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A Wisconsin court has considered whether a trial court improperly changed the terms of a mediated settlement agreement between homebuyers and a real estate brokerage firm.
Steven and Becky Bierce (“Owners”) purchased a single-family residence in 1997. Shorewest REALTORS, Inc. (“Brokerage”), served as the listing broker at the time of the sale. During the sale process, representatives of the Brokerage told the Owners that the property’s zoning was single-family residential. In 2001, the Owners attempted to sell the property, but the transaction collapsed when it was discovered that the property was actually zoned AA-Business, with the home on the property categorized as a legal nonconforming use. Because of this zoning, no buyers could acquire residential financing to purchase the property and so the Owners were forced to lease the property rather than sell.
The Owners filed a lawsuit against the Brokerage, alleging misrepresentation, negligent misrepresentation, and breach of fiduciary duty. The Brokerage did not deny that a misrepresentation had occurred, but the parties disagreed on the amount of damages. The Owners argued that the proper measure of damages was the difference between the property’s fair market value if the property was zoned single family and the property’s value in its current form. The Brokerage argued that the damages should be determined at the time of the sale, looking at the difference between fair market value as it was represented to the Owners and the actual fair market value at the time of sale.
Prior to trial, the parties attended a mediation and reached a settlement agreement. The parties agreed that the mediator would hire two appraisers, and they would “independently determine the current fair market value of the property….as if zoned residential and as actually zoned, business-commercial”. The Brokerage would then pay the average of the two appraisals to the Owners plus $5,000.
A dispute arose over the proper interpretation of the mediator’s settlement agreement. The issue was whether the mediator should instruct the appraisers to look at the property’s current use in determining its present fair market value or whether the appraisers should assume that the property is owner-occupied. The mediator determined that the agreement provided that the appraisers should assume the property is owner-occupied (which was favorable to the Brokerage)
The Owners rejected the mediator’s interpretation and they requested that the lawsuit continue moving towards trial. The Brokerage filed a motion seeking to enforce the mediation agreement as interpreted by the mediator. The trial court found that mediator’s instructions to the appraisers correctly interpreted the mediation agreement, and so entered an order providing instructions that the appraisers should assume the property is owner-occupied when making their valuations of the property. The Owners appealed.
The Court of Appeals of Wisconsin reversed the trial court, finding that the trial court had improperly changed the language of the mediation agreement. Courts must interpret unambiguous contracts as written. A contract is ambiguous if the language is subject to more than one interpretation. The Owners argued that the appraisers should consider all of the factors surrounding property in determining the property’s present fair market value with its AA-Business zoning, and those factors should include that the property had been leased for a number of years. Meanwhile, the Brokerage argued that the Owners had purchased the property intending to reside on it and so that should be the standard used by the Appraisers.
The court found that the mediation agreement simply stated that the appraisers should consider the current fair market value of the home, and those considerations would include the property’s current use as a rental property. The court found that the trial court had improperly changed the terms of the mediation agreement by creating assumptions for the appraisers to use which were not present in the mediation agreement. Thus, the court reinstated the original language from the mediation agreement, and left it up to the appraisers to value the property’s current fair market value as zoned and all other relevant factors. Thus, the court sent the case back to the trial court for entry of an order for the appraisers to consider the property’s value “in light of the property’s current physical, legal, and economic characteristics”.
Bierce v. Shorewest Realtors, Inc., 290 Wis.2d 510 (Wis. Ct. App. 2006). [Note: This opinion was not published in an official reporter and therefore should not be cited as authority. Please consult counsel before relying on this opinion.]