Madison, WI - Wisconsin’s Real Estate Practice Law, Wisconsin Statutes Chapter 452, will be
revised and updated beginning July 1, 2006. The revisions are intended to make
brokerage services easier for the consumer to understand and bring the law more
in line with existing best practices. Some of the highlights of the revised
agency law include designated agency, pre-agency brokerage services, broker
disclosures of agency and a definition of subagency.
Adding Designated Agency as a Consumer Choice
One of the most talked-about aspects of the revised agency law is designated
agency. Under the current law clients entering into agency agreements have the
choice of consenting to or rejecting multiple representation. Multiple
representation means that one broker/company provides brokerage services to more
than one client in a transaction, with the consent of those clients.
Under current law, when a seller with a listed property rejects multiple
representation, the seller is ruling out all of the buyers who have a buyer
agency agreement with that same broker/company. A buyer with a buyer agency
agreement who rejects multiple representation is ruling out all of the
properties listed by that broker/company. In these scenarios, a rejection of
multiple representation has the unfavorable consequence of actually diminishing
the pool of consumers who might enter into a transaction with the client. On the
other hand, clients who consent to multiple representation lose the advantage of
receiving full-service negotiation assistance because a broker in a multiple
representation situation cannot place the interests of one client ahead of the
other client in the transaction.
Wisconsin’s revised agency law adds a third representation choice for clients
by introducing the concept of designated agency into Wisconsin real estate
practice. Under current law, when a buyer who signed a buyer agency agreement
with Agent A from ABC Real Estate wants to negotiate an offer on a property
listed by ABC Real Estate, the only choice is dual agency, which looks at the
broker/company as the agent of two clients.
Designated agency shifts the focus from the broker/company to the two agents
who separately negotiate on behalf of the two clients. The term “designated
agent” simply means that each agent is assigned or designated to provide
full-service negotiation to the client the agent has been working with. Another
agent in the company is “designated” to provide full-service negotiation to the
other client. In other words, the focus in the revised law is on the two agents
who are each negotiating for a separate client. With this new perspective, each
agent is allowed to fully negotiate on behalf of his or her client just as if
the party on the other side of the transaction was working with an agent from
another broker/company.
How does designated agency affect customers?
It doesn’t. Multiple representation with designated agency is only an issue
for clients, that is, buyers who have signed buyer agency agreements and sellers
who have signed listing contracts. Customers don’t sign an agency agreement and
therefore they do not have to worry about designated agency.
How should an agent explain designated agency to buyer clients if the agent
would like them to consider the properties the agent’s company has listed?
“Designated agency” means a multiple representation relationship in which two
clients of a broker/company in the same transaction receive negotiation services
from separate agents of the broker. This means that one agent alone cannot
provide designated agency and full negotiation services to two clients in the
same transaction.
What happens if there is only one agent?
The agent should explain to the clients when they sign their agency
agreements that if the agent negotiates for both the buyer and the seller in the
same transaction, then the agent will have to be neutral. In other words, this
is the dual agency Wisconsin licensees have been working with for the past ten
years. The agent will be in “the middle” and cannot place the interests of one
client ahead of the other in negotiations.
How do clients consent to multiple representation?
The revised law provides three choices for clients: no multiple
representation, multiple representation as it exists under current law (dual
agency) and multiple representation with designated agency. Clients will
continue to select the form of representation they prefer at the time they
execute the agency agreement. Most clients will likely choose designated agency
so that they can have full-service assistance from their agent while at the same
time not unnecessarily limiting the pool of potential parties for their desired
real estate transactions.
The law talks about the designated agency option beginning for agency
agreements taken after July 1, 2006. However, consent to multiple representation
with designated agency may also be obtained for buyer agency agreements and
listings signed before July 1, 2006. Brokers may go to their existing clients
and have them sign new agency disclosures to take effect on July 1, 2006.
Pre-Agency Brokerage Services
The revised law also recognizes that there is an initial stage in the
interactions between an agent and a consumer when it is not yet appropriate to
require the consumer to choose an agency relationship. For example, a buyer
first meeting a salesperson and receiving market data and property information
is not always ready to decide if he or she wants to enter into a buyer agency
agreement.
Accordingly, the revised law provides that licensees may provide brokerage
services to parties without having any agency relationship in place up to the
time when negotiations begin. This initial pre-agency role of providing
information to consumers may include showings prior to negotiations, but
appropriate agency disclosures must be given and an agency relationship must be
established before negotiations begin.
In this pre-agency stage, the salesperson would owe all parties essentially
the same duties owed to all parties under current law. In addition, an agent in
the pre-agency stage may not give any party advice or opinions that are contrary
to the interests of any other party unless required by law.
Broker Disclosures Regarding Agency Relationships
The revised law establishes plain-English agency disclosures to help brokers
explain agency relationships to consumers in a more meaningful way.
The revised statutes establish mandatory agency disclosure language for
clients that will appear in the agency contract between the broker and client,
that is, the listing contract or buyer agency agreement, once the Department of
Regulation and Licensing (DRL) revises those forms. The WRA has developed a
“Broker Disclosure to Clients” form to be used until that time comes (the goal
is the beginning of 2007).
The new mandatory agency disclosure language for customers will continue to
appear in a separate form. However, because a consumer under the revised law can
wait until he or she is ready to negotiate before selecting the type of agency
relationship he or she wants, the deadline for giving the agency disclosure form
to customers is extended to the point where negotiation begins. The WRA has
developed disclosure forms for customers – one for residential and one for
non-residential transactions.
Defining Subagency Relationships
Under the statutory revisions effective July 1, 2006, cooperating brokers who
are engaged by another broker to provide services in a transaction are
subagents. These cooperating brokers are agents of the other broker, not the
other broker’s client. For example, a subagent helping a buyer purchase a new
home is working as the agent of the listing broker. Subagents cannot place their
own interests ahead of the interests of the other broker’s client (the seller in
the example) and cannot provide advice and opinions to the parties in a
transaction that are contrary to the interests of the other broker’s client (the
seller), unless otherwise required under law.
Learn More
Want to learn more about the revisions to the real estate brokerage law? The
WRA has several ways for you to get more information.
- Visit the WRA Web site and look for the April 2006 Legal Update entitled
“Chapter 452 Modernization Act,” available at
www.wra.org/LU0604.
A practice-oriented Legal Update will also be available in June.
- The changes to Wis. Stat. ch. 452 can be found at
www.legis.state.wi.us/statutes/Stat0452.pdf.
- See page 17 for information on the new Agency Disclosure Forms. Use of
these forms is mandatory as of July 1, 2006.
- Real estate continuing education course CE4B, “2006 Agency Law Revisions –
Bringing the Law to the Practice” will also help bring you up to speed. Look
for the course schedule at
www.wra.org/CEcourses.
- See page 13 for information on the WRA’s new, 60-minute Agency Law Update
DVD, available for $14.95 including tax, shipping and handling. This one-hour
tape will give you an overview of the new law and its impact on how you do
business.
Rick Staff, former WRA senior attorney, is owner of Rick Staff Consulting,
LLC.
Published: 5/16/2006
