The Best of the Legal Hotline

Elle Woods once said, “I feel comfortable using legal jargon in everyday life.” While this sentiment makes sense for Elle Woods, a fictional attorney in the Legally Blonde movies, real estate agents should proceed with caution. Agents are not allowed to engage in any activity that would constitute the unauthorized practice of law. Doing so will put the agent’s license at risk. The following scenarios depict when an agent should refer the parties to private legal counsel. 

Agent A was contacted by a buyer. When Agent A asked whether the buyer is working with another agent, the buyer said yes. The buyer said they are not happy with their agent, Agent B, stating that Agent B does not return calls and has not set up showings when asked. The buyer would like to work with Agent A instead. What should Agent A do to help the buyer?

Agents cannot give legal advice or opinions regarding the validity or enforceability of the other agent’s buyer agency agreement or the buyer’s obligations under that buyer agency agreement. Wis. Stat. § 452.40(2) provides the following:

“A licensee may not provide advice or opinions concerning the legal rights or obligations of parties to a transaction, the legal effect of a specific contract or conveyance, or the state of title to real estate. A licensee may provide a general explanation of the provisions in a form approved by the board under s. 452.05 (1) (b) to the parties to a transaction at the time of completing the form or when delivering an approved form for the seller’s or buyer’s acceptance. Reviews conducted by a supervising broker under s. 452.132 (4) shall not be considered to be the provision of legal advice 
or opinion.” 

Wis. Admin. Code § REEB 24.06 provides:

“Unauthorized practice of law. (1) Unauthorized practice of law prohibited. Licensees shall not engage in activities that constitute the unauthorized practice of law.”

Additionally, Article 13 of the REALTOR^® Code of Ethics provides:

“REALTORS^® shall not engage in activities that constitute the unauthorized practice of law and shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it.”

The agent may suggest that the buyer discuss the situation with their current firm or seek legal counsel regarding their legal rights and obligations under the buyer agency agreement. To avoid engaging in the unlicensed practice of law, the agent should refer the buyer to the buyer’s attorney with questions relating to the other agent’s buyer agency agreement.

According to the REALTOR^® Code of Ethics, before providing substantive services, like writing an offer, a REALTOR^® is required to ask the buyer if they are represented. Once asked, the second agent may elect to continue to provide brokerage services, upon request of the buyer, because it is the buyer’s prerogative to work with any agent. Although the second agent may proceed, they should consider the Code, which provides an agent may not engage in conduct that would either violate Article 16 of the Code or interfere with the other firm’s agency agreement. It would be prudent for the agent, possibly in writing, to refer the buyer to an attorney regarding the buyer’s legal obligations to any other firm.

Article 16 of the REALTOR^® Code of Ethics:

“REALTORS^® shall not engage in any practice or take any action inconsistent with exclusive representation or exclusive brokerage relationship agreements that other REALTORS^® have with clients. (Amended 1/04)”

Standard of Practice 16-5 of the REALTOR^® Code of Ethics:

“REALTORS^® shall not solicit buyer/tenant agreements from buyers/tenants who are subject to exclusive buyer/tenant agreements. However, if asked by a  REALTOR^®, the broker refuses to disclose the expiration date of the exclusive buyer/tenant agreement, the REALTOR^® may contact the buyer/tenant to secure such information and may discuss the terms upon which the REALTOR^® might enter into a future buyer/tenant agreement or, alternatively, may enter into a buyer/tenant agreement to become effective upon the expiration of any existing exclusive buyer/tenant agreement. (Adopted 1/94, Amended 1/98)”

Standard of Practice 16-13 of the REALTOR^® Code of Ethics:

“All dealings concerning property exclusively listed, or with buyer/tenants who are subject to an exclusive agreement shall be carried on with the client’s representative or broker, and not with the client, except with the consent of the client’s representative or broker or except where such dealings are initiated by the client.

Before providing substantive services (such as writing a purchase offer or presenting a CMA) to prospects, REALTORS^® shall ask prospects whether they are a party to any exclusive representation agreement. REALTORS^® shall not knowingly provide substantive services concerning a prospective transaction to prospects who are parties to exclusive representation agreements, except with the consent of the prospects’ exclusive representatives or at the direction of prospects. (Adopted 1/93, Amended 1/04)”

The transaction closed last month. In the offer, the parties agreed to escrow funds for the septic system to be replaced post-closing. The funds are being held by the title company. When the contractor arrived to begin the work, the buyer stopped the contractor because the buyer wanted the septic system to be installed in a new location, which will cost more than the original estimate. The seller wants the septic system installed according to the original estimate and plan agreed upon in the offer. How should the agent proceed?

Once a transaction has closed, the agent has no responsibility to assist the buyers with this situation or to give the buyers advice. An agent’s authority to act on behalf of a party and provide limited legal services under the doctrine of the Dinger case concludes when the agency agreement ends, which is at closing. Getting involved at this point will only expose the agent to potential liability, for example, for the unauthorized practice of law. The parties should be advised that the issue would need to be resolved by the parties themselves or with the assistance of legal counsel.

