of the Legal Hotline

In Wisconsin, the state-approved WB listing contracts allow for extension of the listing period when there are protected buyers. The extension for these buyers is commonly referred to as ‚Äúlisting protection.‚ÄĚ If, during the term of the listing contract, a buyer engages in certain activity and the seller is made aware of the buyer‚Äôs identity, the listing is extended for an additional year, allowing the listing broker time to provide the brokerage services and earn a commission if the protected buyer purchases the property. The following questions are frequently asked about listing protection and protected buyers. Line references included within this article refer to the 2016 WB-1 Residential Listing Contract Exclusive Right to Sell.¬†

Protected buyers

An agent heard the term ‚Äúautomatically protected buyers‚ÄĚ in a recent conversation. What does this term mean, and how does this automatic protection work?¬†

The term ‚Äúprotected buyer‚ÄĚ is a defined term in the Wisconsin state-approved WB forms. A buyer becomes a protected buyer in one of three ways, when he or she:¬†

  • Delivers a written offer to purchase.¬†
  • Negotiates directly with the seller.
  • Attends an individual showing or communicates with licensees about acquiring an interest in the property.¬†

A buyer automatically becomes a protected buyer in two of these situations. They are: 

  • When the buyer delivers a written offer to purchase to the seller or the listing firm during the listing.¬†
  • When a buyer views the property with the seller or negotiates directly with the seller.¬†

The terms of the listing describe negotiation with the seller, which includes the buyer communicating with the seller regarding any terms in which the buyer might acquire an interest in property. See lines 208-209. In both of these situations, the buyers are automatically protected because the broker is not required to send buyers’ names in writing to the seller. The buyers are identified in the written offer, or the buyers and sellers have direct contact so the buyers’ identities are known to the seller, hence automatic protection.

How does a listing broker protect buyers who are not automatically protected?

The listing broker can accomplish this by timely delivering the buyers’ names to the seller by an authorized form of delivery authorized in the listing contract. Buyers who attend individual showings or who communicate with the listing firm or a cooperating firm are protected only if their names are delivered to the seller within three days after the earlier of expiration or termination of the listing contract. See lines 210-213.

Can a broker send the names of buyers to the seller throughout the term of the listing? Can a broker send these names in showing reports? 

Yes. The listing states the latest time a broker may provide a buyer’s name for listing protection purposes is within three days after the earlier of the expiration or termination of the listing. The delivery may be any time before then. When the listing broker sends the buyers’ names by means of a broker-generated showing report, it is prudent practice to identify the name is for purposes of listing protection. Sending a complete list of buyers’ names at the end of the listing assures the seller is reminded of the protected buyers and provides the seller a list to readily provide a subsequent listing broker if the seller later lists the property with a different firm.

An agent will be listing a property, and the agent knows this specific property was previously listed. How can the agent be sure about protected buyers? 

Ask good questions by approaching the listing as a two-way interview. The prudent listing broker will ask the seller several questions, as outlined below, to determine if the previous broker may have protected buyers. The second listing broker needs this information because any buyer who is a protected buyer from a prior listing contract is automatically excluded from the listing by virtue of the listing contract language. See lines 159-160. 

Ask the seller the following questions to determine if any protected buyers exist for the listing:

  1. Have you had the property listed before? 
  2. If yes, how many listings have there been in the past year? 
  3. Who was or were the prior listing broker(s)? 
  4. Did you receive any offers to purchase? If yes, identify the buyers. 
  5. Did you work with any buyers directly? If yes, identify the buyers.
  6. Did you receive any lists of protected buyers? If yes, identify the buyers. 
  7. Did you receive any showing reports from individual showings with buyer names? If yes, identify the buyers. 

If the listing broker has ‚Äúany‚ÄĚ contact with a buyer, are the buyers considered protected buyers?¬†

No. The listing sets forth the necessary buyer engagement to create a protected buyer. A broker who only sends information about a property, buyers who only stroll through open houses, or other nominal activity would not qualify as protected buyers for purposes of the listing agreement. 

Person acting on behalf of buyer

The new listings include the term ‚Äúperson acting on behalf of buyer.‚ÄĚ Why was this added to the listing, and when would this apply?¬†

‚ÄúPerson acting on behalf of buyer‚ÄĚ is now a defined term in the listing agreements. The term was adopted to address situations where sellers and buyers attempted to circumvent listing protection and protected buyer status by substituting a different buyer. For additional information, see the July 2018 Legal Update, ‚ÄúProtected Commissions: Protected Buyers and Protected Properties,‚ÄĚ at www.wra.org/LU1807.

That buyer substitution scenario usually looked like this: a buyer wrote an offer that did not result in a transaction, and the listing expired. The buyer was automatically protected because of the written offer to purchase. The buyer later created an LLC and purchased the property to evade the seller‚Äôs obligation to pay the listing broker commission. Now with ‚Äúperson acting on behalf of buyer,‚ÄĚ the listing broker would earn commission if the named buyer or the buyer-created LLC purchased the property during the extension of the listing term.¬†

"Person Acting on Behalf of Buyer" Definition 

‚ÄúPerson Acting on Behalf of Buyer‚ÄĚ shall mean any person joined in interest with buyer, or otherwise acting on behalf of buyer, including but not limited to buyer‚Äôs immediate family, agents, employees, directors, managers, members, officers, owners, partners, incorporators and organizers, as well as any and all corporations, partnerships, limited liability companies, trusts or other entities created or controlled by, affiliated with or owned by buyer, in whole or in part whether created before or after expiration of this Listing.¬†

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

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