Agency Service Before Agency Agreements. It’s still a thing.

Buyer agency came into Wisconsin in the early 1990s. Real estate agency rules have always required a signed agreement before providing real estate agency service. In life, we expect practices to change to fit the rules. That doesn’t happen. In real life, rules get modified to make the law fit the method. Practitioners resist making a total concession, and enforcers are reluctant to enforce compliance. Buyer Agency is an excellent example of modifying rules to apply to standard practice, with the enforcer’s soft commitment to enforcing compliance.  

WB-36 Wisconsin’s Buyer Agency Agreement

Whether a licensee has the right to act as a buyer agent without a signed WB-36 is a question for lawyers. Depending on which side of the argument, a lawyer could be right. Real estate license law may not allow a licensee enough wiggle room to withstand a challenge. The agent who acts as a buyer agent provides agency service and waits to have an agreement signed until they’ve provided enough courtesy to help the buyer decide they should make an offer on the property is in a dangerous position. 

A self-proclaimed top agent in the Madison real estate market acknowledged before a room of eager first time home buyers of the expectation of a signed agreement before service. He then announced: I don’t have my clients sign a buyer agency agreement until we sit down to write an offer. Maybe he intended to give the audience some comfort in knowing he wasn’t as hard to work with as licensees who comply with Wisconsin law. What other rules might he not abide by? 

Pre Agency. Sub Agency. Buyer Agency. If you’re talking to a prospective home buyer, you are one or the other as a licensee. Pre Agency is one of those modifications made to make the law fit the practice. Pre Agency allows the licensee to provide some nonsubstantial service to a person. The service is at best enough for the parties to get to know each other. Because the need for substantial service comes early in the process, pre agency should be short. A need for disclosure of agency and a choice of sub-agency or buyer agency comes up quickly. 

Illegal or unethical is not up to me. But if the law requires an agreement before providing agency restricted services, and the rules require licensees to put the agreement in writing, it’s safe to assume the Board would have a disciplinary decision to make should a complaint be filed. 

How is this still happening?

Some licensees or brokers might have decided it’s better to capture business than to follow all of the rules. Capturing customers and pretending they are clients might be more comfortable than having a conversation that the licensee or broker is unskilled in. 

The same way we trace an illness back to patient zero, we can identify where the practice of agency service without an agreement exists in each firm. An audit of a firm’s files will provide a dated Disclosure of Agency form, and/or a WB36 Buyer Agency Agreement, and the dated Offer to Purchase. The responsibility for compliance rests with the firm. If files get reviewed as they are supposed to be, a broker should address the agents’ practice. Expecting the firm’s service incidents before the agreement’s cart to be ended quickly and early in the year is reasonable. 

Consumers who are represented by brokers who have not complied with agency law are out there. I know this because we hear from consumers that agents didn’t require a signed agreement in their previous experience. Real estate is a business with a long history of providing essential service for free. Consumers know price opinions, pre-selling consultations, tours, and free are all real estate agent giveaways. Is the buyer agency service just another freebie? Why is compliance so much better with the seller agency listing contract? Or is it?

What are the other optional rules?

Consumers who get agency-level service (negotiating ideas, value opinions, property critique, strategy advice) without a signed WB36 Buyer Agency Agreement may not be getting anything for free. If the signed agreement rule is deemed optional, what are other rules that the agent considers optional? Confidentiality isn’t optional, and failure to keep confidentiality will cost you. 

The New WB-11 Offer to Purchase

Publish with flaws or stop the presses? 

Admitting we errored and getting it right before releasing flawed work would be easy if making excuses wasn’t easier. Consequences compounded is the unpleasant outcome of choosing easy.  The Wisconsin Residential Offer to Purchase, WB-11 released in the fall of 2019 and made mandatory effective January 1, 2020, was known to be flawed before it was released. Resistance to requests to delay the release surprised me. Resistance to suggested changes frustrated me. I’m grateful that the people in charge came around and made the necessary changes. 

 Professionals who participated in the writing and review process caught the problems created by a solution to a problem that didn’t exist. The committees in charge of developing the forms received unsolicited suggestions for corrections. Requests to hold implementation until changes could be made found no support in the WRA legal department. I saved the email replies I received from WRA staff legal folks. I use them as examples to remind me of what condescension feels to the recipient. 

Garbage in, garbage out is as accurate as it is simple. When a committee’s purpose is to generate a product, the level of quality and precision is secondary. Standardization is the primary intent of the State produced real estate transaction forms. Around the committee tables, we hear people talk about adding provisions that could eliminate the need for individual companies crafting their version of ideas that look good at the moment. Some contingencies were explicitly added to reduce a variety of company authored contingencies. The FIRPTA contingency inserted into the January 1, 2020 version of the WB-11 required each company to make their unique modification to fix the committee’s problem. If the public was better served by leaving them exposed to the unnecessary risks that the brokers may or may not fix, it’s a mystery to me.

