Category Archives: disclosure

The Problem With Home Selling Costs is Information.

Information about real estate purchase agreements, the thousands of contingencies, and how real estate transactions and negotiations work is the key to reducing home sales and acquisition costs. 

In some ways, the information problem has improved. It wasn’t so long ago when REALTORS held all of the information on homes for sale, sales prices, and market statistics. Today, anyone with a smartphone has access to more real estate sales data than any previous generation. Access to the data that once was confidential and privileged for the eyes of REALTORS-only allows consumers to be more intelligent, savvier, and wiser. 

Better informed consumers struggle less with negotiating decisions. They make commitments based on facts and data. Emotions will always play a role in negotiations. Having information helps temper the emotion or offset disappointment when emotions overrule logic. 

If consumers had a better understanding of how the commission sharing among members of a multiple listing service works, they would not concede their ability to negotiate commission quickly. Left to believe it is to their benefit to promise to pay the highest commission rate to a buyer’s broker before seeing any offers, home sellers lock themselves into commitments that increase their selling costs by thousands of dollars. 

Commit to paying less and reserve the right to pay more. 

Since January 2020, Essential Real Estate brokers have compiled evidence to prove that home sellers spend more home equity than necessary to sell their homes in this red-hot market. Our clients see how the commission-sharing component of the MLS works. We show them how to commit to paying less to a buyer’s broker and reserve the right to spend more AFTER they see the offers. 

An easy example is the $400,000 home sale. When our clients sign their listing contract with us, they may agree to pay a buyer’s agent 2% of the sales price to work against them on behalf of the buyer. That’s a peculiar concept, but that’s how it is today. The Seller agrees to pay X% for a broker to represent the buyer to gain an advantage over the Seller. The typical X% is 3.0%. But for our clients, the X% is 2.0%.  

By promising to pay something, but not the top rate, our clients have room to negotiate to pay more depending on the quality of the offers they have to consider. An offer may be so good that a seller is willing to pay $4,000.00 more to accept it. The Seller will know how good the offer is once they see it and can compare the offer to their choices on the table.

What makes an offer better than another? It’s not the price that matters most; it’s the net. And the net is the result of contingencies, credits, costs, and price offered for the property. 

Besides knowledge of the commission sharing process, homeowners will be in a better position to squander less equity when they learn how the contingencies work. 

Most Offers Aren’t Rejected…they’re just unacceptable as written.

You’re never competing with multiple offers… I’ll pause while you ponder that.

When an owner has a dozen offers on the table, more often than not, they have one offer that’s acceptable as written. Even if a few of the offers have exceptional prices, at best, one offer is acceptable without requiring changes. Most offers can’t be accepted without a counter offer. Those offers aren’t necessarily rejected, they’re simply unacceptable. You don’t have to compete with unacceptable offers. As a listing agent, it’s sad to see a person lose the opportunity to own a house when, except for flaws, and poorly drafted terms, their offer was the better choice.

Contract Drafting Skills are essential in this market. They’re also not a high priority subject of education. That’s too bad. Many years ago I decided I would make sure I was never at a disadvantage to anyone…broker or lawyer, in my knowledge of the Wisconsin purchase agreements and forms. I’m not saying I know the law better; I’m saying I know what’s in the purchase agreements, what’s not, what works for clients, and what works against clients.

Acceptable Offers are easier to craft than the ones that are peppered with errors and omissions. All of my clients can’t outbid the highest bidders. But none of my clients are submitting unacceptable offers because I missed something, or they weren’t given proper choices. Rejection is a fact of life. Acceptance is the goal. Submitting offers that can’t be accepted is avoidable.

Years of experience and ability do not go hand in hand. Some REALTORS get into the field because they like houses, or like working with people. Few people are inspired to get a real estate license because they love contract work. When you’re interviewing agents to represent you, take some time to discover their contract drafting ability and comfort. If you have a choice, expect higher standards.

How Many Offers Do You Have? The Power and Frustration of Information.

Knowledge is power. We can all agree negotiations favor the side with knowledge, and information is knowledge. The outcome of a real estate transaction hinges on the information a person acquires. Real estate license laws require agents to provide fairness to other licensees. Whether or not a person is playing fair depends on which side of the question we’re on. Fairness can be objective, but it’s most often subjective. The surest way to trigger an accusation of unfair practice is to exercise a client’s right to confidentiality.   

