Given a choice, without being told of potential consequences, a Buyer Client is 99% likely to include a Buyer Favorable leverage an inspection contingency, over the one on page 9 of the Offer to Purchase. The people who created the Inspection Contingency in the Offer intentionally tilted the advantage to the Seller. Obviously the Seller has more to risk in negotiations after acceptance. The party with the most on the line should have a reasonable opportunity to cure defects, and keep a transaction together when unexpected conditions are identified. During the Buyer Market run we had in and after the recession, more Firms began using a Buyer Favorable Inspection Contingency as standard practice. Sellers had no choice but to allow the Buyer to have the leverage which was intended for them. That happens when the market changes.
Well, the market changed again. Licensees stuck in the new habit of using a company crafted Buyer Leverage Inspection contingency gave no thought to the consequences to their clients and went right on checking the box without discussing the difference between that contingency and the one on page 9 of the Offer. Sellers and listing agents were quick to identify the high risk condition of the Buyer Favorable contingency. For no reason other than risk, Sellers will reject Offers which give the inspection advantage to the Buyer. It’s a shame when a person loses a house because they weren’t given a chance to make their offer more attractive to the Seller by simply being kinder, gentler, and safe.
Knowing the difference between a Heavy Hand and an Oliver Branch allows the licensee to give the client a real opportunity. It’s a magical thing watching a licensee earn the confidence of clients when they explain choices and think through a choice with clients.
Become a part of the conversation, a part of the thinking process by learning to find the trips and traps of contingencies. Some people will always do as they always have because that’s the way they learned it. But those people will never have the results they could have by learning why something is as it is, and learning how to make the contingencies work for their client. And by working for their client I don’t mean wrapping them in unnecessary protections.
Selling your real estate is somewhat like seeking a short term business partner. The same attributes you want to see in a business partner: courageous, able, prepared, committed, are what you want in buyer partner. So it makes sense that red flags indicating fear, unprepared, uncertain, marginal ability, and lack luster commitment would cause hesitation. Both people could be very good friends, but only one is likely to be a responsible business partner.
What do the terms of your Offer to Purchase tell the Seller about you? Potential partner or friend? Customize your offer. The business partner would.
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
Three people made offers on the same house. Two offers included well written, emotion inducing letters with photographs of the married man and woman, complete with details of their employment, education, professional credentials, and community involvement in causes for good. Both expressed their love for the property and their awareness of the owner’s own remarkable traits. Each of these offers included double digit items (14 and 17) an owner would counter to make the offer safe enough for the owner to commit to. Two of the three offers were for prices the owner would accept.
One offer was for the most money, and represented less risk than the other two. However, it included two ambiguous contingencies, and one exit clause the buyer could exercise six days prior to closing. The open exit door and ambiguity were reasons for the seller to question the buyer’s commitment.
Had any of the offers been written with terms proving the buyer’s no-reservation commitment to closing, or at least left no exit doors open, their offer would have been accepted. The letters induced an emotional response. The emotional response did not cause a compelling response to accept one offer or negotiate with any one person.
Had as much attention been given to writing a customized, seller-safe offer, any one of these couples could have had their offer accepted. And, unfortunately, two of the couples and two of the licensees may think their letters helped their cause.
Buyers are improving their skill in writing fiction. They’re getting professional help on-line. Be the licensee who improves her skill in customizing, seller-safe offers to match the commitment of the buyer. The pleading letter is no match for customized offers.
The inspection contingency in the Wisconsin Offer to Purchase is designed to permit a buyer reasonable time and access to the property to complete their due diligence. A definition of “defect” was added to the agreement to create some objective criteria for a defect. Objectivity is not a strength of the definition. Defect is still subject to the opinion of the buyer and seller. (Not the licensees. Our opinion is not relevant in the conversation.)
To deter a buyer from objecting to only the defects which are worth losing the property over, the contingency was built with a lever on the Seller’s side. Here’s a visual of the deterrent: Buyer discovers a few defects he wants cured prior to closing. The Buyer approaches the Seller with a NOTICE of Defects in his hand. Standing in front of the Seller, on a trap door, the Buyer gives the Notice to the Seller. The Seller receives the Notice and reads: Buyer objects to the following defects identified in the attached inspection report. The Seller has the Notice in her left hand, and her right hand is on a lever. With no explanation required, the Seller who has been Noticed, may pull the lever, opening the trap door, and send the Buyer away.
A less risky approach could be attempted first. A buyer could offer a written amendment to the seller requesting the seller agree to a specified resolution. A repair prior to closing or a price concession are typical.
Beginning with the amendment, a Buyer retains the right to deliver the Notice prior to the deadline for delivering the Notice. Some issues are worth the risk to some buyers. No one should take the Notice step without weighing the cost of the Seller’s choice. On the other side, before a Seller terminates an offer because of a Notice of defects, a Seller may want to consider their obligation to future transactions now that they have some information about a condition they did not have prior. Buyers trust that the fact the owner will have to contend with the issue to satisfy the next buyer is enough to motivate the seller to cure the defects and not terminate the Offer.
Just my opinion, but people waiting in secondary positions are likely to accept a condition the first buyer would not, or because they are the fresh face waiting in the wings, Sellers are receptive to giving the next buyer something they would not give the primary buyer. A human nature thing.
Video Tom Explaining the Value of Customized Offers
Every buyer who submits an offer on a house this week will not be the same as every other buyer. Someone will have more commitment, more confidence, more willingness to fair play, and a sincere desire to get to closing on time with no trouble.
Unfortunately, that someone is hard to pick out of the crowd of Offers. The Wisconsin Offer to Purchase Agreement, and the addenda that get attached are standardized, buyer friendly, seller risky documents. The contingency choices appear as a dinner buffet to buyers, and they fill up their offer with all sorts of fatty contingencies that make there offer unhealthy.
We can do better. Instead of a standardized offer, making you look like the most uncertain buyer in the bunch, we can customize your purchase agreement to appeal to the seller’s number one interest: assurance. Price gets the attention because offers typically are equal in risk. When risk is eliminated for the seller, and a closing on time, with no worry is more important than a few dollars more.
Before committing to an agent, find out what ideas they have to improve your offer without you paying more money…or writing a letter. When you’re selling, make sure your agent knows how to eliminate the exit clauses and high risk contingencies from your 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.