We think about the Offer’s price before putting our signature on the paper to confirm that we accept. I’m reasonably sure every home seller knows the price and closing date they agreed to when they accepted an offer. Many of the other commitments they made and escape avenues they granted to the buyer may not be unknown, but they are often not understood when they say YES to a price.
We get one shot to get it right and avoid the kind of worries that wake a person at 3:00 AM. Watch for these conditions:
- Earnest money of 1.0% might be common, but this is an uncommon market. Maybe earnest money should be enough to cause the buyer pain if walking away became an option.
- Property Taxes. If your standard offer form requires you to pay a pro-rata share of property taxes, make sure you know. Tax is a negotiable item.
- Financing Contingency. This contingency is not always what it says it is. The buyer may not have promised to prove they have the money in hand before closing. A commitment to lend might be all a buyer gets and uses to verify they satisfied the contingency. If you want more assurance before closing, decide what that is and prepare the proper condition to include before you commit.
- Did you agree to permit an inspection of the house and testing of anything? Inspection and testing might have different definitions in a purchase agreement. Inspecting the furnace to see it’s working is one thing. The methods used to determine air quality, lead, mold might be defined as tests. Did you agree to allow a test when you decided to permit inspecting. The presence of some conditions stays with the property for the life of the property. A positive lead test must be disclosed at the next sale and on and on. You can calculate the financial cost a positive test has on the value of a house. It’s more than you’ll like.
- Appraisal. The appraisal contingency made its way into purchase agreements when buyers had the upper hand during the recession. Like a tax, contingencies like an appraisal hang on long past their useful life or intent. There was a time when a buyer had a real reason to fear they might overpay. When few sales occur, the value of any property determined by comparison may go down quickly if a couple of people sell below value. In today’s market, buyers are pushing prices to new levels. Who’s responsible for the property not appraising for the purchase price? It may not be you, the seller. Be careful that the contingency doesn’t allow the buyer to bring you back to talk about the price should the appraisal be anything less than the purchase price. A thousand dollars of leverage open everything for discussion.
It’s still a seller’s market. As long as it remains, you can get a great price and easy terms. The kind you won’t worry about every night for a month.
“Hey. My house is for sale” is an effective marketing strategy today. Drawing a crowd is the easiest step in selling your home. Real estate brokers propose fancy marketing plans presented as THE way to attract buyers to your property. Homeowners pay a pretty penny for those plans. When homes sell in less than a few days, those fancy plans never get launched. Is a fancy, pricey program necessary? Maybe not.
In some neighborhoods, the next person who puts their house on the market is the market. Well qualified people are already poised to jump on the next home that pops up on the market.
Structuring a contract to give a home buyer leverage to walk away is simple. Eight out of ten buyer representatives will draft offers with little thought and many boxes checked. The standard purchase agreement is a fill-in-the-blank form. It’s intended to give the buyer exit opportunities. That’s fine in a buyer’s market. We do not live in a buyer’s market. You do not want to accept an offer that’s less safe for you than you can negotiate.
It takes smart work to craft offers that commit buyers to their promise. Some agents and attorneys know how to prepare a proposal that shows the buyer is committed to closing. If you’re a buyer, you want to have the choice to choose to have an offer that sellers are eager to accept. Home sellers will surely regret accepting a poorly written offer when their buyer exercises their opportunities to force a renegotiation.
The agent who knows all people are not standard and standard offers are weak will make sure their client knows the consequences of contingencies and has alternative ideas to shore up the most capable buyer’s commitment.
Fortunately for seasoned and new licensees experience with a contingency is not required (and may be advantageous) to effectively manage a transaction. A properly written contingency has all of the action steps the parties agreed to follow spelled out sentence by sentence. All contingencies in the WB documents and WRA addenda A and B are properly written.
Working with agents for many years it’s clear to me contingencies are not read, or not comprehended, before the licensee balks. Following assembly instructions is not my habit, so it’s kind of surprising to me that following contingency action steps comes easy for me. I know contract terms are not something everyone enjoys, but I do and I think I can help those who flinch over knowing “…who’s going to do what by when, and if not then what?”
Tip: Assuming the contingency is written in a reasonable sequence, the contingency will answer all of our questions. Who is going to do what? When is it going to be done? If there is a cost, who is paying the cost? When the thing that’s being done is done, what are we doing with the results? If the results are not satisfactory, who is doing what by when? (Usually sending a Notice) If a Notice is sent by one to the other, then what is the recipient permitted to do? And by when is that thing they may do due to be done?