How many offers do you have in hand?  Why do real estate buyer agents ask this question? What difference will it make to their client if I have zero, one, or ten offers in hand? Is the client’s decision of price and terms to offer (or even make an offer at all) dependent on the answer? Of course, it does. And depending on the buyer’s perspective the answer could be detrimental to the seller. Why do agents expect sellers to disclose the existence of offers? I heard this recently: “Why can’t you at least just tell me if you have any offers!?” You know why, right? Because the direction from the seller is to not disclose the existence of the number of offers and one offer is a number.

Confidentiality exists for a reason. Your expectations of me are driven by your opinion of what’s best for your client. That’s true from my side of the conversation as well. The decision to keep the information confidential is the right of the seller, as long as the disclosure is not required. And that’s a problem for buyer agents who are frustrated by the advantages held by the sellers.  

What information do you want to be held confidential? The existence of offers might cause someone to make their best or better offer. The knowledge of other offers may cause some buyers to drop out. When we don’t know how a person will react to the answer, does it make sense to confirm or deny other offers are on the table?  

Submit Your Best and Final Offer…the first time.

“I hope the offer is written well enough to get my buyer’s the home that they very much like.”

The agent who made this statement takes responsibility for the outcome. Their client is in good hands. We like to think about the buyer’s ability, the state of the market, or the field’s unfairness as the reasons our client didn’t get the accepted offer. When you take that thought to the next logical step, aren’t you saying you and your ability are not essential to success? Are you sure you want to admit you’re along for the ride, and your skill is overrated? I don’t think we want to say that. 

I once thought that way. I was a highly effective buyer agent in a buyer favorable market. A lot of people were. When the market turned to favor the seller, more offers returned as rejected than accepted.  Eventually, I became motivated to find a solution I could control to give my clients a chance. By learning the purchase agreement and the contingencies we agents add to our clients’ offers, I discovered the owner’s decision to accept or reject my offers was already determined when I handed it to the listing agent. The skill I developed was shared with agents I worked with as far back as 2014. From time to time, I see their offers come in on homes I have for sale. Everyone is not going to hire me as their buyer agent, I know that. I’m glad to see people benefit from the work other agents did to learn and apply the skills they learned.

Awareness and Acceptance. Before we can stop doing stupid, it helps to become aware of our part in the outcome. When we then accept our responsibility, we become open to change things that don’t work. Get to here, and the change will come from learning. To learn, we can’t just accept the opinions of other people. Knowledge happens to those who participate in the process of challenging beliefs, their own, and those of others. 

Please Submit Your Best and Final Offer. If you get this message after you’ve submitted an offer, you are playing with fire if you expect a counteroffer will come or if you doubt that the seller has a strong position. What do you do if you are lucky enough to get this message before the house goes to someone other than your client? A better question is, what can you do to make sure your client has submitted their best offer the first time? If you don’t know how to craft a better offer or guide your client through their options to write their best offer the first time, you’re not going to be able to do any better with a lucky second chance. 

Your Best and Final Offer. A learning experience for buyer agents. In February, I will introduce an online learning opportunity for agents who aren’t going to wait for the market or their clients to get better. If you can read a real estate contract, you can learn my method other agents are using to win the accepted offer. I promise, if you develop this skill, you will never again depend on your client’s ability to outbid everyone on the price to win the accepted offer. Let me know if improving your ability to affect the decision to take your client’s offer is for you. 

drafting flaws. the avoidable cause of rejection.

Beyond the price and closing date, a typical offer to purchase might include ten to thirty pages of standard conditions. Attorneys participate in building the form REALTORs use to draft purchase proposals. Attorneys know every word and every sentence, and every punctuation matter to the interpretation of the parties’ intent. Brokers, licensees, and government officials on form committees have input too. With so many cooks in the kitchen, there’s a good chance the soup they produce will have flaws. 

Given the choice home sellers are wise to commit to buyers who submit offers that can become enforceable contracts. Ambiguity is one reason for a judge to determine an agreement is not a contract. Alternative meanings the parties didn’t agree to is another. I’ve seen enough to know four out of five offers have a flaw that may render them unenforceable, or insufficient for the owner to accept. A counteroffer to clear the deficiencies or errors is unlikely when an acceptable alternative offer is in hand.  

Company Addenda are frequently modified to fit with the current versions of an approved Offer to Purchase document. The creators have the best intentions in mind. And still, the forms go into use with flaws that will cause some sellers to accept another Offer over one that would have been accepted had it not had the defect. I’ll give you a few examples from a 2020 Version of one firm’s Addendum.

