Month: October 2019

Radon Testing. What’s The Intent of The Contingency?

The EPA says: Radon is a health hazard with a simple solution. I say install a mitigation system and know the level is guaranteed acceptable year around.

Radon is a health hazard with a simple solution. (EPA.Gov)

It’s safe to say 100% of the radon tests set in homes in Wisconsin will record a positive radon level. It’s also safe to say, 100% of the radon tests conducted as a contingency to a residential real estate transaction will test positive for radon. There is no dispute that radon is a contributing factor to lung cancer. There is no dispute that protecting yourself from exposure to radon gas is the smart, prudent, and healthy choice. No one should minimize the fact that scientific studies prove radon is a health risk.

With that said, I believe 100% of homes should have an effective radon mitigation system installed at the time of construction. Existing homes can be, and are routinely, retrofitted with mitigation systems. The cost of the mitigation system is inconsequential considering the risk and relative to the cost of the home. According the the EPA, even atypical high levels can be reduced to acceptable levels.

Radon testing contingencies have become common in Wisconsin real estate transactions. In 1992 when mitigation companies came into the market a mitigation system of PVC pipe, a small motor driven fan, an electrical outlet, silicone calking of hairline cracks, and some labor to drill a hole into the basement concrete floor carried a cost of over three thousand dollars. Today, we have an abundance of qualified mitigation installers using essentially the same products (without the silicone caulk), and including a follow up test showing the radon level is below the EPA action level for a cost of under One thousand dollars.

The $150 cost of the initial test to tell you you have radon gas is 10% of the probable cost to cure. That in itself is enough to consider saving the $150 and just go to mitigation. But I think there is something more important to think about; the cost of doing nothing. A two day test will give you an average hourly radon level for 48 consecutive hours. Accepting a low radon level reading as an indicator of radon levels over the course of 12 months, four seasons, and a variety of atmospheric pressure situations is a gamble not worth taking.

To be clear, I am not saying the 48 hour test showing a radon level above the EPA action level is not enough information to decide the radon level is unsafe. In fact, I’m saying the opposite. A safe approach is to assume the level is going to be high enough to be a health risk, save the $150 test cost, hire a professional to install a mitigation system to your standards, and have the peace of mind to know your radon level is below the EPA action level, and the system is guaranteed by the installer.

The new Wisconsin WB-11 Residential Offer to Purchase includes a radon testing contingency. Contingencies included in the Offer document quickly become “standard” inclusions. Previously the contingency was included in addenda created by real estate firms and if the addenda was not included in the Offer, it was likely the testing contingency did not get written into the Offer. Good news for radon testing firms. Given a choice buyers will elect to include the Radon Test in their Offer the way most of us select food for our plate from a buffet—if it looks good we’ll take it.

Before including a radon test in your client’s Offer, make sure the client understands the system cost factors and the uncertainty the contingency adds for the seller. Radon is a high risk health hazard. Testing will show radon gas in the house. A low reading is not an indicator that the level is low on average over the course of a year. A safe assumption is the level will rise and fall with the average being more than the EPA action level. A check with a mitigation company will confirm what the EPA tells us–even a high level can be reduced to an acceptable level. The cost is not prohibitive.

With all of the above true, the real reason a radon test contingency is added to the Offer is to give the buyer a chance to force the seller to pay the cost of installing a mitigation system. There are alternatives. A credit (equal to the estimated cost of a mitigation system and followup test) could be included in the Offer with the funds designated for closing cost credits.

Falling into the trap of checking this box to include this test because it’s there and because radon is a health risk will place your client at a disadvantage. The agent who is able to have a logical conversation with a client will allow the client the opportunity to make an informed decision and an opportunity to make a more appealing Offer to the seller….or not. Their choice. Assuming sellers won’t care if the Offer includes a radon testing contingency is something agents will do to the detriment of their client. In those situations, their assumption is your advantage. Sometimes the way to outbid the competition is to out think them. And we all can think.

New WB-11 Residential Offer to Purchase: Changes

More of the answers owners typically want to know are right where they should be–on the first page. Price, Binding Acceptance, and Closing date. The definition of a fixture is front and center on page 1, with some clarification tweaks.

