Inspection Contingency: Two ambiguous deficiencies you want to avoid

Wisconsin Residential Offer to Purchase page 9 of 9, Inspection Contingency

Deficiency number 1. NOT TESTING.  Line 410 reads: “This contingency only authorizes inspection, not testing…”. To add clarity, lines 395-409 have the definition of the terms inspect and test.  You can inspect, but you shall not test.   It’s agreed, testing can not be done without a specific contingency and the inspection contingency is specifically not for testing.  Or, is it? At least one firm in Madison has an addendum with an additional contingency altering the inspection contingency to apparently permit testing.

“Addition to Home Inspection Contingency: It is understood that if the buyers’ home inspector recommends that additional inspections/test be completed, Seller agrees to that portion of the inspection being extended for ____days…”.  I put the problematic words in bold.  If I’m interpreting this correctly, if a home inspector recommends a radon, mold, lead paint, water, or air quality test be done, the contingency is extended.  I don’t know if the parties are agreeing to permit the test, or just extend the contingency satisfaction deadline.

Practice Tip:  Do not include any reference to testing under the Inspection Contingency. Use a specific testing contingency with stated acceptable levels.

Deficiency number 2, NOT ENTIRE PREMISES. line 412 to 413: “This Offer is further contingent upon a qualified independent inspector or independent qualified third party performing an inspection of________________________________________________________________________(list any Property component(s) to be separately inspect, e.g., swimming pool, roof, foundation, chimney, etc.)…”. Even with the hint telling us to insert components of the property, some licensees are writing “Entire Premises”.  The consequence of the words “entire premises” in the blank where specific components are to be written may be this:  A qualified independent inspector or independent qualified third party may do the inspection of the property instead of a “Wisconsin registered home inspector” as was first stated on lines 410-411.

When a component (fireplace, roof, foundation…) is inserted in the blank line as intended, the contingency is not ambiguous, and we have an agreement by the parties to allow a buyer to have a Wisconsin registered home inspector inspect the entire property, and a qualified third party or other inspector inspect the component stated, such as “the fireplace, the roof, the swimming pool, the shed, etc.”.

Practice Tip:  When in doubt about what might be written in the blank lines, first look to see if the creators of the form offered any hints or suggestions immediately after the blank lines. I can think of two places where they’ve done so in the Offer. If there is no suggestion, and you feel it necessary to insert something, make sure the words you choose complete a sentence and do not contradict the intent of the contingency.

 

 

Happiness lives on the other side of fear

Fear of falling increases with altitude. At one foot I have no fear. At 10 feet I begin to get cautious. At 15, I’m afraid. The tipping point to fear is about 11 1/2 feet when I have one foot on a rung and the other foot reaching for the next.

Last week when I first attempted to climb I almost quit. The job appeared big as well as high. With a little guidance from a guy who knows something about ladders, I managed to begin cleaning and staining the highest points of my house. My fear of falling subsided when I made it past the horizontal mid point. From there I could see the end. I also discovered that my chance of completing this job without a tragedy were higher than my mind told me when I first inched my way up to the top.  I realized a life lesson as the fear of failure evaporated and the feeling of happiness of completing a job I thought could not be done was within reach. Happiness is on the other side of fear, and fear has its place.

Fear is a choice. Once we decide if fear will keep us planted where we are, run,  or inspire us to proceed with caution, we have a commitment to make. Reminding ourselves there is happiness to be had we press on learning to navigate in the risky areas. Sooner than we might expect, the fear gives way to confidence (and a healthy respect for the real danger) and confidence with competence takes us to the goal. Even if happiness is fleeting, it may be worth overcoming the fear to feel the happiness.

Own and Live in Downtown Madison–Forgivable Loans Available

Follow the money around downtown Madison. You can see where developers are investing with new commercial buildings and quality apartments. These people know the same thing you know…people want to live and work in the authentic Madison neighborhoods.  Greenbush, Mansion Hill, James Madison Park Neighborhoods have the classic early Madison homes people are tripping over themselves to own. Or they would be if they could afford the renovations.

Community Development Division of the City of Madison has $80,000 to $100,000 forgivable loans available for purchase and renovation of these properties. Commit to live in the building for 10 years (and a few other requirements). Live a downtown Madison lifestyle.

This program ends December 31, 2017

Time is of the essence. The “little details” matter.

This is a portion of an actual text from a Wisconsin real estate licensee’s response to a licensee who is trying to get an amendment accepted to extend a contract deadline: I think keeping in focus we are doing the work and we are set to close should be the focus. The little details always solve themselves. Well then, all you attorneys and real estate licensees may as well find another profession. Little details don’t need your attention.

Isn’t it the little details the Supreme Court hears and decides on to settle constitutional rights?  Does “Time is Of The Essence” in the Offer to Purchase contract mean something different for the “little” contingencies? I see 7 court cases sited on page 7-35 of the Wisconsin Real Estate Law, 2017 Edition which make it clear, the little details do matter.

