The New WB-11 Offer to Purchase

Publish with flaws or stop the presses? 

Admitting we errored and getting it right before releasing flawed work would be easy if making excuses wasn’t easier. Consequences compounded is the unpleasant outcome of choosing easy.  The Wisconsin Residential Offer to Purchase, WB-11 released in the fall of 2019 and made mandatory effective January 1, 2020, was known to be flawed before it was released. Resistance to requests to delay the release surprised me. Resistance to suggested changes frustrated me. I’m grateful that the people in charge came around and made the necessary changes. 

 Professionals who participated in the writing and review process caught the problems created by a solution to a problem that didn’t exist. The committees in charge of developing the forms received unsolicited suggestions for corrections. Requests to hold implementation until changes could be made found no support in the WRA legal department. I saved the email replies I received from WRA staff legal folks. I use them as examples to remind me of what condescension feels to the recipient. 

Garbage in, garbage out is as accurate as it is simple. When a committee’s purpose is to generate a product, the level of quality and precision is secondary. Standardization is the primary intent of the State produced real estate transaction forms. Around the committee tables, we hear people talk about adding provisions that could eliminate the need for individual companies crafting their version of ideas that look good at the moment. Some contingencies were explicitly added to reduce a variety of company authored contingencies. The FIRPTA contingency inserted into the January 1, 2020 version of the WB-11 required each company to make their unique modification to fix the committee’s problem. If the public was better served by leaving them exposed to the unnecessary risks that the brokers may or may not fix, it’s a mystery to me.

Problem solved

The new WB-11 we began using on August 1, 2020, corrects the errors. Because there are a variety of solutions still floating around that introduced into the offer process to fix the problem, we now have a compounded problem that will take time and expense to fix. By leaving the solution to the firms who each solved the problem in their unique ways, we will live with the stray voltage of so many addenda that do not match the terms of the Offer. And when addenda conditions don’t match the current version of the State approved offer documents, validity issues arise.   

Home sellers and buyers who prefer to have enforceable contracts will be wise to work with lawyers and licensees who know where the problems lurk and how to make them go away. You can find out what the agent who wants your business knows about the Offer documents by asking them to explain the different sections and quizzing them on their own company addenda. If the agent knows where the flaws are and have solutions, they probably know how to make the Offer work for you. If they don’t, they’re just checking boxes and filling in blanks.  

There is always another house and another buyer.

Real estate negotiations are ordinary in that they are not complicated. With exceptions, a typical transaction includes someone trying to pressure someone into fearing a loss. Either the buyer agent tells the seller the buyer has another property to consider. Or, the seller has other interested buyers. For this strategy to have any effect, the other side needs to participate. And by participate, I mean they have to be afraid of losing.   

Don’t participate, and the other side will stress.  Fear of loss is a great motivator. Being unafraid is a great equalizer. To be fearless, have a plan, and trust your knowledge. Overcoming the threat of loss is as simple as ignoring the suggestion of an impending loss. Trust what you see in the Offer. Buyers rarely write offers first on their second choice homes. They seldom walk away from one house at the sight of the first counter offer. And when they do, it’s reasonable to conclude that their commitment was weak. Getting into a contract with an uncommitted person is less desirable than no offer at all. If you’ve been there, you know. 

You have a plan, and you know what you know. You know what you want to accomplish, and you know what will or won’t work for you. As long as you have an offer in your hands, you are in control. The other party that made the Offer you are considering countering isn’t as committed to getting to closing as you are. If the only way they will get into a contract with you is if you accept their terms, they may be an inch away from dissolution.  

A secure contract with your preferred closing date and terms you can live with is worth trying to get. The Offer in your hand that comes with implications of not-so-committed is nothing to fear. Be committed to yourself. Say thank you for the Offer and let the agent know you appreciate the opportunity. Show no fear. Display no displeasure. You’re in control. Keep it that way. There is always the next buyer. 

You are the product or the client; sold or served. Which one do you want to be?