  • Financing letter: Buyer shall deliver to Seller written verification that Buyer has been Preapproved for financing, which may be based on criteria such as satisfactory credit history, employment verification, buyer income, and debt ratios. 

What does the company mean by “…which may be based on criteria…”? Is the better word SHALL? I don’t know if may means, might be, or is permitted to be.  Is this ambiguous? Ask a lawyer. The answer might depend on which side is paying the legal bill. 

  • Personal Property: Parties agree that all appliances and personal property included in the sale will be in working order at the time of closing…All personal property in the Offer has no monetary value…

Check with an attorney to decide whether it is safe to prepare a document where the parties agree that personal property left on site has no value to either party. Is it logical to assume if a person wants the thing to be in working order that it does have value if it’s working? I don’t know. I have an opinion. And if the parties do believe there is value, why am I having them sign a form that says something contrary?

  • Earnest Money: If this offer is rejected by the Seller, withdrawn by Buyer prior to acceptance…then the Earnest Money shall be returned to Buyer within 3 days of rejection, withdrawal, or termination. 

A licensee must promptly deposit Earnest Money in a trust account. Let’s say a buyer submits an offer for a property and includes a $10,000 Earnest money check. An agent receives the check. The clock begins ticking on the time the broker has to deposit the check. Assume the check is received on January 11 and deposited on January 12. Later on January 12 the Seller rejects the Offer and accepts a competing offer. Buyer and Seller agreed the $10,000 will be returned by the end of the day January 15. Who has the money? The Seller doesn’t. Maybe the listing broker has the $10,000. Maybe the check has not cleared within 3 days. Can the Buyer take action against the Seller, and does the Seller have a complaint against the listing broker?

An agent who reads and comprehends the terms of the contract should catch these issues. When I present offers with suspicious terms I suggest the Seller get a lawyer’s opinion. As a broker, I will protect my firm from any complaint arising over a dispute related to drafting. These issues may appear to be small. They’re not small when they cause the Seller to move on to the next Offer. That’s unfortunate for the clients. 

Review your addenda and the addenda that comes with an Offer for flaws and ambiguity. Sure it could get cleaned up on a counter. To be the Buyer to beat, you want to be the Offer that doesn’t need fixing.

pay the seller’s share of property taxes. nobody Thinks of this. So use it.

When you realize how to outbid the competition requires more than just the purchase price, you look for places where you can take advantage. No one thinks of this idea. If you use it, a seller will undoubtedly take notice. The Seller’s attention is what you want, and forcing all other buyers to beat you is the way you want the conversation to go.  

Property taxes that accrue from January 1 through December 31 get prorated at closing. Assume the annual property taxes for a house will be $7,000.00. The monthly proration is $583.33. To close on February 28 there will be $1,167.00 in taxes due. The standard language of your real estate purchase agreement might call for the Seller to pay taxes from January 1 to the day of closing. That’s a negotiable item. 

Buyers who have cash on hand advantage can consider changing the contract from Seller paying to buyer paying the two months of taxes. For the small price of $1,167.00, the return could make the difference. Remember, the price is where the attention is, until the Seller looks at selling expenses. An owner decides between one offer and another by comparing Net Equity and the commitment of the buyer. (Security of getting to closing). Increasing the Seller’s net equity this way has an exponential positive impact on the buyer.   

  1. Grabs the attention of the Seller because it’s unique
  2. Causes the Seller to see your offer beats the others on this point
  3. When you have what they don’t they don’t look as good as you
  4. You just gave the Seller a gift of $1,200 
  5. Let’s the owner feel they were clever negotiators shifting their bill to you
  6. If property taxes are deductible on your tax return, you get the write-off 

The difference between first and second place is most likely minimal. Any advantage might be enough to put you in first place.

I Agreed To What? Be Sure You Know What, BEuyond the price, you agreed to permit and accept.

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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. 

Negotiate Fearlessly.

Negotiate Fearlessly. Buy your house in a Seller’s Market.

What do you think is the number one reason given to explain why the home seller did not accept your Offer? If you said price is the deciding factor, you might be right. A proposal to purchase can be 10, 20, 30 pages long. Price takes up part of one line of a standard purchase agreement. Get that one little thing wrong, and you’re going to get rejected. That is true if everything else is equal. Your Offer should never look like all of the other Offers, and a lot of the other Offers will look a lot alike. 