While every contingency can be reduced to a flow chart, I don’t think diagramming is essential. The steps can be seen by using a simple highlighter or by listing the steps in sequence.
Regardless of your method to turn words into a step by step action plan, please be comfortable knowing you can’t go wrong by reading and following the steps in the order they are written in the contingency. Nothing you have done previously, or someone once did or always does, is necessary for you to excel at contingency management. In fact, the more you depend on the actual contingency and it’s exact words, the safer you are in your practice. Trust yourself to read and comprehend, and trust the fact that contingencies change. What you once read might be the same today, but chances are something changed.
Contingencies make up a checklist of verification of facts, or due diligence of investigation. A contingency will answer this sequence of questions. “What are we verifying, who will do the verification, who will pay for it, when will it be done, and what will we do if the investigation turns up something unexpected?”
I’m afraid of clowns, dolls that blink, high places with low railings, and overpaying a lot. If you don’t share my fears you don’t need me to protect you from what frightens me. Knowing where your courage begins allows me to customize an Offer to Purchase for you, and a customized Offer where courage not fear is expressed is more acceptable to home sellers.
The Wisconsin WB Offer to Purchase documents and much of what’s in the addenda of private firms is created to be buyer-consumer safe. Inspired by intent to avoid risk (things other people fear) for inexperienced real estate buyers, the creators of these documents inadvertently created form which makes all buyers appear to be standard with common fears, reservations, and reluctance. A customized Offer to Purchase separates you from the rest by showing the Seller you are more committed, fearless, prepared, able, and reasonable.
There are at least 20 ideas to improve your Offer to capture the Seller’s attention in this competitive Seller’s market. Being afraid is OK. Being protected from other people’s fears is a choice. Expect the expert to inform and offer ideas to show your courage, instead of their fears.
You can have any color car you want, as long as you want black. The Model T was built efficiently in mass production assembly line factories, for anyone who wanted to get from here to there on their own schedule without depending on a horse. The mass production model groups everyone into the same box. By standardization, the producers have control, and the product is reliably consistent, even if it’s not reliably effective.
The residential offer to purchase documents (including firm crafted addenda) are inefficient, unreliable, products costing the American home buyers billions of dollars annually. Real estate values are pushed up and beyond the reach of a large segment of the population because these documents reduce even the most attractive buyer to ordinary. When critical terms of the Offer are equal on paper, the only difference maker in the eyes of a home seller is PRICE.
Smart Realtors know how to customize an Offer for their buyer-clients, to make the document work to their advantage while giving the owner all of the security they desire at a price they are willing to accept. A customized Offer tells the owner everything they want to know about the buyer’s commitment, ability, reliability to make a decision to commit to sell to them. Oh, sure some people want to know about families, career, where you’re from, what you look like, how much you love their decorating, but they won’t make a commitment to take unreasonable risk because of your personal story.
Customized Offers are the solution to rejection. Customized offers don’t cost you anything. In fact, they are more efficient, more powerful, more fair, more acceptable, and can be the difference in thousands of dollars in the price you pay to own your first choice home. 60 Seconds to a Customized Offer
To get to closing we direct our attention to the inspection, appraisal, and financing contingencies. Another condition of the Offer receives very little attention and yet it’s a very big hurdle. The Title Insurance contingencies, page 7 of the 9 page WB-11 Residential Offer to Purchase, pose a serious risk to a successful closing.
Provision of Merchantable Title Lines 348-352: This contingency requires the Seller to provide a Title Insurance Commitment to Buyer or Buyer’s attorney, NOT LESS THAN 5 BUSINESS days before closing. The commitment shall show evidence that the title is merchantable (Suitable for its purpose) to the standards as stated in lines 326-334.
Here’s where things get risky. Title Not Acceptable for Closing, lines 353-359, allow the buyer to object to title BY THE TIME SET FOR CLOSING. Once the buyer objects, the closing is extended to allow Seller a reasonable time to clear the objection. The buyer’s obligation is to permit the Seller no more than 15 days to resolve and the closing is extended AS NECESSARY. (Uncertainty). If the Seller is unable to remove the objection, the seller must notify Buyer. Once the notice is received, buyer has 5 DAYS to to waive the objection. Unless the buyer takes the affirmative step to deliver written notice and waive the objection, the offer becomes Null and Void.
Without seeing this happen in person, it’s easy to see the problems sellers are facing until this contingency is satisfied. Which raises the question, Are buyer’s giving notice of satisfaction of the Title Commitment contingency or are we walking into closing with the buyer holding the right to object before the Time Set For Closing?
