The WB-11 Residential Offer to Purchase has undergone updates in 2020, twice. The following WRA Legal Hotline questions and answers explore recurring questions relating to the appraisal contingency with a seller’s right to cure and the proof of bridge loan financing provisions of the offer. The answers apply to both the versions of the WB-11: The WB-11 with a mandatory use date of January 1, 2020, as well as the upcoming WB-11 “Take 2” with a mandatory use date of September 1, 2020.
The seller is looking for a way to terminate the buyer’s offer. The buyer included an appraisal contingency, and the deadline is soon approaching. The buyer nor the lender scheduled an appraisal, therefore, the buyer has not yet provided an appraisal report. Can the seller terminate the offer if there is no appraisal or if the buyer does not deliver the appraisal report by the deadline?
No. According to the appraisal contingency on lines 312-314 of the 2020 WB-11 “Take 2,” the contingency is deemed satisfied if the buyer does not deliver notice objecting that the appraised value is less than the agreed upon purchase price.
This contingency shall be deemed satisfied unless Buyer, within ________ days after acceptance, delivers to Seller a copy of the appraisal report indicating an appraised value less than the agreed upon purchase price, and a written notice objecting to the appraised value.
Therefore, if the buyer did not provide the seller a notice as stated, the appraisal contingency was deemed satisfied and did not give the seller a contractual right to terminate the offer. A different opportunity is available to a seller if a buyer does not timely deliver the loan commitment as contemplated by the financing commitment contingency, which indicates that the seller has a limited right to terminate the offer if the buyer fails to timely deliver the loan commitment.
SELLER TERMINATION RIGHTS: If Buyer does not deliver a loan commitment on or before the Deadline on line 251. Seller may terminate this Offer if Seller delivers a written notice of termination to Buyer prior to Seller’s Actual Receipt of written loan commitment from Buyer.
The appraisal is low, the buyer wants to give notice, and the seller has stated his plan to elect to cure. Please describe how to work through the right to cure provisions in the appraisal contingency. What are the next steps in this scenario?
The buyer’s first step is to deliver written notice. The written notice states the buyer objects to the low appraisal. The buyer attaches the appraisal report, documenting the objection at line 27 of the WB-41 Notice. The appraisal contingency states that when the seller elects to cure, the seller delivers a written notice adjusting the price to match the appraised value. The buyer and seller also agree they will promptly execute an amendment changing only the purchase price if initiated by either party after delivery of the seller’s notice adjusting the purchase price. The buyer may propose an amendment changing the purchase price and deliver it with the notice objecting to the low appraised value, but the seller is not obligated to sign it unless the seller first has given notice adjusting the purchase price to match the appraised value.
The seller who wishes to cure will deliver written notice. The seller’s notice states the seller will adjust the purchase price to the value shown on the appraisal report. If the buyer provided the amendment reflecting the changed price, the seller then delivers the notice, and signs and delivers the amendment. If the buyer did not initiate the amendment, the seller’s notice to adjust the purchase price would be accompanied by an amendment to do so.
The appraisal came in below the purchase price. The buyer gave the seller an amendment that asked the seller to do the following: reduce the purchase price, change the closing date and include the seller’s riding mower in the deal. The listing broker thought an amendment could only change the purchase price. Is this true?
When it comes to the appraisal contingency, amendments may be used in different contexts. The first context occurs when the appraisal is low and the buyer delivers written notice objecting to the low appraisal, triggering the seller’s election to cure. The second context occurs when the buyer is just attempting to renegotiate. The second context may or may not be based on the appraisal results. Per the contingency, if the buyer issues a written notice objecting to the appraised value — with a copy of the appraisal report with appraised value less than purchase price — then the subsequent amendment between the buyer and seller would only address the purchase price. Alternately, if the buyer’s amendment occurs prior to the buyer objecting to the appraised value under the appraisal contingency, the buyer’s offered amendment may include any request modifying any terms of the offer. Keep in mind that a buyer can at any time attempt to renegotiate terms of the contract, independent of any specific contingency.
There is a dispute over what “proof of bridge loan financing” means for the closing of the buyer’s property contingency in the 2020 WB-11 “Take 2.” The seller delivered a bump notice. In response, the buyer submitted a pre-qualification for a mortgage loan, subject to verification, documentation, appraisal and other terms. The seller does not accept this as proof of bridge loan financing. How to proceed?
When working with a buyer who has a closing of buyer’s property contingency with a seller’s opportunity to bump, the buyer is well served to start the process to obtain any documentation necessary to respond to being bumped. Because the seller can accept another offer at any time, the buyer can be prepared to provide any proof or meet any conditions required by the offer. For example, if the offer includes “proof of bridge loan financing,” either as a condition at line 342 or if the closing of the buyer’s property does not occur by the date at line 330, the buyer can apply as soon as practical for such bridge loan financing.
Although bridge loan financing is not a defined term in the offer, by industry standards, it is short-term financing obtained to allow a buyer to purchase a property without the necessity of selling a current property. Therefore, as described in the question, a buyer’s delivery of a pre-qualification letter for a conventional mortgage loan would be distinguishable from the requirement to provide proof of bridge loan financing. First, the standard refers to bridge loan financing; not conventional financing. Bridge financing is distinguishable from applying for a long-term purchase money mortgage loan. Second, a pre-qualification letter is generally not a lender commitment to provide financing; it is merely a statement that the buyer might qualify if the buyer later applies. The seller may issue a notice, stating the documentation provided does not meet the proof of bridge loan financing. The seller may also deliver a Cancellation Agreement and Mutual Release along with the notice to facilitate resolution of the transaction.
Tracy Rucka is Director of Professional Standards and Practices for the WRA.