Problem solved

The new WB-11 we began using on August 1, 2020, corrects the errors. Because there are a variety of solutions still floating around that introduced into the offer process to fix the problem, we now have a compounded problem that will take time and expense to fix. By leaving the solution to the firms who each solved the problem in their unique ways, we will live with the stray voltage of so many addenda that do not match the terms of the Offer. And when addenda conditions don’t match the current version of the State approved offer documents, validity issues arise.   

Home sellers and buyers who prefer to have enforceable contracts will be wise to work with lawyers and licensees who know where the problems lurk and how to make them go away. You can find out what the agent who wants your business knows about the Offer documents by asking them to explain the different sections and quizzing them on their own company addenda. If the agent knows where the flaws are and have solutions, they probably know how to make the Offer work for you. If they don’t, they’re just checking boxes and filling in blanks.  

I don’t want to buy if or unless…the extreme cost of contingencies.

Stop right here. Let’s rethink this. Opportunities to reconsider a promise are necessary for uncommitted people. Every contingency in a residential offer to purchase says,  I don’t want to buy your house if this or that happens or doesn’t happen. Does it seem reasonable that home sellers will expect more money to exchange for more opportunities for a buyer to decide not to buy?  

Twenty pages to say MAYBE

The offer to purchase from a ready, willing and committed person could read, I will buy your house on this date, for this amount of money, which I will bring to (this place of closing). To complete the sale, you will transfer the property by a warranty deed and provide insurance of a clear title. 

A Wisconsin Residential Offer to Purchase includes at least 17 statements of I’m not going to buy your house if, or unless _________.  A typical four-page addendum of optional contingencies has 20 additional exit opportunities. Compared to the two-sentence promise of commitment, the contingency laden offer typically drafted by real estate professionals is one giant Maybe, maybe not. There is nothing safe in a maybe. 

The Price of Maybe

Security is valuable to home sellers. When a person writing an offer doesn’t know how to structure the offer to show the buyer’s abilities and commitment to close, all they have left to appeal to the seller is money. And the money they use belongs to their client. When homebuyers overpay, they’re spending equity they haven’t made yet. When real estate firms put more effort into customizing purchase agreements and less energy to capture leads, their buyer clients will reap the rewards. Until then, you’re going to pay for the right to walk away in cash or rejection.

Unprepared, uncommitted home buyers load up on contingencies.

What’s the radon level in the building where you live today? What about at your office where you spend at least a third of your every day? About 20 hours of every 24 are spent in these two places, and not once has the typical home buyer tested these environments for radon gas. And yet, the typical home buyer includes a radon test in their Offer to Purchase. Radon gas is everywhere. Every house has radon gas. The EPA has established no safe level of exposure to radon gas. After remediation the radon gas level still will not be zero.

Consider this: There is no contingency that you will get financing. There is a contingency to get a commitment letter, but that could be gotten before you leave home to shop for houses. What’s a defect? A typical home has “defects” as defined in the Offer. The typical concession after an inspection, in even the most expensive homes, amounts to pennies relative to the purchase price. And still almost every offer includes a contingency to inspect and find no defects. Neighborhood restrictions are typical. If they might prohibit something you want to do, you could discover this before you spend any time looking for a home in that neighborhood. And yet, there it is included in Offers to Purchase.

Why are these contingencies loaded into Offers? They’re there for the benefit of the buyer, and by benefit I mean exit door. A contingency allows a buyer time to decide if they want to buy, and time to continue or restart negotiations. A contingency is advantage buyer. For every condition a contingency has been created, a resolution prior to making the Offer is possible. The resolution is always knowledge and understanding. A prepared home buyer is the buyer all owners want to be in business with. Being prepared is easy when you know what to prepare for.

This spring you may buy a house. If you’re prepared your chances of owning your first choice home will increase dramatically. Between now and then, get yourself fully pre-approved for financing, study up on radon gas, how a real test is conducted, and the cost of remediation. Get the facts on lead paint. Learn the cost of repairs you know you can’t afford. Review your contract strategy with your attorney.

The typical home buyer will wait until they have an accepted Offer to do their due diligence. The typical buyer loads their Offer with contingencies, and contingencies tell owners “This person isn’t prepared”. Given a choice, owners will accept offers from people who are most prepared and show their preparedness by loading their Offer with assurances, not contingencies.

It depends upon what the meaning of “is” is.

Skilled magicians and lawyers are alike in their ability to amaze and baffle.  Both can take one thing that is clearly one thing, and before our eyes make it be another thing.  I could watch a magician for an hour, but a lawyer will keep me mesmerized until sunset.  With a flip of a word, a comma out of place, an interpretation of a definition of a word, lawyers turn believers into doubters with remarkable ease.

