WRA’s Chapter 452 Modernization Act

With Legislative Session Coming to a Close, WRA is Optimistic Act Will Pass

By: Rick Staff

Agency Disclosure Form and Timing

Agency Disclosure Form

The bill establishes a plain-English disclosure for the first time. This will help ensure that these important disclosures are meaningful. Separate disclosure forms have been developed for clients and customers so that each party can receive the most effective disclosure form possible.

Agency Disclosure Timing
Historically, organized real estate law required licensees to give agency disclosures before providing brokerage services in response to large lawsuits in the Midwest and elsewhere in the country regarding undisclosed dual agency. In retrospect, the WRA agency task force and WRA leadership believed that the current law went too far concerning the timing of the disclosures to consumers. Asking buyers to sign agency disclosures when they essentially had just walked in the door was difficult for licensees and alienated some buyers. The new proposed law presumes that a balance may be reached between the timing and the legal benefits of substantive agency disclosure. Recognizing that the original point of agency disclosure regulation was to prevent buyers from thinking they were negotiating with an agent that was representing them rather than the seller, the WRA’s License Law Task Force proposed a new agency model in which agency issues can be addressed as early as the consumer and the licensee wish, but no later than the time of negotiation. The bill recognizes that there is an initial stage in the relationship between a broker and a consumer in which it may be inappropriate to require that there be an immediate agency relationship in place. A buyer, first meeting a salesperson and receiving information about the marketplace, is often not ready to enter into a long-term buyer agency agreement until they get to know the agent. Salespeople doing listing presentations provide market data and opinions of value before they (hopefully) get a listing contract with sellers. With this in mind, the bill provides that brokers may provide brokerage services to parties without an agency relationship prior to engaging in negotiations. This initial role of providing information to consumers may include showings prior to negotiations, but the salesperson is required to establish an agency relationship before beginning negotiations. In this pre-agency stage, the salesperson owes all parties significant duties under the license law – the traditional duties owed to all parties as well as the duty to not place the interests of the broker ahead of the interests of any party in the transaction or provide any party in the transaction advice or opinions that are contrary to the interests of any other party, unless required by law. This latter provision ensures that the salesperson stays in the role of providing information to the consumer without taking on any agency/advocacy role, because no agency relationship exists with any party.

Multiple Representation and Designated Agency

Current multiple representation rules prohibit consumers from choosing to receive full negotiation services from the agent they have selected to work with. Current law requires consumers in a multiple representation relationship to lose the valuable negotiation services they contracted for in their agency agreement under the theory that the agents in the transaction will violate their duties of loyalty and confidentiality in order to take advantage of one or both of the parties. This assumption is unfounded as evidenced by the fact that licensees have universally protected the confidentiality of customers who have negotiated with clients of that licensee’s broker. Current multiple representation regulations are based on the proposition that these same licensees would violate the confidentiality duties owed to a client who is negotiating with other clients of the licensee’s broker. The bill provides consumers the choice of selecting full negotiation under the designated agency model, the current limited negotiation multiple representation model, or the opportunity to choose only exclusive agency relationship transactions.

Defining Subagency Relationships

Another major gap in the regulatory model was the failure to identify the duties owed to parties by brokers who are acting as subagents of another broker. The bill defines subagency and the duties owed by a subagent to the parties in a transaction. Cooperating brokers acting as subagents are the agents of the principal broker, and are subject to loyalty duties to the broker’s client. Subagents will not and should not be subject to other duties owed to the other broker’s client, because their subagency relationship does not make them a party to the agency agreement (so they should not be subject to the provisions of the agency agreement) and both the duties to give advice to a client and the duty to disclose all material facts to the client are not appropriate given the limited contact between a subagent and the other broker’s client.

Emerging Business Models

The emergence of brokers, who, as part of their business model do not provide negotiation services, has led to the question of whether negotiation is a mandatory duty owed to a broker’s clients. The DRL has taken the position that these limited service brokers are operating lawful business models and that it is inappropriate for Wisconsin’s license law to arbitrarily eliminate the ability of a consumer to consider the option of a limited service listing. Therefore, the bill provides that negotiation is not a mandatory duty, but to ensure consumer understanding of the significance of the waiver of this essential service an express written waiver of negotiation duties is required to be made by the client. Note that the law confirms that none of the other client level duties are waiveable under the bill’s proposal.

Published: 11/7/2005

November 2005 Issue