The Best of the Legal Hotline: Listing Protection


 Tracy Rucka  |    October 05, 2011
ListingProtectionLRG

The state-approved WB listing contracts allow for extension of the listing period when there are Protected Buyers, or what is commonly referred to as ‚Äúlisting protection.‚ÄĚ Based on the contract, the listing broker has an additional year after the listing‚Äôs expiration to sell the property to any protected buyers. Listing protection is created based on the contract between the listing broker and seller; it is not a matter of law.

For any buyer to become a Protected Buyer, there are, in essence, two components to address: what the buyer did and what the seller knows. The buyer must have negotiated and the seller must know or have notice of the buyer’s name. Using these two components, many questions about listing protection can be readily answered. Some buyers become Protected Buyers automatically, and for some the broker has to take action and provide the buyer’s name to the seller. A buyer automatically becomes a Protected Buyer in two situations: when there is a written offer and when the buyer and seller directly negotiate. The two components are present when the buyer has written an offer to purchase: the buyer clearly negotiated by submitting the offer and the seller knows the buyer’s name because it is stated in the offer. When a buyer and seller discuss potential purchase terms, that discussion is negotiation and the buyer is known to the seller.

If the negotiation is not directly with the seller, the listing broker must properly notify the seller of the buyer’s identity. In such situations, the components of negotiation and notice still need to be present. Negotiation can occur when a buyer attends an individual showing of the property or when the buyer discusses potential purchase terms with the listing or a cooperating broker. The buyer in this case only becomes a Protected Buyer if the listing broker delivers written notice of the buyer’s name to the seller within the applicable time frame stated in the listing contract.

Proper Delivery

The broker had a listing which expired about two weeks ago. The broker drafted a protected buyer letter and mailed it to the seller within three days of the listing expiration. One of the Protected Buyers has renewed interest, so the broker drafted an offer and submitted it to the seller. The seller accepted the offer but the seller claims he did not receive the list of Protected Buyers. Does the seller owe the listing commission?

To have effective listing protection, the broker may need to prove proper delivery. The notice must be in writing, delivered in a timely manner and by an authorized delivery method to an authorized address, and name the buyer unless the identity is confidential. In a recent successful broker commission case, the court specifically noted that the listing broker had provided proof from the United States Post Office that the list of Protected Buyers was timely delivered. Spending the money to have proof of delivery is good insurance if a seller attempts to challenge timing of delivery. See Burkett & Associates v. Teymer, 2009 WI App 67, online at www.wisbar.org/res/capp/2009/2008ap001509.htm.

In addition, the broker must assure that a mailed notice is addressed to the party using the address on the listing contract. Another frequent mistake is that the broker e-mails the list of protected buyers to the seller. Unless the listing was modified, e-mail is not an authorized delivery method even if the seller put an e-mail address on the listing contract.

Name the Buyer

The agent is listing a property that was previously listed. The agent who had the first listing produced a list of agents who had shown the home without any buyers’ names. Would this list create listing protection or does the list need to contain the buyers’ names?

The general rule is that the buyer needs to be named with specificity. In one Wisconsin case, the court found that the seller‚Äôs actual knowledge of the prospective buyer‚Äôs identity was not enough. In that transaction, the broker worked with both Helmer Miller and his adult son Howard Miller. The owner knew that the broker worked with both Millers in an attempt to procure an offer to purchase. Prior to the expiration of the listing, the broker filed with the seller a list of protected buyers, including ‚ÄúHerman Miller,‚ÄĚ which everyone understood was intended to be Helmer Miller. The owner later sold to Howard. When the broker sued for commission, the court found against him because Howard‚Äôs name was not on the list. The court stated that the listing contract provision regarding protected parties would be read strictly against the broker; in other words, the broker would have to comply with every provision to the letter. Dunn & Stringer Inv. Co. v. Krauss, 264 Wis. 615, 60 N.W.2d 346 (1953).

An exception to the rule arises when a selling agent cannot legally provide the name of the buyer because the buyer indicated that his or her name is confidential information on the agency disclosure form or in some other manner, preferably in writing. According to the terms of the listing contract, if a buyer has requested that his or her identity remain confidential, delivery of a notice identifying the broker with whom the buyer negotiated and the date(s) of any showings or other negotiations fulfills the ‚Äúdelivery of the buyer‚Äôs name‚ÄĚ requirement.

If the listing agent provided the cooperating agent’s or broker’s name and other identifying information regarding the showing or other negotiations, then listing protection may have been established if this was done because that buyer had requested confidentiality. See lines 220-229 of the WB-1 Residential Listing Contract. If this information was provided for any other reason, then the establishment of listing protection is unlikely. The seller should speak with the first broker or legal counsel to determine whether there were in fact confidential buyers or if the broker just did not obtain the buyers’ names.

For additional information regarding listing protection, see pages 5-6 and 8-9 of the October 2007 Legal Update, ‚ÄúWB-1 Listing Contract ‚Äď 2008 Revisions‚ÄĚ online at www.wra.org/LU0710 and pages 8-10 of the February 2004 Legal Update, ‚ÄúListing Procedures for the Prudent Broker,‚ÄĚ at www.wra.org/LU0402.

In Search of Protected Buyer Identities

Aren’t buyers automatically protected when there is a one-party listing?

Once again, the components of listing protection are what the buyer did and what the seller knew. If the buyer’s name is stated in the one-party listing, the seller knows the buyer’s name. The only question then is whether, during the term of the listing, the buyer engaged in conduct that would create listing protection, such as submitting an offer, negotiating with the seller or broker, or attending an individual showing.

How does a listing broker know if there are Protected Buyers?

Although many listing brokers ask if the seller has a list, that does not take into consideration all the possible ways a buyer can be protected. The prudent listing broker may ask the seller the following questions to determine if there are Protected Buyers because Protected Buyers from a prior listing contract are automatically excluded from the listing by virtue of the listing contract language:
1. Was the property listed before? How many listings have there been
in the past year? Who was or were the prior listing brokers?
2. Did the seller receive any offers to purchase? Who were the buyers?
3. Did the seller negotiate with any buyers directly? Who were the buyers?
4. Did the seller receive any lists of protected buyers or showing reports from any prior listing brokers?

Two Listings: Property in the MLS Twice

An agent has a REO property listed. It was previously listed with another broker, but the lender foreclosed and acquired the property at a sheriff’s sale. The previous broker is still advertising the property on the MLS. The second listing agent does not believe the first broker has a valid listing contract any more since the property is now owned by the bank. The previous broker states his attorney told him he has a contract through the end of the year. Who is correct?

It is possible for a variety of reasons for a property to be listed in the MLS simultaneously by more than one listing broker. A common example is where one broker has a listing with one spouse and the other spouse engaged a different broker. In this situation, the first listing broker appears on paper to have a valid listing contract with the previous owner that will not expire until the end of the year. However, because title passed to the lender, the prior owner has no authority or ability to sell the property. In such cases, the second broker would not concern themselves with Protected Buyers because the listing is with a different seller.

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

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