After the WRA received repeated questions about which specific items needs to be disclosed to whom and by whom when a real estate licensee is acting as a licensee or principal in a transaction, or on behalf of a family member or entity the licensee has an interest in, it’s time for a quick refresher of the frequently asked questions about this matter.
The discussion about disclosure of license status is addressed in the Wisconsin Administrative Rule. See the boxes on the following page that include relevant portions of the rule as well as Article 4 of the REALTOR® Code of Ethics.
The following questions and answers only address the recent questions regarding disclosure when acting as a licensee or principal. To learn more about referral fees, incentives and the disclosure of relationships with individuals you are referring, see the June 2012 Legal Update, “REEB 24 Regulatory Revisions,” at www.wra.org/LU1206.
When purchasing a property for myself, do I have to disclose that I am a real estate licensee? What about when I’m selling my own property for myself?
Yes and yes.
Licensees acting as principals in real estate transactions must, in writing, disclose their license status and the intent to act as a principal in the transaction. Keep in mind this disclosure applies to all real estate transactions, including sales and rentals.
This disclosure is made at first contact. One of the easiest ways to accomplish the disclosure is to provide your business card. To reconfirm this disclosure, you would include the language in the offer to purchase additional provisions or other relevant transaction documents. Two potential ways to include these types of disclosures are as follows:
- Licensee principal as seller: Include the language “all parties understand Seller is a Wisconsin real estate licensee,” in the offer.
- Licensee principal as buyer: “All parties understand Buyer is a Wisconsin real estate licensee.”
Do I have to disclose the buyer is my sister?
In fact, real estate licensees are required to obtain the written consent of the parties to the transaction when working with any immediate family. See Wis. Admin. Code § REEB 24.05(2). Written consent is obtained in the offer or other transaction contract.
Wis. Admin. § REEB 17.01(3g) defines “immediate family” as:
- Parents, stepparents, grandparents, foster parents, children, stepchildren, grandchildren, foster children, brothers and their spouses, sisters and their spouses, of a licensee or a licensee’s spouse.
- The spouse of a licensee.
- Aunts and uncles, sons-in-law or daughters-in-law of a licensee or a licensee’s spouse.
Furthermore, agents should check their company’s disclosure polices about immediate family. Some firms require their agents to disclose family relationships beyond the immediate family definition in Wis. Admin. § REEB 17.01(3g). For instance, some firms require agents to disclose close personal relationships such as significant others, best friends or other family members such as cousins.
Potential ways to include these types of disclosures are:
- Licensee is related to buyer: “All parties understand Buyer is related to the Wisconsin real estate licensee acting on Buyer’s behalf and consent to the licensee serving as a real estate agent in this transaction.”
- Licensee related to seller: “All parties understand Seller is related to the Wisconsin real estate licensee acting on Seller’s behalf and consent to the licensee serving as a real estate agent in this transaction.”
- Licensee is a relative of the buyer or seller: “All parties understand (Buyer) (Seller) [include appropriate one] is related to the Wisconsin real estate licensee acting on (Seller’s)(Buyer’s) [include appropriate one] behalf and consent to the licensee serving as a real estate agent in this transaction.”
Do I have to disclose that I have an interest in a business entity involved in the purchase or the sale of a property?
Pursuant to Wis. Admin. Code § REEB 24.05(2), a licensee acting as an agent in a real estate transaction may not act in the transaction on behalf of any organization or business entity in which the licensee has an interest without the prior written consent of all the parties in the transaction. This written consent must be obtained in the offer, option, lease or other transaction document.
The licensee who is a member of an LLC purchasing or selling a property must disclose in the additional provisions of the offer to purchase that he or she is a member of the LLC and obtain the prior written consent of all parties to the transaction:
- Licensee has an interest in an entity: “All parties understand licensee, __________, serving as a real estate agent in this transaction, has an interest in the (Buyer) (Seller) [include appropriate one] entity (state name of entity, such as name of LLC, partnership, corporation,): ___________________. All Parties to this Offer hereby consent to this relationship.”
Wis. Admin. Code § REEB 24.05 Disclosure of compensation and interests
(2) DISCLOSURE OF INTEREST. A licensee acting as an agent in a real estate or business opportunity transaction may not act in the transaction on the licensee's own behalf, on behalf of the licensee's firm, on behalf of any member of the licensee's immediate family or any combination of members of the licensee's immediate family, or on behalf of any other organization or business entity in which the licensee has an interest without the prior written consent of all parties to the transaction. For the purpose of this subsection, a licensee shall obtain the written consent in the offer to purchase, option, lease or other transaction contract.
(5) DISCLOSURE OF LICENSURE.
(a) A licensee acting as a principal in a real estate or business opportunity transaction shall disclose his, her, or its license status and intent to act in the transaction as a principal at the earliest of all of the following:
1. The first contact with the other party or an agent representing the other party where information regarding the other party or the transaction is being exchanged.
2. A showing of the property.
3. Any other negotiation with the seller or the listing firm.
(b) The disclosure under this subsection shall be made in writing to the other party in a transaction or to an agent representing the other party.
REALTOR® Code of Ethics Article 4
REALTORS® shall not acquire an interest in or buy or present offers from themselves, any member of their immediate families, their firms or any member thereof, or any entities in which they have any ownership interest, any real property without making their true position known to the owner or the owner’s agent or broker. In selling property they own, or in which they have any interest, REALTORS® shall reveal their ownership or interest in writing to the purchaser or the purchaser’s representative. (Amended 1/00)
- Standard of Practice 4-1 For the protection of all parties, the disclosures required by Article 4 shall be in writing and provided by REALTORS® prior to the signing of any contract. (Adopted 2/86)
Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.