When the Notice or Amendment appears unfavorable, why do we call the other agent?

Working through inspection related contingencies is when the most agent to agent calls (by calls I mean text, email, and phone calls) are initiated.  Why is a call made so quickly in response to Notices and Amendments?  I believe it’s an unnecessary practice.  Here’s why:

The Offer to Purchase is an agreement between the Buyer and Seller. Sufficiently written contingencies (and every licensee believes they wrote sufficient contingencies) include the steps the parties will take when this or that happens. The contingencies define key terms. The parties agreed to these steps and terms. When one party follows those terms by sending a Notice or Amendment, or doesn’t follow those terms, by sending the wrong form or no form, the receiving party has a predetermined course of action. Nothing in the contract or license law states a licensee must, or should, make a call to object, question, debate, or educate the sender.  The approved and understood options include the recipient party responding by Notice, Amendment, acceptance, or silence. Of the  approved forms for licensees, email, text, and phone calls are not mentioned for good reason.

Lawyers may have permission to speak on behalf of their clients. They may have the protection to make representations. Licensees do not have the legal authority of an attorney. A good way to lose the authority we still have to complete forms is to fail to complete forms. Let’s think about this.

A call (text, phone, email, fax) is documentation of a message from one licensee to another. The commitment to the statements is arguably attached to the sender and whomever responds.  There is no commitment to the statements from the principals. A Notice, Amendment, Counter Offer on the other hand, is signed by the principals confirming the words are their words; the promise is their promise; the responsibility is their responsibility.   Documentation is clear when appropriate forms are signed.

If the intent of a call in lieu of a proper form is to speed the process or challenge the other agent, the intent is reason enough that the form is a better choice.

 

 

 

 

 

 

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.

 

 

Secondary Offers

Owners who accept offers contingent on the closing of a buyer’s real estate (commonly called a sale of home contingency) typically have a provision in that offer allowing them to accept “Secondary Offers”. The secondary offer attractive to a seller is one that is reasonably similar to the offer they have and more certain to close.

A buyer who makes a secondary offer is wise to give the seller at least a few days to untangle themselves from the primary accepted offer. By agreeing to “sit tight”, promising to not withdraw their offer for  a set number of days, the secondary buyer gives the seller the time they need to force their buyer to make a decision to commit or step aside. We won’t know the number of days the seller needs to wrap things up with the first buyer, but we can assume it is at least 3 days. The more time the seller is given the more attractive the second offer becomes.

A well prepared secondary buyer will provide a know questions left unanswered pre-approval letter  or proof of funds available to close. The more risk the buyer assumes, the more likely the seller is to find the offer attractive enough to attempt to let the first buyer go and get into business with buyer two.

There is no certainty in becoming primary by having an accepted secondary offer. While somebody may suggest the seller is able to move a secondary buyer to primary, be cautious. The primary buyer does have some leverage to maintain their position. Secondary buyers who are made primary, should require proof that the seller is free and clear from buyer 1. A cancellation and mutual release agreement signed by all parties may be sufficient proof. A licensee who participates in moving a secondary buyer to primary position without a cancellation and mutual release from the first buyer is in a perilous position.

 

 

 

 

 

 

Closing of Buyer’s Property Contingency…getting from here to there

Still known as the “Subject to Home Sale” contingency, owners in a Seller’s-Market are unlikely to accept an offer where the buyer has to sell real estate before being committed to close.  You’re still going to see these offers so let’s see how to protect the Seller from being trapped and the Buyer from being homeless.

Seller’s Perspective:

First issue to resolve is to know if the buyer has an accepted offer on the real estate named in the contingency. “…contingent on the closing of the sale…” may imply the buyer has an accepted offer on their property, but that could be incorrect. The contingency is designed to allow for any status of sale, including where a buyer has not placed their property for sale. By the way, there is nothing that says this offer is contingent on sale of “buyer’s home”. Any property the buyer owns can be named in this contingency.