The Wisconsin Offer to Purchase WB-11, is a nine page form filled with little details.  Those little details make or break transactions. Licensees who initiate compliance with the little details are doing the job they are licensed to do. Intentional disregard to the little details is setting the parties up for a dispute. Compliments to the buyer agent licensee who took the initiative to protect the customer (the Seller) and the client (the buyer) in spite of the haughty attitude of the listing agent licensee who could not be bothered with the little details.

 

Letters to the Seller. What’s the intent?

Google will give you 1,040,000 results for “Dear Seller Letter”. From upstart real estate agents to the biggest players in the field, including Realtor.com, love letters to sellers are promoted as the key to success for buyers negotiating in Seller Markets.   A lot is being written about something that has nothing of real evidence to prove its value. There is no scientific evidence to support the notion that the love letter makes a difference. Oh, there are incidents where people believe it made a difference, even THE difference. But those incidents do not qualify as a scientific study.  On the other hand, substantial evidence supports the fact that people who submit offers with the most favorable price and/or terms for the Seller, provide the most definite assurance that they are capable of closing on time, and are committed to honoring the terms of the contract, are highly likely to have their offer accepted.

In spite of the lack of evidence, advice from people in the real estate industry encouraging buyers to write Dear Seller letters continues to pour in.  I scanned a dozen web site stories and saw  versions of this  suggestion often encouraged:  “…always include a photo…” of your family.  Apparently the “family” photo makes your Offer stand out. It shows the Seller who you are. It shows the seller you might have something in common. It tells the Seller you will be good stewards of the home they love.

Could those reasons be faint cover for communicating another message? What is the intent of these letters?  If the intent is to persuade the Seller to look favorably upon the Offer because of the appearance of the buyer, arguably a line has been crossed.  The Wisconsin law says a licensee is subject to disciplinary action “…if it is found that the licensee treated any person unequally solely because of sex, race, color, handicap, national origin, ancestry, marital status, lawful source of income, or status a a victim off domestic abuse, sexual assault or stalking.”   

There is a better way to make a Buyer’s Offer stand out, and we are all capable. The licensee who improves their ability to craft Offers to purchase with terms more favorable to the Seller, while providing the protection the individual buyer desires, is safe and worth their fee and then some. It takes more work. It requires thinking. You will be challenged. And it’s what we are licensed to do.

Are we more than drifting toward Fair Housing violation accusations? Is it time for  a national dialogue on the practice? I think we are, and it’s time to talk. What do you think?

 

 

Private Mortgage Insurance is An Acquisition Cost

Private Mortgage Insurance (PMI) has a negative connotation and that’s too bad. The existence of PMI permits more people to participate in the personal and financial benefits of owning real estate.  I absolutely agree it is wise to have my own cash invested in the real estate I purchase with a mortgage. If you had to have 20% of the purchase price to acquire a primary residence would you be a home owner?  I wouldn’t have been.

PMI is a cost of acquiring a property. There are variety of costs associated with purchasing property and two of them are insurance related; homeowners and Title Insurance. PMI is just one more insurance closing cost.  But this one has benefits and it doesn’t have to be forever.  PMI is inexpensive for the power it produces.  A purchase price of $200,000 with 10% down and PMI of .41% of the loan requires and monthly payment of $61.50.  In a market where home values increase by 2.0% per years, that $200,000 house you were able to buy could be worth $204,000 next year. Your $738.00 PMI investment contributed to the appreciation of that property going onto the plus side of your financial statement.  Lenders tell me a PMI loan may qualify for a lower interest rate than a 20% down loan. Apparently the insurance could just about pay for itself in interest savings.

Given the choice of owning the house everyone wants by paying PMI for a relatively short period of time, or refusing to buy unless the house appraises for at least 100% of the purchase price, the long term smart choice might be to embrace PMI.  And that’s another reason to leave the appraisal contingency out of your Offer.

This is Our Contract. A perspective of collaboration.

“I gave my Offer to you. You didn’t accept it. You  sent a counter offer.  I accepted your Offer. Now you owe me something.” 

Whether we admit it or not, that’s a fundamental mindset of the buying and selling process. What if we changed the perspective from yours, and mine to ours? The Offer is mine, the counter offer is yours, but this Contract is Ours. It’s possible confrontation would dissipate and leave more room for collaboration.  Rather than debating who conceded last we would be looking at terms to discover the answers to “What did we agree to?”

Collaboration is a high level of negotiating where each party takes time to see the transaction from the perspective of the other side. With the view from the other angle, buyers and sellers can decide where they will give a little to get more of what matters instead of tallying wins on inconsequential matters and leaving the other side looking for a win of any kind just to get even.

Begin with the end in mind. Work with clients to craft contracts of collaboration.  Seek the collaborators and pass on the competitors.