After many years of use, the 1999 WB-11 Residential Offer to Purchase was updated in 2010. After months of using the 2010 offer, it became apparent there were sections of the offer that could be modified to clarify language and enhance its use in real estate transactions. The forms advisory committee was already working to update the WB-14 Residential Condominium Offer to Purchase and the WB-13 Vacant Land Offer to Purchase. That effort, combined with questions, comments and concerns from practitioners and attorneys regarding the 2010 offer, led to the creation of the new new WB-11 Residential Offer to Purchase (2011 Offer). The optional-use date of March 1, 2011, and the mandatory use date of July 1, 2011, will apply for each of the three offers.
The following hotline questions and answers reveal practice concerns that arose with the use of 2010 offer. In each of the answers, the new 2011 Offer language is included to demonstrate how the modified language responds to solve the practice questions. A complete summary of changes to the WB-11 and a draft copy of the 2011 offer is available in the February 2011 Legal Update at www.wra.org/LU1102.
Follow-up inspections
The broker was working with a buyer who had a Wisconsin-registered home inspector conduct the home inspection. Based on the inspector’s report, the buyer wanted a follow-up inspection of the roof. The buyer had his brother come to look at the roof, but the seller did not feel this was appropriate because the brother would not give an independent report. Was the seller right?
The 2010 offer did not identify who could conduct follow-up inspections. The 2011 offer specifically states that follow-up inspections must be performed by a qualified independent inspector or independent qualified third party. Lines 417-418 provide:
“Buyer may have follow-up inspections recommended in a written report resulting from an authorized inspection, provided they occur prior to the deadline specified at line 421. Inspection(s) shall be performed by a qualified independent inspector or independent qualified third party.”
Appraisal contingency
The broker is working with a buyer who is an investor and submitted an offer not subject to financing. The buyer, however, included an appraisal contingency. The appraisal was done and the appraised value was less than the purchase price. The buyer submitted a copy of the appraisal to the seller, but wants to check with some other investors before giving any notice to terminate. When is the notice due?
The appraisal contingency in the 2010 offer did not expressly state when the buyer had to deliver a Notice of Termination. The language on lines 267-269 of the 2011 offer was improved to state that the notice of termination must accompany the appraisal report, showing the appraised value is less than the purchase price.
Once the appraisal is conducted, if the appraised value is not equal to or greater than the purchase price, the buyer and seller may attempt to renegotiate the purchase price. If they do not reach an agreement, the buyer may waive the contingency and proceed to purchase the property, or the buyer may deliver a copy of the appraisal and a Notice of Termination to the seller. An additional modification to the appraisal contingency clarifies that the appraisal of the property will be arranged at the buyer’s cost by the buyer or the buyer’s lender.
Delivery of notices
The listing broker was working with a seller who wanted to continue with the transaction, but the buyer wanted to terminate the offer to purchase. When the buyer submitted the Notice of Defects and home inspection report, the buyer used an authorized delivery method, but only delivered one copy to the listing agent, who was not the seller’s recipient for delivery. The seller claimed that because the offer stated the buyer was to deliver one copy of the Notice of Defects and the inspection report to the listing broker and another copy to the seller, that the buyer had failed to give a proper notice of defects by the stated deadline, and therefore had accepted the property in its current condition. Was the seller correct?
Most contingency provisions in the 2011 offer now require the buyer to submit documents and notices to the seller. This language change was made in the appraisal contingency (lines 267-269), inspection and testing section (lines 406-407), and inspection contingency (lines 421-423).
Most other instances involving delivery of a written notice or document in the offer require delivery to the other party – to the seller or to the buyer, as the case may be. In the previously mentioned contingencies, the buyer was technically required to deliver copies to both the seller and the listing broker. The changes in the 2011 offer reflect practice and prevent a buyer from unwittingly failing to deliver the second copy of a notice. If a real estate licensee has been listed as a recipient for delivery in the Delivery of Documents and Written Notices section of the offer, delivery to the named recipient will suffice as delivery to the party.
Note, however, that earnest money is delivered to the listing broker, an executed earnest money disbursement agreement is delivered to the listing broker and a title commitment may be delivered to the buyer’s attorney as an alternative to the buyer.
Delivery reorganized
Why does the delivery section of the 2011 offer look different?
In the 2010 offer, there was confusion about the use of the delivery provisions. Therefore, the delivery of documents and written notices section in the 2011 offer has been reorganized to simplify use of the optional delivery methods. The blank lines to insert recipients for delivery, fax numbers, delivery addresses or email addresses immediately follow the applicable sections. For example, the lines to include the seller’s or buyer’s recipient for delivery immediately follow the Personal Delivery authorization. If a party wants to name a recipient for delivery, the recipient can be included there.
This structural reorganization of this section serves to emphasize the different, separate delivery methods available to the parties and eliminate the perception that the blank lines all pertain to the email item. In addition, the blank lines asking for parties’ delivery information have been given a uniform sequence; the seller’s information is now requested first, followed by the buyer’s information.
Consumer transactions and e-commerce
Many hotline questions have been raised about the use of email delivery, electronic documents and electronic consent. Does the determination of a consumer transaction depend solely upon the buyer’s use of the property?
The requirement for a party to give electronic consent for email delivery applies when a consumer will be using and receiving electronic documents in place of the written documents otherwise required by law. A “consumer” is defined for these purposes as “an individual who obtains, through a transaction, products or services which are used primarily for personal, family, or household purposes, and also means the legal representative of such an individual.” The definition of a “transaction” under E-Sign clearly includes real estate transactions in which there is a “sale, lease, exchange, or other disposition of any interest in real property.” In addition, consumers who are parties to a brokered real estate transaction are receiving services. Thus, electronic consent requirements apply to most transactions in which individuals are buying or selling residential properties because they will be using the property or the proceeds for personal, family or household purposes.
The email delivery language in the 2010 Offer explained a consumer transaction as one in which the property being purchased was used primarily for personal, family or household purposes. This included buyers acting as consumers, but neglected to refer to sellers in consumer transactions who use the proceeds of the transaction primarily for personal, family or household purposes. That omission has been corrected in the 2011 offer language.
For further information regarding email delivery and the requirement for electronic consent from consumers, review the February 2008 Legal Update, “Electronic Commerce and Email Delivery,” at www.wra.org/LU0802, and the article entitled “Behind the Curtain” in the June 2010 Wisconsin Real Estate Magazine at www.wra.org/WREM/Jun10/BehindCurtain.
Tracy Rucka is Director of Professional Standards and Practices for the WRA.