Second issue: Closing of buyer’s property is typically written to run to the date of closing. This keeps the buyer flexible to walk away right up to the time of closing if their sale doesn’t close. To balance this risk, the contingency allows the Seller to deliver a Notice to remove this contingency provided the seller accepts a secondary offer. Buyer’s who need the protection of this contingency run a high risk of being homeless unless they have protection in this Offer or the one they accepted with their buyer.

Buyer’s Perspective:

As long as the seller can serve notice to me to commit or step aside, I have a risk of being bumped from the home I want to buy, and still committed to the buyer who wants my house. To keep me safe, I want to negotiate some protection with you the seller of the house I want to buy. Here’s a suggestion:

When the Buyer accepts an offer on (address of property) which is not contingent on the sale or closing of any other real estate, buyer shall notify Seller in writing. From the time of delivery of said written notice, the provision of this Offer providing seller the right to deliver Notice of Accepted Secondary Offer to buyer shall be suspended.

Now that’s all fine for the buyer, but what about the seller? If the buyer’s offer becomes void, the seller should be able to exercise the Notice provision, right? We need some language to reinstate the Notice/bump right for the seller.

Buyer shall keep seller reasonably informed of the status of the offer on their property. The right of Seller to issue Notice of accepted Secondary Offer shall be instated immediately if buyer or buyer’s buyer breaches their contract or this accepted Offer.

I don’t represent this language to be perfect. Certainly an attorney could craft something more definitive. Use my idea to help you think through the steps and precautions your clients want.

 

 

 

Appraisal Contingency…A dangerous poison pill

Seller beware. Wisconsin’s Offer to purchase (WB-11) includes an escape clause for the Buyer. The Appraisal contingency on page 5 of 9 of the Offer to purchase allows the Buyer the right to terminate the contract if the appraisal indicates an appraised value for even one dollar ($1.00) less than the purchase price. That’s an easy exit and great risk an informed Seller would probably not accept. Savvy listing agents will catch this poison pill before the owner accepts the Offer.

What, you say buyers are unlikely to terminate an offer for an appraised value slightly less than the purchase price? OK. I agree. However, what else is on the table if the Buyer has a right to terminate the Offer? Oh, I don’t know, how about EVERYTHING? Consider this. The appraisal gets to the buyer 30 days from acceptance of the Offer. We’re probably 15 days from closing. The Seller is not in a strong negotiating position at this late date, and all of the other buyers who’s offers the Seller didn’t accept are gone. An inspired Buyer may choose to ask for more than a price concession. The closing date, included items, repairs, credits, new inspections, testings are open for discussion.

In competition, (Seller’s market)Buyer’s and their Buyer Agents are wise to soften the appraisal contingency if it has to be included. Below is a condition Buyer’s can add to their Offers to make their Offer more palatable to the Seller, and it’s a condition thinking-ahead listing agents will discuss with the Seller before an appraisal contingency Offer is accepted.  (Counter-Offer)

Appraisal Contingency page 5 of 9, lines 264 through 269. In the event said appraisal indicates the appraised value is not equal to or greater than the purchase price, Buyer shall deliver to the Seller the appraisal report and an Amendment to change the purchase price to an amount not less than said appraised value. This amendment shall include no other conditions and allow the Seller at least 24 hours from Seller’s actual receipt of the amendment and appraisal to accept. Acceptance of this amendment satisfies the Appraisal Contingency. The Notice of termination provided for in the Appraisal Contingency shall not be sent to Seller by Buyer prior to the expiration of Seller’s deadline for acceptance of the price change amendment.

IMPORTANT: Seller is not obligated to accept the price change amendment, and may deliver a counter proposal to Buyer. In lieu of the price change amendment, Buyer may give Notice to Seller that the Appraisal Contingency is satisfied.

That’s a lot of words. You might have a better idea, but this is more safe for the Seller and still provides the Buyer with the protection the contingency is intended to provide.  It may be necessary to talk to the other agent to make sure they understand this modification.

Side Note: The current WB11 is old. We were still in the recession in 2011 when the form was introduced. Comparable sales were few and far between. Buyers had a distinct advantage (Buyer Market) and they could shift risk to the Seller. The appraisal contingency was almost non negotiable. When the market shifted to a Seller’s Market, this appraisal contingency, already firmly embedded in the contract and common practice started to work against Buyers. Those who did get their Offers accepted with this contingency found themselves in surprisingly strong negotiating position. We can do better than to end up far down the line, away from the crowd of buyers, and all alone with the Seller, standing between a rock and a hard spot.