The resolution of this issue depends on the language addressing the post-closing repairs in the offer and in the escrow agreement the parties entered into with the title company. The parties should be referred to the title company and legal counsel.

To find an attorney, a person may contact the State Bar of Wisconsin’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.

The agent was contacted by a seller who wants to sell their mobile home. The seller does not own the land and leases the land from the mobile home park. Can the agent list a mobile home that does not include real estate?

With respect to Wisconsin real estate agents selling manufactured homes, first it must be determined whether the manufactured or mobile home is classified as real estate or personal property. A manufactured homes dealer license is not required for those transactions where the manufactured or mobile home is part of a real estate transaction, along with the site where the manufactured home is located. In such a case, an agent can use the residential offer to purchase form or another approved form might otherwise be appropriate in the transaction.

Per Wis. Stat. § 70.043 regarding the taxation of manufactured or mobile homes, if a mobile home is connected to utilities and set on a foundation on land that is owned by the mobile home owner, the mobile home is treated as real estate. In Ahrens v. Town of Fulton, 2002 WI 29, 251 Wis. 2d 135, 641 N.W.2d 423, the Wisconsin Supreme Court indicated that a mobile home is an improvement to real property if the home is resting for more than a temporary time, in whole or in part, on some means of support other than its wheels.

Alternately, if the manufactured or mobile home is not set on a foundation on the owner’s land, as is the case in mobile home parks where the land is leased, the home is classified as personal property. In this case, title is transferred with a Certificate of Title of Manufactured Home issued by the Manufactured Home Unit at the Wisconsin Department of Safety and Professional Services (DSPS). 

A manufactured home dealer license is required if two or more manufactured homes are sold in a calendar year.

Note: because someone holds a real estate credential does not authorize participation in such a transaction, including advertising the sale of a manufactured home. Some MLSs as a courtesy allow listings in the MLS, but the transaction is not real estate brokerage as defined in Wis. Stat. Ch. 452. It is recommended agents check errors & omissions insurance as well as office policy before engaging in such a transaction. The agent may refer directly to each MLS where they are a subscriber if the MLS allows entry of a non-real estate-based interest.

The approved real estate forms are arguably inappropriate for these personal property transactions. The forms used by manufactured home dealers are described in Wis. Admin. Code § SPS 305.323. However, there is a question whether completing these forms without a manufactured home credential from the DSPS constitutes the unauthorized practice of law.

The agent is listing a property. The seller has provided a list of improvements they have done, such as repairing damage caused by flooding. The seller asked the agent whether they need to disclose the flooding on the real estate condition report (RECR) since all the damage has been repaired. How should the agent respond?

Unfortunately, the agent cannot advise a seller whether a seller must disclose certain conditions. Advising a seller on how to complete the seller’s RECR would be seen as the unauthorized practice of law, which is a violation of Wis. Admin. Code § REEB 24.06 and Article 13 of the REALTOR^® Code of Ethics. Whether any item or condition should be disclosed is a judgment call for the seller and the seller’s legal counsel. 

The seller would disclose defects of which the seller is aware. Aware, for purposes of the RECR, means to “have notice or knowledge.” Depending on the seller’s knowledge and any current inspection report, the seller may or may not have a disclosure obligation in the RECR. It is the seller’s decision, in consultation with private legal counsel, whether the RECR needs to disclose the flooding that previously occurred and has since been remedied.

Whether the current seller discloses information in the RECR about conditions that have been repaired, remediated or fixed is a matter for each seller to discuss with legal counsel, not the agent. While a seller may believe that an item that has been repaired is no longer a defect, the buyer’s attorney may argue in court that all past and present defects should be revealed. Thus, sellers may benefit from more liability protection in the long run by disclosing corrected defects or by explaining the corrective measures taken in the RECR. This risk analysis should be conducted in consultation with legal counsel.

The listing agent and cooperating agents have a duty to disclose material adverse facts, information suggesting the possibility of material adverse facts, and also inconsistencies from the seller’s disclosures, if any, as required by Wis. Admin. Code § REEB 24.07(2), (3) and (6).

When taking a listing, an agent conducts a competent, diligent inspection of the property and asks the seller for a written report regarding the property condition. The seller will be responsible for their disclosures, or for the failure to disclose. The agent then compares the seller’s disclosures with the agent’s observations and knowledge. 

Wis. Admin. Code § REEB 24.07(1) requires listing agents to make inquiries of the seller regarding the condition of the property and request the seller provide a written response to the inquiry. If the seller makes no disclosure or if the seller’s disclosure is incomplete, inaccurate or inconsistent with the agent’s observations and knowledge, then a written material adverse fact disclosure may be given by the agent to disclose items that are material adverse facts or information suggesting the possibility of material adverse facts.

The agent should also document that the agent asked the seller about the condition of the property and requested a written response. How the seller fills out the RECR or any refusal to fill out a RECR is up to the seller and the seller’s legal counsel. Documenting this request may help mitigate potential liability for the agent and the firm.