Staying in Your Lane

Real estate agents are essential to the buying and selling process. They help parties complete approved forms, educate clients about market conditions, and navigate complex transactions with efficiency and ease. But to protect clients, customers and themselves, agents must recognize which questions they can — and cannot — answer, staying firmly within their professional lane.

Real estate agents are invaluable in property transactions and can help parties to a transaction in many ways. During a transaction, consumers often look to agents to provide advice on forms, contractual provisions, housing market changes and negotiations. It is essential and important that agents help the parties and guide them throughout the transaction, but it is even more important to know where that guidance ends.

Agents are encouraged to provide a general explanation of provisions, forms and parties’ obligations, but they should not make statements about the legal rights of the parties. Agents can provide data about the housing market, such as number of closings, average pricing in the region, and statistics regarding trends in housing affordability. Agents should be careful to avoid any statistics or representations regarding demographics of the region, quality of schools, or discussions about whether the area is suited for families.

Agents can also help parties by completing approved forms according to the instructions of the party, drafting addenda or additional provisions, and providing general explanations of contract sections. Agents can help with pricing decisions, but it is important not to give legal advice in the process, such as how to hold title to a property. For example, an agent can tell a party that a house with similar square footage or in a nearby neighborhood sold for a specific price, but the agent should not suggest whether to take title as joint tenants or tenants in common.

When providing information to parties, agents should be objective. When working with a client, an agent also acts in the client’s best interest within the bounds of license law. A listing agent must inspect a property prior to listing and ask the seller to complete a real estate condition report (RECR). Other agents must inspect a property prior to or during a showing. All agents must disclose material adverse facts in writing to all parties in a timely manner. Agents must walk through the property and examine the condition of the property and disclose any material adverse facts, but agents should not give opinions on these facts. For example, an agent could disclose that they saw a wet spot in the basement or evidence of past water damage on a ceiling, neither of which were reported in the seller’s real estate condition report (RECR), but an agent could not give legal advice to the buyer about the buyer’s rights if they purchase the property and discover the seller had prior knowledge of the condition issues. 

Real estate agents cannot give advice or opinions on how to hold title, which kind of deed to use to transfer or receive title, potential resolutions to conflicts over property lines and encroachments, and which property conditions a party should disclose. Agents should also not give recommendations on which loan program or insurance product is suitable for a party. For example, an agent should not tell a party which mortgage rate to expect or which insurance premiums the party should expect to pay. However, an agent can say what the average interest rate is or other general statistics that may apply to the party.

According to Wis. Stat. § 452.40(2), “licensees cannot provide advice or opinions concerning the legal rights or obligations of parties to a transaction.” Agents should not be giving parties any legal advice at any point in the transaction. If an agent does provide legal advice to a party, intentionally or unintentionally, they can face serious consequences.

Firstly, an agent could face a REALTOR^® Code of Ethics violation if they are a REALTOR^® member. Article 13 of the Code says that a REALTOR^® cannot engage in activities that constitute the unauthorized practice of law and should always recommend that legal counsel be obtained. If a REALTOR^® is found to have violated the Code, they could be required to enroll in further continuing education, receive a letter of reprimand, or potentially have to pay a fine. Further, Wis. Admin. Code § REEB 24.06 also prohibits the unauthorized practice of law by a real estate agent.

If an agent violates this regulation, they could face a fine, a license suspension or even potentially lose their license permanently. Lastly, a party to the transaction could sue the agent for damages related to the unauthorized practice of law in violation of license law. A firm could terminate an agent’s association with the firm for engaging in the unauthorized practice of law.

Agents have many resources they can use when they are asked legal questions by parties. Members of the WRA can always contact the WRA Legal Hotline, which can answer many legal questions that arise during a transaction. The WRA has a staff of attorneys who can answer a wide variety of hotline calls and questions related to real estate transactions and all the forms that are included in the WRA Forms Library. The hotline can provide answers via a phone call with one of the attorneys or a written response sent via email. Agents should still ensure that they are accurately representing the hotline’s answer when relaying it back to a party. The hotline can also be used for more general questions the agent may have: the forms to use in a specific transaction, licensing questions or any other questions that arise during a transaction. Keep in mind, the WRA Legal Hotline cannot provide legal advice but can provide legal information such as which form is appropriate, what the law says regarding a particular issue, and the options that parties may have when working through transactional provisions.

Another source of information about real estate laws comes from the legal section of the WRA’s monthly Wisconsin Real Estate Magazine. The magazine is a great source of general information about changes to the housing market, recent legal cases that impact property owners, and model hotline questions and answers. “The Best of the Legal Hotline” article in each issue of the magazine is a great resource to answer any questions that an agent may have. Further, the additional legal articles in each magazine provide helpful legal information on a wide variety of topics, such as short-term rentals, water rights, disclosures and many more. Agents can look at the current magazine or any past magazines to answer some of the questions they may have. If the agent is still unsure or unclear about the answer, they should consult legal counsel or the WRA Legal Hotline.

Another resource the WRA provides is the monthly Legal Update, which covers recent legal changes to the world of real estate. These updates provide introductory information on many of the new changes to the real estate world. These videos cover topics such as information about the practice changes from last year’s National Association of REALTORS^® (NAR) settlement, access to property during a transaction, independent contractor agreements and new forms. These videos are short and to the point. If an agent needs additional information, they can consult their supervising broker or additional sources, such as the WRA Legal Hotline. 

Most importantly, an agent should encourage parties to consult their own attorneys with any legal questions they may have. Attorneys can offer legal advice to their clients and outline many of the legal impacts of each provision in the contracts. While all WRA and statewide forms are reviewed by attorneys, that does mean a party does not need an attorney. 

Agents should not suggest specific attorneys or be in referral agreements with specific attorneys. Agents can suggest that parties contact the State Bar’s Lawyer Referral Service (LRS). When calling the LRS, a legal assistant helps determine the nature of the potential dispute and can refer attorneys in the caller’s area who have practice in matters related to the potential dispute. They can visit the LRS online or they may call 800-362-9082, Monday through Friday, from 8:00 a.m. to 5:00 p.m.