Counter Offer: Specific & Simple

The Offer to purchase is carefully crafted with phrases, number of days, a specific format, and defined terms.  When drafting counter offers (or amendments) the closer we stay to the exact language in the Offer the more likely we are to keep the document on track to be an enforceable contract.   Stray for the format and we open the door to ambiguity.  

Specific and Simple:

The inspection contingency on the WB 11 provides a deadline for the buyer to object to defects identified in the inspection report on line 421.  The contingency is deemed “satisfied” unless buyer within ____days of acceptance, (delivers a Notice…)  The blank on line 421 calls for a number, not a date.  If the number is unacceptable to the seller (let’s say the buyer wrote “21”), the line and number are addressed in a counter offer:
(1) Inspection Contingency. P 9 of 9. Line 421. Change “21 days” to “10 days”.
This format tells the reader to find the inspection contingency on p 9 of the offer, go to line 421, find “21 days” and change that number to “10 days”.  Everything else stays the same. 

The financing contingency on p 5 also uses X days from acceptance for a deadline for the buyer to deliver a commitment letter to the seller.  Let’s say it was 30, and now we are running up against the deadline and lender needs 7 more days.  Rather than do an amendment to “extend the financing contingency to December 14, 2018” write this in an amendment:
(1) Financing Contingency. P 5 of 9. Line 219 change “within 30 days” to “within 38 days”.  Stay with days, and avoid inserting dates. 

Another practice habit is use the method of satisfaction the same as it’s in the Offer. Rather than “Remove contingencies” state that the “Contingency will be Satisfied”.  The intent of getting away from removing contingencies to deeming them satisfied is to remove the cumbersome step of a person performing an action to remove the contingency from the Offer.  Notice that nothing is ever removed under the existing language of the Offer. Satisfied is the term. 

Keeping it simple is simple when we keep the words and phrases as they are written in  the Offer and change only those words or phrases or numbers you want extracted and replaced.  Think like a surgeon. Cut out only what you need and leave the rest. 

Wire fraud looks like this…

What time is this set to close and fund today? Please advise.
Thank
Sent from my iphone

Can the seller possibly have the sale proceeds wired to his wellsfargo account? Please advise.
Thanks,
Sent from my iphone

A hacker took a name of one of the parties involved in the pre-closing communications between title co, lender, real estate agents, and buyer.  The criminal used the innocent closing assistant’s name and attached it to a peculiar, but legitimate looking email.  The title company’s fraud protection procedures, and the alert real estate team foiled this scam.  At risk? Seller proceeds in the tens of thousands of dollars. 

Real estate agents are especially susceptible to this crime. The nature of our business is one where exceeding expectations is a goal, and over delivering is typical. What we do to exceed expectations and provide value added service for our clients is a double edge sword. The actions which impress a client today can be the same actions which draw us into post closing legal disputes.  

Every effort we contribute which is outside of our license is the sharper edge of that sword. Until recently licensees were quick to jump in and facilitate the wire transfer instructions for the convenience of the Seller or Buyer.  Proving no good turn goes unpunished, well meaning licensees and firms have paid immense consequences for doing no more than facilitating the transfer of information. Or so they thought. 

Take a look at nine of the highest dollar wire frauds from 2017.
Just in case we think we might be too smart to be scammed this way,  one of the largest (over a million dollars) losses was suffered by a New York State Supreme Court Justice. Think again…and leave the non real estate work to others. We’ve got enough to do without doing the work we are not licensed to do.

Words that promise nothing

An illusory promise consists of “words in promissory form that promise nothing.”1

Properly written contingencies are specific, and mostly not all that complicated. I think we make the task more difficult than need be by overthinking and overwriting.  A proper contingency includes a promise that a maker gives which subjects him or her to to a detriment or restriction. 2  Real estate licensees are permitted to complete Offers in Wisconsin, provided we as a whole are doing so competently.   

The competency requirement is not to be interpreted as “pretty good” or “close enough” or “mostly correct”.  In fact an entire agreement can be deemed a non-contract by a judge for including one clause found to be an illusory promise.  The Court of Appeals decision I  referenced includes this quote from the CORBIN publication: “I promise to do as you ask if I please to do so when the time arrives.”

To be an effective contract drafter, it helps to read contracts and contingencies written by the WRA attorneys. (Suggestion: don’t confuse yourself by repeating contingencies written by other licensees—passing on bad form from one of us to the next sets us back when our objective is to go forward.)

When you reach the point that you accurately anticipate how promises by one party to do something by a certain time, and the results meet a defined standard, with consequences to the promisor, you’ve got it. I’ve seen a smart numbers person struggle to learn stats, I  understand smart real estate people may struggle to get good at contingencies.  But I think we can do it with some practice and reading. Pick up a copy of the Real Estate Clause book from the WRA. It’s a terrific guide and may even include the promise wording you need. 

1) 2 Joseph M Perillo and Helen Hadjiyannakis Bender, Corbin on Contracts. (Rev edition 1995) 

2) Court of Appeals decision dated and filed 5/7/08 appeal No. 2007AP812

Who said that, and how do we know? If it’s not written and confirmed, who’s left to blame?

If you could change one thing about your practice to reduce  your liability in transactions, what would that be? 

Post closing demand letters sent by attorneys consistently name, quote, paraphrase REALTORS who touched the transaction. The more the merrier.  Copies of correspondence make useful written evidence to tie someone to something the lawyer contends contributed to her client’s loss.  Same goes for lack of evidence.