I have seen an attorney use the Title Unacceptable for Closing contingency used by an attorney to force a seller to release a buyer who objected to Covenants and Restrictions, when there was no contingency to approve Covenants and Restrictions. The attorney stated the Covenants would be an exception to the title insurance policy and the buyer would find that exception objectionable…hence, we may as well part ways now. What? Wasn’t “recorded building and use restrictions” an agreed upon exception per lines 326-331? The lawyer’s argument met no objection from the Seller’s attorney (maybe to simply move on) and the buyer was released.
Maybe the Title Contingency is an exit clause we should pay more attention to.
An easy to happen and complex to navigate situation licensees address is property damage after acceptance and prior to closing. The WB-11 Residential offer to Purchase begins to address this on lines 206-215. In compliance with Wis. Stat 706.12, unless this provision is not part of the Offer, the parties have expressly agreed to who has responsibility (buyer or seller) to repair the damage and under what conditions the contract may be terminated and parties released.
WRA on Damage after Acceptance
When the licensees become aware of damage which occurred after acceptance and prior to closing decisions have to be made regarding disclosure, damage assessment, repairs, closing date, and resolution. The prudent licensee will be careful to direct their clients to legal counsel to interpret their rights and obligations, and to their insurance companies to determine their coverage. The parties will look to the provisions of the Offer to determine the avenue they will take to move forward or to separate.
Attorneys may advise their clients to maintain their right to remain silent on the new condition, make the necessary repair and proceed to closing. Because the buyer may have recession rights when they receive an amendment to the RECR with previously undisclosed conditions, sellers may be advised by their attorney to not amend the RECR or issue a new RECR. Even though a seller may not have disclosure obligations, the licensees do. A Disclosure of Material Adverse Fact form is available for licensees to disclose conditions they are aware of.
Occupancy May Change Everything
Buyer pre-closing occupancy is a condition which may alter the buyer’s rights and seller’s obligations for repairs, expenses, and resolutions. Pre-closing occupancy is a seriously risky proposition. The Addendum O (Occupancy Agreement) has been modified to make it easier for licensees and parties to incorporate occupancy provisions into offers. I wonder if that’s a good idea considering the complexity of the issues involved with occupancy. Anything which contributes to parties avoiding consulting their lawyer is not an advantage to their safety. Just my opinion.
It happened here in 2008 and it will happen again. Spring is flood season in Wisconsin. Frozen ground, rain, melting snow, clogged drainage sewers, rising river levels are the perfect storm conditions for property damage after acceptance and prior to closing. It’s never too soon to sharpen your skills in the disclosure of defects and conditions responsibilities. Heavy rain is the forecast for today through tomorrow.
Hypothetical Situation: The terms of the contract include this statement: “Within 24 hours of receipt of the report, Buyer shall deliver a copy of the report and a notice to Seller stating the defects the Buyer objects to, or this contingency shall be considered satisfied.”
At 3:00 PM on October 21st, the buyer receives “the report”. At 9:00 AM on the 22nd, the Buyer agent attaches the report to an email and sends to the Listing Agent. The email reads in part: “The buyer is concerned about the condition of the furnace. They would like ask Seller to have an HVAC contractor service the furnace.”
It is now 4:00 PM on October 22nd. The Listing Agent informs the Buyer Agent that the Seller considers the contingency satisfied because the 24 hours has lapsed without the Buyer delivering a Notice of Defects per the terms of the Offer. The Buyer agent believes his email was sufficient to be the notice called for in the Offer.
Is the email a Notice? Maybe. Determining if the buyer delivered notice timely is a question for the courts. Deciding which forms to use is the responsibility of the licensee. Whether or not an email, text, or phone call is sufficient the licensee could first determine if an approved form is available. (Wis Stat 452.40(2) and REEB 16 explain our obligation to use approved forms). In this case, a Notice is available. The term notice is used in the Offer, the agent drafting the Offer is a licensee, and the parties could reasonably expect the licensees to use proper forms. It’s probably reasonable that the listing agent and the seller considered the email a “heads up” that a Notice was coming. The Notice did not arrive and the agent and Seller concluded the buyer had a change of mind and opted to let the contingency be satisfied.
Could an attorney consider an email from him or her a sufficient notice. Probably. The attorney does not share our obligation to use available forms.
If the reason for sending an email, text, or leaving a voice message has anything to do with saving time, or for convenience, the question of whether or not a Notice is required is probably answered. Yes.
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.