Seriously Talking About Drinking Water

It took the Flint, Michigan lead contaminated water crisis to dramatically change the conversation from passive to serious in a hurry. The scientific, educational, and public safety communities will provide the research evidence to keep pressure on state and local governments, and utilities to effectively mitigate lead levels in water. The EPA has established action levels for remediation.

Attention is focused on old and deteriorating lead water lines serving communities . Wisconsin identified 5 counties with high risk lead levels and allocated limited funds to those counties replace public and private lead service lines. The other 67 counties are not lead free. They just aren’t in the top 5 as identified so far. In Dane County, the city of Madison has been sharing the cost of replacing lead service to homes since 2001. (By sharing, the City rebates the homeowner $1000.00 of a typical $3,000 bill.) Mount Horeb was in the news this year. A sample of homes in target areas of the Village showed 16% of the homes with higher than safety standard levels of lead in their drinking water.

Estimates for replacing lead lines put the cost at $3,000 to $5,000 per house. Obviously State and Local governments have a significant price to consider as they  write public policy to comply with EPA 15 Parts Per Billion action level directive.

As real estate licensees in the lead-in-the-water discussion, our place is not to be a referee or judge. We will see differing opinions on risk. We will hear debates of the merits of pipe replacement. Expect to hear no-fear opinions from the municipalities and water utilities. Our role is to assist the parties in reaching an agreement THEY are satisfied with, and their satisfaction of the risk of lead poisoning can not include our opinions of the evidence or the science.

Homes built prior to the 1940’s are the ones most likely to have lead pipes coming into the house from the street. It’s not always easy to see the lead pipe, but inspectors may have clues to look for. A water test for lead won’t show the a lead pipe exists, but it might provide some evidence that the water is relatively safe.

As a plan of action, consider a test by a licensed plumber done in compliance with EPA rules. Homeowners may avoid delays, surprises, and difficult negotiating positions by testing for lead in the water before offering the house for sale. Maybe we will see more home buyers requesting water tests for these older homes. Assisting the parties in knowing the rules of proper testing will always be safe and prudent practice.

 

 

 

 

 

The Contingency is the instruction for what to do if this or that happens

When concerns arise in a transaction the licensees have only to look to the contract to see what the Buyer and Seller have already agreed to do to move forward together or by parting ways.

Contingencies are the agreements between the Buyer and Seller of the steps to take as the parties satisfy their obligations under the contract.  Notices and amendments are the methods of communication between the Buyer and Seller when real estate licensees are involved.  Conversations between licensees on behalf of the buyer and seller are NOT acceptable alternative communications to amendments and notices signed by the Buyer and Seller.

The “Title Not Acceptable for Closing” contingency tells licensees exactly what to do on behalf of the buyer and seller.  Let’s walk through the contingency.

TITLE NOT ACCEPTABLE FOR CLOSING: If title is not acceptable for closing, Buyer shall notify Seller in writing of objection to title by the time set for closing. In such event, Seller shall have a reasonable time, but not exceeding 15 days, to remove the objections, and the time for closing shall be extended as necessary for this purpose. In the event that Seller is unable to remove said objections, Buyer shall have 5 days from receipt of notice thereof, to deliver written notice waiving the objections, and the time for closing shall be extended accordingly. If Buyer does not waive the objections, this Offer shall be null and void. Providing title evidence acceptable for closing does not extinguish Seller’s obligations to give merchantable title to Buyer.

Notice how simple the directions are. 1) Buyer sends a written Notice. (2) Seller either removes the problem condition of the title or sends a written Notice to Buyer. (3) When Buyer receives that Notice from Seller, buyer decides to waive the objection and of course does that with a NOTICE to Seller. (4) If Buyer does not waive the objection prior to the closing, the Offer is Null and void. Certainly in these days between Notices, the parties can negotiate by amendments.

Licensees are prudent to draft notices exactly as the contingencies specify.