Businesses exist for a reason. If I asked 100 owners why their company exists, the most common response would be to make a profit.   All companies sell widgets or services. Customers or clients pay the money a firm uses to pay the bills to keep the remainder as profit. When the purpose is profit, the problem is too. Solving the problem requires a product to be sold. Customers must pay more or buy more when a profit-driven business has a problem. The customer is now the product.

What might happen if profit was not the reason-to-be, but only an outcome to expect? A business built to solve a problem for consumers remains in business as long as they are a solution to the problem. And as long as your solving problems, you generate revenue. Your profit is not dependent on the consumer; it depends on how well you manage your income and expenses. If you exist to make a profit, you are out of business when you don’t make a profit. 

Ask The Most Important Question

The price of a widget or a service is the business of the business owner. Why the price is what it is, well, that’s your business. If you are the product necessary to be sold for the company to achieve their reason for being, you should know. It’s OK to be in business to make a profit, and it’s perfectly fine to be the product the business needs to meet its objective. Your only choice should not be to concede to be the product instead of the customer or client. When you discuss the WHY behind a firm’s reason to exist and the reason their fee or price is what it is, you’ll know if you are the customer/client or the product. All firms see you as one or the other. What do you want to be?

Matching Intentions Will Get Your Offer Accepted

For at least three years running the market has favored home sellers in the Madison, Wisconsin area market. With too few homes for sale and a deep pool of able buyers, it’s common to see 5-20 people bidding on homes just listed. The odds of getting your Offer accepted, even at 1 in 5, appear precarious. At Essential Real Estate, we believe the odds are not as daunting as they appear when you eliminate the offers from people who have intentions that don’t match those of the seller. I contend the unintentional buyers account for at least 3 out of 5. If I’m right, your odds of outbidding (without overpaying) competitors are pretty darn good.

Set My Equity Free

Different motivators cause a person to put their home on the market, but the reason the house is for sale is always this: The homeowner wants their home equity to do use for some other purpose than own this property.  Some people decide to sell and put their homes on the market before committing to doing the next thing, but when they commit to whatever comes next, their intent becomes clear; set their equity free.  

The Accepted Offer Goes To The Intentional 

Our buyer clients who are sincere about their intentions are more likely to accept ideas on how to structure their Offers to match what we know of the seller’s intent. The intentional buyer can show by the terms of their Offer that they are committed to getting to closing on time with no risk to the seller. Reservations, (conditions that allow for a buyer to change direction before closing) threaten the seller’s security of achieving their reason for selling. 

Unintended Consequences  

We can’t blame home buyers for submitting wishy-washy Offers. The typical person drafting an Offer sees the purchase agreement as a standard-fill-in-the-blank form. Common contingencies make their way into Offers because the buyer was not aware of their opportunity to make an informed decision on the merits of everything stated in their Offer. The unintended consequence is a rejected Offer or a counteroffer for more money in exchange for the risk the buyer’s Offer expects the seller to carry. 

You Want Your Equity. I want you to have it. 

Showing the seller that you want to own their house is not the same as showing the seller that you wish to satisfy their want. Put yourself in a better position with this perspective: If I’m selling, I want my equity. I also desire certainty. Every seller might say this: The buyer I am willing to enter into a contract with is the person who wants me to have their money to become my capital and wants me to get it without stress. 

Letters, texts, emails do not tell the seller that you want them to have your money as their equity. They say a lot about you wanting something they have. They say something about what you want the seller to do for you. In a seller favorable market, the seller might be interested in your wants, hopes, dreams, but they’re more interested in your money and what you can do for them to make the process a sure thing for them. Your Offer can be structured to match the intentions of the seller. Those are the Offers most likely to be accepted. Know your intentions. 

Real Estate Information. The Business of Status Quo.