Exploit the FEAR advantage. Clients of Essential Real Estate have the benefit of their REALTOR’s expertise with the purchase contracts. By knowing more about you, your ability, commitment, and lack of fear, we give our clients more ideas to improve their Offer without increasing their price. Understanding the consequences contingencies have on home sellers allows our clients to decide if the contingency belongs in the Offer or not. You need to know that all contingencies are solutions to a fear somebody has. When somebody is not our client, the contingency has no place in the Offer. Something that’s a risk to me might cause me to be afraid and in need of protection. If you don’t see the same thing as a risk to you, protecting you from it only weakens your Offer. 

Change the conversation. Change your thinking. Owners are focused on price one time in the transaction; when they first review offers. Their concern for the rest of the study is the one that will keep them up at night for the next four weeks until closing. Fear of failing to close on the terms agreed upon will stick with a seller long after they commit to a price. Essential Real Estate clients receive ideas to alleviate fear for the home seller by wiping the Offer clean of nonessential conditions. We call this strategy changing the conversation. If beating others on price is not your strength, but flexibility and commitment are, we want to change the conversation from price to security and safety…for the seller. 

Competition is an Illusion. At Essential Real Estate we see our clients as the people other people have to beat. Real estate is a standardized form of business. Standardized forms make it easy even for contract averse agents to write Offers. Therefore we expect eight out of ten offers will look the same enough that when the owner says no to one, she’s saying no to all but two. At worst, you might be competing against one person. Our objective is for the best scenario. You always have some advantages to write into your Offer to make it the one everyone has to beat. We find those advantages by asking questions and listening to your answers. 

You can buy a house in a seller’s market. The talk on the street is 2021 will be another hot seller’s market. Hire Essential Real Estate as your buyer agent and expect to change the conversation to your advantage.

New WB-11 Residential Offer to Purchase: Changes

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.

Disclosure of Other Offers. Do I or Don’t I?

In the category of no-win situations licensees who answer yes or no to the question “Do you have other offers?” is going to look bad to someone who cares about the answer. The REALTOR Code of Ethics, and the State of Wisconsin laws regarding disclosure read separately have something for everybody to point to when they want to accuse a licensee of failing them or failing to meet their expectations. Fortunately, the response which keeps the licensee on the right side of the law can be determined if the people involved in the conversation are willing to follow a path of logical thinking.

The Code of Ethics sets standards and parameters for ethical fair-play. Ethics are inherently subjective to norms. Your standard of ethics may be higher than those in the Code, and you are welcome to practice your standard. Holding others to your superior standard will result in your expectations being unmet time and again. All REALTORS are subject to the Code of Ethics, but all REALTORS do no practice is every state. State law dictates legal practice standards. Legal standards when greater than an Association Ethical Standard take precedence.

When the question is disclosure of other offers or possible other offers the Rule and the Code are going to send you on a tail chasing circle. NAR Standard of Practice 1-15: IN response to inquiries…(REALTORS) shall, WITH THE SELLERS’ APPROVAL, disclose the existence of offers on the property. OK. When the seller approves disclosing the existence of offers a REALTOR MUST disclose. Question: “Do you have any offers on the property?” With the sellers’ approval you must answer YES if indeed you do have offers. Does the listing contract give you automatic approval to disclose you have other offers? No. How will you know if you do or do not have approval from seller? Do you assume you do or you don’t have permission? Murky.

What does the law say? REEB 24.12 speaks to confidentiality. “…a licensee may, but is not required to, disclose information known by the licensee regarding the existence of other offers on the property…”. Where are we now? Do we disclose or don’t we? Depends.

Do we have an ethical and or legal responsibility to give honest answers, provide accurate information, avoid misrepresentation? Yes, and yes. But…if the client gives us a lawful instruction to keep existence of offers or the fact that no offers are in or coming in confidential, we are to keep the facts confidential. Does that mean we can lie? No. When our answer the accurate representation of a fact related to presence of offers is YES or NO and the answer is contrary to the lawful direction of the client, the only answer is: “It’s confidential”. Does “it’s confidential” remove you from an accusation of ill intentions? Nope. Someone is not going to like the answer.

So what do we learn? The best defense against an accusation is, DON’T participate. The best defense against being found guilty is documentation. Amendments and Notices are proper forms for documenting lawful instructions. An email or a text will help. Your recollection of a phone call, or your opinion of what is standard practice, or best for your reputation are insufficient and possibly just wrong. Depend on the literal interpretation of the law, and the Code. And then make sure the client’s direction is in writing, and lawful.