An Offer to purchase is as simple as a written form of a conversation a Buyer may have with a Seller. It makes sense the the Offer document would flow from beginning to end the way the conversation would begin and end. Buyer: “I’ll buy your property for this amount, on this day.” Seller: “OK”.

The new WB-11 isn’t that simple, but it is formatted closer to the natural conversation. Highlights:

More of the answers owners typically want to know are right where they should be–on the first page. Price, Binding Acceptance, and Closing date. The definition of a fixture is front and center on page 1, with some clarification tweaks.

Page 2 has long been boiler plate with definitions and explanations. Now it’s a working page where Earnest Money and the rules of Earnest Money disbursement are together.

Page 3 Conditions Affecting the Property use the entire page. The list should be a closer match to the Condition Report items.

Page 4 now has only the Inspection Contingency and the definition of Inspections and Testing. By itemizing the 3 steps a buyer is authorized to take to inspect it’s expected the process of inspection will be better understood. Seller’s right to cure is unchanged.

Page 5 A radon testing contingency is part of the Offer for the first time ever. Good news for the testing and remediation business, not so good for buyers who will have that contingency included without understanding the three day test is unreliable for determining long term exposure, and the fix is almost the same price as the cure. Buyer agents may want to sharpen their Radon issue knowledge before they fall into the habit of checking the test contingency out of habit and costing their client an accepted offer.

Financing Commitment Contingency As long as we can remember, there has been no Contingency to Obtain Financing in any version of the WB-11. By labeling the contingency what it is, a contingency to be able to obtain a financing commitment, if a buyer wants the Offer to be contingent upon getting the money, they will know they have to create that contingency.

The satisfaction of the Commitment Contingency is modified to allow buyer signed commitment letters to be used to satisfy the contingency OR a Buyer’s written direction to deliver. However, a commitment sent by the lender does not satisfy this contingency. Essentially, this change reverts the practice back to pre 2011 and in line with the changes firms incorporated in the Addenda to allow deliverance to be done without a Notice from Buyer.

Default days and amounts have been added to fix the issues that come with leaving blank lines unfilled.

Page 6 Seller Financing: Wisconsin has a unique provision which made 100% of the Offers subject to a Seller’s right to provide financing if the financing as described was unavailable. This is now an optional condition of the Offer.

Non contingent on Financing Offers are not “cash offers”. The revised condition for the Buyer to provide evidence of funds available allows the buyer to provide verification that funds are available at the time of verification, or some other documentation. This change was driven by a need for buyers to bargain for the ability to make a non financing contingent offer when the funds are not available today, but will be available in the future when the sale of their real estate occurs.

Closing of Buyer’s Property Contingency: The forms committees worked to make this provision’s steps easier to understand and to tighten the Buyer’s ability to waive the contingency. A few options for proof of buyer’s ability to close are provided and the term “Bump Clause” is used to head the steps Buyer and Seller will follow once Seller accepts a secondary offer.

Page 7 There must have been a flood of confusion about who pays home owner association one time fees at time of closing. Why this condition was necessary is a mystery. Association fees have always been seller’s responsibility. I’m not sure why this one time fee is treated differently. Buyer’s who agree to pay this will want to know the fee in advance.

Page 8 Special Assessments/Other Expenses: Have you ever wondered what the term “Levied” meant? Wonder no more, it’s defined now.

What happens if an optional provision is completed but the box is not checked? Well, according to page 8, the provision is not part of the Offer unless the box is checked.

Page 9- 10 Foreign Investment in Real Property Tax Act (FIRPTA): Who knew a buyer is responsible for paying up to 15% of the purchase price to the IRS when purchasing a property from a “Foreign Person”. Page 9 not only includes a WARNING, the WARNING includes a provision to allow the Buyer to terminate the Offer, or withhold the 15% if Seller fails to deliver certification of Seller’s Non-foreign status NO LATER THAN 15 DAYS PRIOR TO CLOSING. Special care is needed to make sure this exit clause is closed on 100% of the transactions we are part of.

Page 10 Additional Provisions: We have a total of six lines to include additional provisions and those six lines are all on page 10.

Optional use date is November 1, 2019. Mandatory use date is January 1, 2020. I can’t think of any good reason to continue to use the old WB-11 after November 1.