As an industry leader, NAR’s role is to continue to promote and enhance the REALTOR® value proposition and ensure that consumers continue to receive the best, most accurate and comprehensive real property information directly from the professionals who create it, REALTORS®. https://www.nar.realtor/2020-nar-strategic-priorities

Accurate information is valuable to the user regardless of the provider. Owning and sharing accurate information is necessary for the provider to remain relevant. Sharing information is not something the REALTOR Associations have do well. Is being the first point of contact essential to the REALTOR’s place in the transaction? Probably not unless keeping the status quo is the objective of the Association.

Maintaining the status quo is dependent upon the leadership’s ability to be the enforcer. The trouble with the enforcement of standards that protect a business’s position in a consumer transaction is the pesky fair trade laws. Whether the consumer is best off with the REALTORS being the first point of contact in a real estate transaction is determined by the consumer. If demand is a driving force behind business development and businesses are competing for the point position in real estate information, we might conclude the public is not satisfied with the status quo.

If REALTORS want the public to see them as essential to the real estate transaction the REALTORS will have to find ways to be exceptional. Data has value. So does intelligence and creativity. If data is your intelligence, you’re not very creative. Or, essential.

I don’t want to buy if or unless…the extreme cost of contingencies.

Stop right here. Let’s rethink this. Opportunities to reconsider a promise are necessary for uncommitted people. Every contingency in a residential offer to purchase says,  I don’t want to buy your house if this or that happens or doesn’t happen. Does it seem reasonable that home sellers will expect more money to exchange for more opportunities for a buyer to decide not to buy?  

Twenty pages to say MAYBE

The offer to purchase from a ready, willing and committed person could read, I will buy your house on this date, for this amount of money, which I will bring to (this place of closing). To complete the sale, you will transfer the property by a warranty deed and provide insurance of a clear title. 

A Wisconsin Residential Offer to Purchase includes at least 17 statements of I’m not going to buy your house if, or unless _________.  A typical four-page addendum of optional contingencies has 20 additional exit opportunities. Compared to the two-sentence promise of commitment, the contingency laden offer typically drafted by real estate professionals is one giant Maybe, maybe not. There is nothing safe in a maybe. 

The Price of Maybe

Security is valuable to home sellers. When a person writing an offer doesn’t know how to structure the offer to show the buyer’s abilities and commitment to close, all they have left to appeal to the seller is money. And the money they use belongs to their client. When homebuyers overpay, they’re spending equity they haven’t made yet. When real estate firms put more effort into customizing purchase agreements and less energy to capture leads, their buyer clients will reap the rewards. Until then, you’re going to pay for the right to walk away in cash or rejection.

Real Estate is a Compliance-Based, Standardized Business…The Agent is Easily Replaced.

The more we work to standardize the real estate purchase agreement, the closer we get to eliminating the real estate licensee from the transaction. 

Programmed computers are better than humans at compliance-based work. We prove we believe this by suppressing innovation and forcing licensees to check the same boxes and write the same words in the blank spaces, with little regard for their customers’ and clients’ circumstances. To see this in action, attend a real estate training session, or sit in on a forms committee meeting. Talk to REALTORS. Ask them WHY they check this or that box, include this or that contingency, and fill in this blank but not that one. The answer is likely to be a version of “That’s the way we always do…we were taught to do that.” It doesn’t matter if they are relatively new or seasoned licensees; repetition and standardization eliminate the opportunity for customization.  

Ask the leaders of the committees assigned to revising the existing real estate forms why they choose to include standardized contingencies where there had not been one before? Is simple and the same better for the consumer? How do we know?

The Price of Simplicity

 Without thinking and customizing purchase agreements to the situation, and the parties’ personal preferences, the differentiating factor between offers is the price. And when the price is the only way to differentiate, the consumer will pay higher and higher costs. When the consumer can find something less expensive and more effective than the common real estate licensee, they will turn away from REALTORS and run to the innovative, robotic alternative surely to become available sooner than later. 

Think. Customize. Learn. Resist Becoming Trained.

When the real estate industry looks at their business from the perspective of delivering a better product to the consumer, standardization and repetition will be seen for what they are; detrimental to the consumer and the broker. Tech giants see the future of real estate is in robotics and AI. The non-thinking, box-checking licensees, will be out of work. The computers can pick the boxes to check and the words to write in the blanks, and they can do it more accurately than humans. Those who have a future as a real estate licensee will be the people who think, learn, customize, and contribute to the consumer’s better experience.    