The financial demand for curing conditions affecting real estate after closing  are rarely less than the commission paid to the firm representing the offending party. This liability lasts long after the closing. We can’t avoid the liability, but we can eliminate risk by incorporating a fundamental standard.  This is it:  Let buyers and sellers tell each other exactly what they want to tell them by using an amendment, notice, or an email.  Let them answer the questions, and don’t pose questions to them unless it comes in writing in an amendment, notice, or email. 

Before committing yourself to carry water for one of the clients, ask yourself this question:  Do I have the client’s position relative to this situation in writing? “No” answers are red flags.  If something needs to be said, decide who needs to say it, (it’s not going to be you) and then assist them in stating their position in writing. Then, add no color commentary. 

The material adverse fact form tells us to just state the facts. No opinions. Just facts. The material adverse fact form is a great way for us to document what we saw and what we are willing to stand behind. Amendments to listing contracts, and buyer agency contracts are another useful tool to document. 

I know licensees want to help and expedite. If a client wants us to pass something along in a phone call or email or conversation, it’s a safe practice to pass on that opportunity and let the message, question, comment  be in the client’s words on paper and preferably signed by them.  When the unexpected happens, expect to be safe. Keep agreements and representations in writing—between the parties.

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. 

Lead Paint Test or Radon Test. Why one and not the other?

Allowing a buyer to test for Lead Paint in single family (homes built prior to 1978) home purchases is mandated by the United States Government. Deny the buyer the opportunity to test and you face fines in excess of $30,000.  Disclosing that you are aware of lead in your home will diminish the value by at least 5%.  Cost of remediation is enormous compared to curing any other condition.  The cost of clean up, and health risks are  significant.   If you know a  REALTOR who encourages buyers to test for lead paint I’d like to meet them.  I have never seen an accepted offer with a lead paint testing contingency. Ever. Oh, 100% of the homes built before 1978 are subject to the Lead paint test requirement.

Radon is everywhere. Always will be. There is no safe level of Radon. The WHO and USA do not agree on an action level.  WHO says 2.0 picocuries per liter. USA EPA says 4.0.  Do you know anyone who knows the radon level in their home? Their office? Their school, or apartment? Nope.  Does the government mandate radon testing? No. Radon is present in 100% of the homes in the United States.  Not just old homes, and in fact the new homes are way better at holding radon—no leaking windows, or holes. The test done by inspectors to measure radon is at best 3 days. In a row.  The EPA recommends a six month test.  The cost of the test is roughly $200.  The cost of curing the radon level to an EPA level of below 4.0 ranges from $600 to $1400.  The fix is pvc pipe sold for pennies by the foot, a small electric motor, an outlet, and a hole in the concrete floor.  The material is about $150 total.

Because the cost of the test is a third of the cost of the cure, it makes no financial sense to test. Just put in the mitigation system.  But test we do. We promote the Radon test at a cost to buyers. ($200 is at least 10% more cost to the acquisition costs for the buyer)

I’m perplexed. If we think we are looking out for our buyer by including radon tests, why are we not including Lead Paint tests in target housing?  It’s OK with me if you want to put radon testing in your offer. I’d just like to know the logic.

Radon has no known safe level, and it’s everywhere (A lot like mold)

A Radon Test costs between $150 and $300 in the Madison, WI area. A mitigation system ranges from $650 to rarely above $1,200.

A Radon contingency is one of the contingencies  left out of an Offer when  obtaining acceptance matters more than protection against risk.
Because  Radon gas is everywhere there is air, there will be a level of Radon in every building.  Long term exposure to Radon Gas is a health concern of the World Health Organization; for certain, there is no safe level. The level of 4.0 pCi/L was set by the EPA only as a practical level for indoor air. The chance of a radon level at or greater than 4.0 pCi/L from a 48 hour test is great. (WHO recommends three month tests for accurate indicators). The 48 hour test costs $150-$300.  A mitigation system runs $650-$1200 (If you have a bill for over $1,200 in Madison, WI let me know)  regardless of the size of the house.  A mitigation system will not reduce the level of radon gas to 0. The guarantee made by the people who install  mitigation systems is only that the level will be below 4.0 pCi/L….but again, there is no safe level of radon gas. No one is promising to make your home safe from radon gas.
Including a radon testing contingency will not protect  a person from owning a home with radon gas inside the home. It could be effective in allowing the buyer an opportunity to continue negotiations.  Therefore, the contingency will  be considered for its risk to the seller. If the objective of the Seller is getting safely to closing, and they have options which don’t involve testing for radon gas, the Offer with the testing contingency has less appeal than one that does not.  All things considered, zero risk is more attractive to any owner than any risk. And of course the same goes for buyers. Someone has to give.
Given a choice of contingencies it’s expected a typical buyer prefers to have all the contingencies they can get.  For our part, assisting our clients to become informed typical buyers allows them to decide if any contingency is worth the risk to the appeal of their offer.  A chance to make an informed  choice  to decide what contingencies are best and which ones aren’t worth the risk of rejection, is a level of service informed licensees can offer and others will not.
Radon is everywhere, and  levels can be reduced below the practical level for less than the cost of installing gutters on your house or a bit more than twice the cost of the radon test.   Taking the radon testing contingency out of the Offer is one of the surest ways to improve the chance of acceptance.  Having a radon testing contingency will not ensure the house is radon free.