“There is nothing going on between us..” Bill Clinton had not lied under oath he contended, after facts of his relationship with an intern had become known.  “It depends upon what the meaning of “is” is.” from the perspective of the President, an accomplished attorney well versed in the art of twisting  words to alternative logical conclusions.  

Contracts used in real estate transactions are created with heavy input from lawyers.  If a lawyer wrote a sentence, there is a good chance every word has relevance. It may depend on the meaning of the word, and as long as the meaning is questionable, the outcome is disputable. 

Licensees draft contracts to an extent. Well we fill in blanks, check boxes, and within limits we free hand write some conditions the parties will rely on.  When getting an offer accepted or moving on to the next step is most important, care for proper sentence structure, punctuation, and definition of terms are at risk of being overlooked. Our license law requires we write what the client directs us to write. If we are surmising the intent of what the client wants, we’ve come up short. Getting it right is expected of us.

And when we get it wrong, all is well, until it isn’t.  Regardless of how kind, eager, committed, friendly, related, a person is to the licensee, when the source of conflict in a real estate transaction is traced to the licensee, there’s a better than good chance we’re going to lose.  As long as we are willing to spell out a person’s concerns, plans, expectations we are exposed to being challenged.   I actually like that challenge. Not everyone does and I understand.   There is no reason to fear consequences when you develop your contract drafting skills. With all of the free University education on-line, becoming trained by the same people who teach lawyers is possible. We don’t have to become lawyers to think from the perspective of a lawyer. Just be a learner. It’s worth the effort, but you won’t know it until there is a problem and it has nothing to do with your role.  Here  is a link to one resource for access to 1,300 universities. Take your pick, Oxford, Harvard, MIT. Oh, you don’t need to be a contract geek to get better at drafting, you only need to want to learn. 

Buyer Agency. The Purpose Is Not About Getting Paid

You’re a Wisconsin real estate licensee. What’s most important to you, (a) getting paid, or (b) being on the right side of the law? I know you said “B”, being on the right side of the law. That’s the reason we do buyer agency service right? No? What?

Somewhere along the way to providing buyer agency service the notion that buyer agency contracts are about getting paid took a hold of our industry and has not let go. I could be wrong, I sometimes am, but it seems that the purpose for Buyer Agency is inherent to the consumer demand that made Buyer Agency Service relevant. That demand came from two places: First, the buyer who wanted the licensee on their side for the insight the licensee could share for the buyer’s benefit, and second, the broker who wanted to fill the demand.

In the beginning, as far as  Wisconsin is concerned,  I put the beginning around 1990-91 when the first buyer agents appeared on the scene guns blazing to advocate on par with lawyers for their buyer clients. To be sure those first agents were all about getting it done for their buyer clients who they captured with a wide net of agency contracts, but taking no prisoners of sellers or their Realtors. The traditional industry responded the way traditionalist are prone to…they rose up to do battle with the Advocates. The generals rallied their troops, sides were taken, lines were drawn, and prisoners were few.  When it became clear that the Buyer Agents would not surrender the cry for help went up, “There Outta Be a LAW!” And one was made. (That’s what happened in Wisconsin where producing laws is a close second to producing cheese. In other states the Realtors cried “There Outta Be an Ethics Code”. Either way, there was a lot of crying) If the advocates would not surrender peacefully, then the law would eliminate licensee advocacy. The advocates could remain, but the behavior was now illegal or worse, unethical or both. Only lawyers could advocate  and that makes sense because they’re just better designed for such confrontational behavior. They are. It’s in there DNA. Without advocating as a reason to be, real estate licensees were offered “facilitating”. But facilitating didn’t sound like anything worth three, or four, or five, or six or seven percent of the purchase price and the industry rallied to remain “Agents”. In the end, the legislature gods gave us our unique brand of agency…and it was good, for about ten years.  Maybe I’m going deeper into this than I should, but the story was a good one…OK, back to the topic.

The purpose of the buyer agency relationship is not about getting paid, it’s all about being on the right side of the law so we can (1) do what we do best without unusual restrictions, (2) give the client a summary of services they can hold us accountable to, and (3) in the end earn our compensation.  If I’m effective at what I do, a person who has reason to trust me will want me contracted with them.  If I want to apply myself and my skills for a person, I will want to contract with them. If the first reason to have a contract is to satisfy my erroneous belief that the contract will give me a better than even chance of getting paid, my motive is way off base and this relationship is off to a rocky start.

I’m going to press the blue PUBLISH button now. If you have strong feelings, or mild ones, let me know. This is just my opinion, I’d like to hear yours.