Sellers Pay the Cost of the 3% Myth… by the millions of dollars.

“…So if you offer 2%, this agent may not encourage their buyer like they would if it was a 3%…” From a Wisconsin Real Estate licensee. July, 2020.

Myths can not always be proven, but they can be busted.   The myth perpetuated in the residential real estate sales business most costly to the public, and rewarding to the brokers, is the myth of the 3.0% commission. There is no proof that real estate agents choose to show homes where the commission offered to them is 3.0% over homes where the commission is 2.0%. There are people who believe they have evidence that 2.0% is a disincentive, and all they really have is an opinion. Why doesn’t the real estate community want to bust this myth?

A recent search of the RASCW MLS showed of 3,277 residential sales priced from $274,000 to $600,000 only 749 sales closed with the buyer agent paid less than 3.0% of the purchase price.* 

Millions of Dollars Skimmed from Home Equity.

If the average sale price of these 3,277 properties is $370,640. Owners who committed themselves to pay a buyer broker 3.0% of the purchase price, paid $11,192.00 just to the broker on the buyer’s side of the transaction. (That eleven thousand dollars that ended up with the broker came out of the owner’s home equity. We’re talking about real money.)

If my math is right, only 208 transactions closed with the seller paying 2.0% commission to the broker on the buyer’s side. At an average of $370,640 per sale, the commission paid on each of these sales is $7,413.00. Before you give $3,740 of your savings to a real estate broker, let’s be sure the money is better off in their hands than in yours. Maybe a conversation with an agent in an interview would be to get their opinion of why your money should become their money. (When 2,528 home sellers pay $28,293,376.00 in 3.0% buyer-side commission instead of 2.0%, they might be giving away nearly ten million dollars without realizing they had a choice. )

What’s That Offer Worth?

Until an owner sees an Offer they are wise to promise to pay nothing, or at least hold something back. You can offer to pay 2.0% and always move up if the terms of the Offer are attractive enough, and you have not better options. In a seller’s market you’re likely to have options. Sellers who offer less than 3.0% commission to buyer side brokers have a good chance of saving a few thousand dollars of their home equity for themselves. If you have a better use for $3,000-$5,000 of your money don’t give it away until you know what you’re getting for your money. 

*Statistics obtained from the RASCWMLS 7/14/2020

Your Radon Test Contingency Landed You in Second Place

The radon testing contingency, as currently written, is unnecessary. Including it in your offer may be why the seller rejected your offer to purchase and went with another. Before you weaken your offer with a misunderstood condition, get the facts and opt for making your home a healthy home. Expect to install a mitigation system. Let that sink in…  

Did I say radon is not a serious health risk? Did I say the radon level in the home is or will be at a safe level? No, I did not. Let me expand on that. RADON IS A KNOWN CAUSE OF CANCER. EXPOSURE TO HIGH LEVELS OF RADON GAS INCREASES YOUR CHANCES OF GETTING CANCER. RADON GAS IS PRESENT EVERYWHERE. RADON GAS GETS TRAPPED IN OUR HOMES, OUR APARTMENTS, OUR OFFICES. EVERYONE SHOULD KEEP THEIR HOME HEALTHY AND SAFE. A RADON MITIGATION SYSTEM IS INEXPENSIVE AND EFFECTIVE.

Okay. Everyone who knows a cancer survivor or person who died can relax. I agree with you. If you have a choice, living in a home with a radon level below the EPA Action Level is a wise choice. The EPA makes it clear; a long term test is a more accurate way of measuring your in-home exposure to radon. Forty-eight or seventy-two hours is not long term. However, home sellers are unlikely to allow you time for a true long-term test in the home buying process. I am concerned that too often home buyers who get one of these two or three-day tests with results below the EPA Action Level conclude their home is radon safe, and they take no steps to protect themselves. That’s dangerous and avoidable.

