The Best of the Legal Hotline: Pre-venting Broker Liability

 Tracy Rucka  |    October 06, 2016

They say an ounce of prevention is worth a pound of cure. What can you as a licensee do to "pre"-vent liability? Recent calls to the WRA Legal Hotline highlight how doing your job well, communication and good record keeping of documentation can prevent liability.

Pre-listing inspections 

Prior to the listing, what does the listing broker need to look for in the pre-listing inspection? 

Wisconsin licensees are required to inspect the property prior to executing the listing and make inquiries of the seller on the condition of the structure, mechanical systems and other relevant aspects of the property and request that the seller respond in writing per Wis. Admin. REEB § 24.07(1)(b). The inspection requires “a reasonably competent and diligent inspection of accessible areas of the structure and immediately surrounding areas of the property to detect observable, material adverse facts.” To facilitate documentation of your observations at the pre-listing inspection, the WRA created the Listing/Selling Agent Visual Inspection Form, available in zipForm. Once you complete the visual inspection form, you will compare your observations with the seller’s written disclosure. If any inconsistencies, inaccuracies or incomplete items are revealed, the licensee may then make timely written disclosure of material adverse facts. 

If the broker provides limited services or the seller is REO and is selling “as-is,” is the pre-listing inspection still required? 

Yes, the duty to inspect prior to listing relates to all property types, all types of sellers and all real estate business models. The REEB rule makes no exceptions related to the type of listing contract or services provided under the listing contract.

Likewise, there are no exceptions for REO or bank-owned property. Although such sellers may not provide a condition report, the broker is required to inspect the property and ask for a copy of the Real Estate Condition Report (RECR). If no report is provided, the broker should document to the file the request and the seller’s denial. The WRA has a Seller Refusal/Statement Regarding Property Condition form for this purpose, which is available in zipForm.

Rather than comparing the visual inspection report form to the RECR, the licensee in this case will use the content of the visual inspection report form to complete a material adverse fact disclosure. This is available in zipForm. The licensee will deliver a copy to the seller and later to potential buyers. 

Pre-liminary title search 

The agent is working with a seller. The seller has not owned the property for very long and is having financial issues. What can the broker do prior to the listing interview? 

At the time of the listing, preparing for the closing of the transaction may appear premature. However, to avoid unexpected issues related to title, making inquiries from the seller and the title company is in order. It is beneficial for the seller and listing broker to be familiar with whatever potential liens and encumbrances may be present with respect to the listed property as early as possible. Three good sources of information can provide insight: the seller, the title company and REALTORS® Property Resource (RPR). 

Prior to the listing, the listing agent should log in to RPR to see available information that, depending on location, may include, legal descriptions, tax info, mortgages, photos or prior sales information. Additionally the listing broker may engage the title company to complete a search and hold, identifying additional potential title issues. At the listing meeting, the listing agent should make inquiries of the seller and ask the hard questions — such as what are known liens and mortgage balances. In essence, the agent should create a financial snapshot in time. The listing broker may wish to use the WRA’s Listing Questionnaire Regarding Title Issues to help educate the seller and trigger the seller to identify potential title issues that would not be evident from simply examining recorded documents. This form is available in zipForm. 

Want to know more about the property when interviewing the seller? The WRA Transaction Checklist can be a valuable tool to assure the listing agent asks discerning questions about the seller and the property being sold. This checklist helps identify with specificity the seller, the lien holders, tenants if any, and what documentation the seller has or is missing regarding the property. The checklist form also can help identify whether the property is served by municipal utilities or private wells or septic. It also gives the seller a location to share if any personal property or fixtures are in working order. The checklist is also available in zipForm.

Pre-pare sample net sheet 

After obtaining information about liens, mortgages and other financial obligations from the seller and title company, the licensee can assist the seller to create a sample net sheet to determine the seller’s financial position. The sample net sheet can be used in all transactions but can be critical in determining if a sale is a potential short sale. In the event of a potential short sale, the WRA Short Sale Checklist and Addendum SSL to the Listing Contract Short Sale can be used, both available in zipForm. To avoid liability, inform the seller the net sheet is a sample and may change if additional liens or incomplete information has been provided. 

Pre-offer inspections

If a buyer does not view the property, can the buyer write an offer, and would that offer be binding?

While it is advisable for a buyer to view a property prior to submitting an offer and also prior to closing per the pre-closing walk-through provisions of the offer, the buyer is not obligated by law to view the property. Remember that Listing/Selling Visual Inspection Report Form? A prudent agent would complete that form for every property for which he or she writes an offer, especially if the buyer has not viewed the property prior to drafting an offer. Comparing the content on the report form with the content on the seller’s condition report can help you recommend appropriate contingencies when making an offer. Retaining the report form and any material adverse fact disclosures in the file will be valuable in the future if the buyer later claims you failed to make proper disclosures. If a buyer gets selective memory of what you disclosed, your attorney will like nothing better than a copy of the material adverse fact disclosure documenting that you identified issues and recommended the buyer consult experts and legal counsel. The material adverse fact disclosure letter can be referred to as a “CYA” for “Call Your Attorney” — or as my mom says, “Cover Your Assets!” 

Can a cooperating broker or a buyer’s agent write an offer without viewing the property first? 

Wis. Admin. REEB § 24.07(1)(c) requires licensees, other than the listing broker, to inspect the real estate prior to or during the showing of the property, unless the licensee is not given access. Although a listing broker is required to inspect the property prior to listing, there is not an explicit timing obligation for cooperating brokers. Whether it is competent practice to draft an offer without viewing the property is a secondary question. As a buyer’s agent, it may be prudent, depending on the facts and circumstances, to view the property prior to drafting to allow the broker to make necessary disclosures regarding property conditions and make recommendations regarding appropriate contingencies for the buyer’s consideration. The DSPS believes competent practice generally requires a licensee to be familiar with the property prior to writing an offer.

The buyer wants to have his home inspector conduct another home inspection before the closing. Per the walk-through provisions, is the buyer allowed to do this? 

Regardless of whether the buyer had previous inspections or tests, the buyer has the right to view the property again within three days before closing. There are two purposes for the walk-through provisions at lines 204-207 of the new WB-11:

  • To make sure the property has been maintained in the condition it was in at the time of the offer and to make sure any damage that occurred since then has been repaired.
  • If the seller agreed to cure defects or otherwise make repairs, to make sure that such repairs were correctly performed. 
  • The walk-through is not an opportunity for the buyer to have a home inspector conduct an additional home inspection.


Pre-venting post-closing liability

The transaction closed about three weeks ago. The buyer is now complaining about water leaking into the basement. What can the agent do after closing if the buyer complains about the transaction or the condition of the property? 

Once a transaction has closed, the agent has no responsibility to assist the buyer with this situation or to give the buyer advice. Doing so will only expose the agent to potential liability. Per license law and the REALTOR® Code of Ethics, the agent cannot engage in the unlicensed practice of law. The buyer should be advised that the issue of water leaking would need to be resolved by the parties themselves or with the assistance of legal counsel.

To hold the seller liable, the buyer will generally need to demonstrate that the seller knew there were preexisting problems or defects that he or she concealed or failed to disclose. The buyer may enlist the help of appropriate contractors to assist in establishing this proof.

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

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