A Better Strategy

Radon mitigation systems are simple They’re made with inexpensive PVC pipe, a hole through the concrete basement floor, an electrical outlet, and a $125 fan. Guaranteed to keep the indoor radon level below the EPA Action Level, the system might cost as much as $1,000.00 installed. The radon test a buyer pays for will be about $200.00. Considering it is common practice for agents to write offers with a provision that the buyer promises to not object to defects under $2,000, it makes no sense to weaken their offer by inserting a radon testing contingency.   

Uncertainty is Unnecessary

When market conditions favor one side in a transaction, the favored team does not have to expose themselves to uncertainty. I’ve heard agents say otherwise, and if they were right, I would agree with them. They’re wrong. Unless the owner is uninformed when comparing offers, they will prefer less risk to any risk. Allowing a buyer to renegotiate or have leverage later only happens when the seller has no options or poorly advised. 

Save your money—buy a mitigation system after closing

Does it not seem wise to save the $200, forego testing, and install a mitigation system after you close to ensure your level remains safer? Talk to the radon mitigation people. Find out how often they are unable to reduce indoor radon levels in homes at the cost of more than $1,000. If I’m wrong, please tell me. 

Massive Debt & Excessive Fees. The Driving Forces Behind America’s Independence.

It’s a familiar story in America. The ruling class flexes its muscle to grab power and dominate. The massive debt incurred has to be paid by somebody, and that somebody is the public. The wealth and power gained serve no purpose to the public. It’s the burden of the cost of the misadventures the regular folk will carry. The American Story of Independence from Great Britain will play out in neighborhoods across the country as Americans stand up to resist excessive real estate broker commissions and strike out for more choice and independence. 

Taxation Without Representation

If a law was put into place to prevent price-fixing, why are there few alternatives to full service residential real estate brokers who charge commission fees less than 6.0%?  In 1989 I received my real estate license in Wisconsin. The sales manager told me, “You don’t need a fancy calculator; learn to calculate 7% of the home’s price. That’s all the math you need to know.” Thirty something years of massive technological changes later the commission rate has held its own. Comparing 1989 dollars to today’s value, a 14% reduction in a typical broker fee from 7.0% to 6.0% has done nothing to reduce the broker’s revenue. Rising home values kept pace to allow the broker’s commission per transaction to remain equal. Maybe the private club organization system has contributed to stifling the growth of alternative business models and consumer choice. That’s research someone could do. 

Providing Choice Contributes to Freedom

Every business owner has a choice to set their prices. Real estate is no different, although it has a peculiar method for budgeting. The formula looks like this: Number of Transactions @ $ per transaction, x 6.0% = Gross Commission Income (GCI). GCI – expenses = Net Company Income. King George, The Tyrant, knew all he had to do to live his lifestyle, was to bury the costs of doing more than business into his expenses and turn to the public to pay the bills. The model of spend and tax, tax, and spend aren’t new. (And no more tolerable today than in 1774.) 

Essential Real Estate, LLC chose to eliminate expenses, enhance the delivery of essential real estate services, charge only for substance, and live within means. We set our fees to increase the home equity our home selling clients keep, and we operate needing a lot less cash (your money) to do our business. Our clients who sell at prices of $200,000 to $800,000 are keeping $4,000 to $16,000 more of their home equity than they would if they were required to pay a typical 6.0% broker commission. Some of our clients are keeping even more of the money they earned by choosing from other cost-saving options we present. 

Choice. It’s an American Thing

The prerevolution colonists were not all opposed to paying excessive taxes and living with little or no choice. The exchange of the security of familiarity and the belief in unlikely possibilities was enough to keep some folks in line as loyal subjects. It was the choices of those who knew they deserved more of what they earned, less limitation on preference, and an opportunity to pay what was necessary, and no more, that spurred the birth of a country. As more real estate brokers introduce alternative business models to the public, the American consumer of real estate service will enjoy more freedom. Happy Independence Day America!