Bye bye, buyer

The primary buyer backed out just before closing. When can the seller put the secondary buyer into primary position? 

Although the primary buyers did not close, the seller should not elevate the secondary buyer’s offer into primary position until one of the following occurs. (1) The primary buyers and sellers agree to a Cancellation Agreement and Mutual Release (CAMR).

Without the fully executed CAMR, it is not clear what, if any, rights and duties each of the parties retain in the contract. The seller may direct the broker to deliver a notice to terminate the contract per the Default Provisions, accompanied by the CAMR. If the buyers refuse to sign the CAMR, the seller may consult with legal counsel before elevating the secondary offer into primary position. (2) The seller’s attorney, after review of the transaction documents and events, may suggest the seller proceed with the secondary offer. If the seller intends to seek actual damages if the buyer was in breach, the seller may need to proceed with the second transaction to determine the measure of damages. In such a case, the seller will not sign a CAMR because the seller could not then seek actual damages. 

Bye bye, seller

The buyer has an accepted offer on a single-family home. The buyer went through the inspection, but not the well inspection and water test. The buyer ordered an appraisal, and the closing date is set for a couple of weeks. The sellers changed their mind: they do not want to sell now and have offered to reimburse the buyer for the inspection and appraisal fees. What recourse does the buyer have? Would the sellers have to pay the commission if they just back out?

As explained in the Default Provisions of the WB-11 Residential Offer to Purchase, the buyer has a variety of remedies in the event of default: “If Seller defaults, Buyer may: 1) sue for specific performance; or 2) terminate the Offer and request the return of the earnest money, sue for actual damages, or both. In addition, the parties may seek any other remedies available in law or equity.” 

One of the definitions of “material adverse fact” includes that a party cannot or does not intend to perform on the contract. The broker is practicing competently by referring the parties to private legal counsel and may use the sample material adverse fact disclosure to both disclose the seller’s statements regarding backing out of the contract and refer the parties to counsel. 

For additional discussion of contract remedies and issues, see the September 2013 Legal Update 13.09, “Contract Construction and Party Remedies,” at www.wra.org/LU1309. 

As far as the commissions, the listing broker’s right to commission will be based on the terms and conditions stated in the WB-1 Residential Listing Contract Exclusive Right to Sell. One circumstance where the commission is earned is if the seller sells or enters into an enforceable contract for the sale of the property. Review the Commission Provisions of the WB-1 Residential Listing Contract Exclusive Right to Sell, in the October 2007 Legal Update, “WB-1 Listing Contract — 2008 Revisions” at www.wra.org/LU0710.

Three-day walk-through

The offer required the seller to replace cracked windows on the first floor. After the inspection, the buyer gave a notice of defects regarding defects in the roof, which the seller elected to cure. The broker is scheduling the final walk-through the day before closing.

The buyer has not received a report for the windows or the roof work that was done. How to proceed?

Generally, the seller may agree to complete work in one of three situations: (1) based on an election to cure in the Inspection Contingency, which is the roof in this scenario; (2) based on the terms of the original offer, which are the windows in this scenario; or (3) based on an amendment negotiated after the inspection. How the work must be completed and what documentation is necessary will vary. 

Per the Inspection Contingency, when a seller elects to cure, the seller agrees to cure the defects in a good and workmanlike manner and provide the buyer a written report detailing the work done three days prior to closing. The buyer then has the written report while at the final walk-through. This would apply to the roof in this scenario. 

However, if work is required per the offer, such as replacing the cracked windows, or if work is required per an amendment after the home inspection, this is outside the Inspection Contingency provisions. When asking for specific work to be completed in either of these situations, the buyer should set forth who will do the work, what products will be used, whether the seller will provide written evidence of the work completed, and when the work will be done. Alternately, the parties may negotiate to require that the seller have the work done by an independent company and in a good and workmanlike manner. 

See page 10 of the November 2009 Legal Update, “WB-11 Residential Offer to Purchase — 2010 Edition” at www.wra.org/LU0911 and “Best of the Legal Hotline: Pre-Closing Inspections” in the January 2004 edition of the Wisconsin Real Estate Magazine at www.wra.org/WREM/Jan04/Hotline regarding the walk-through provision.

Closing

The contract states that a property is to close “no later than 6/27” — and the buyer wants to close on 6/23. The seller, though, has scheduled his move for 6/26 and thus wants to remain in the property until the originally negotiated date. Must an amendment be made if it is going to close before 6/27?

Yes, it is recommended the agent working with the buyer draft an amendment changing the closing date. If the parties agree to move the closing forward, the amendment will be documentation of that agreement. However, if the seller will not agree, he is not in breach of contract until the passage of the original closing date. REALTORS^® are required, both by law and the REALTOR^® Code of Ethics, to put the agreement of the parties, or modifications thereto, in writing. 

A closing is set for Thursday. The buyer wants to close at 8:30 a.m., but the sellers cannot have all their belongings out until 5:00 p.m. The sellers say they have until the end of the day per the contract. Who can force the closing time?

The offer provides that the seller will have vacated the property at the time of closing. Although dates and deadlines run until midnight, closings must be set when the parties and title company are available. There is nothing in the offer that dictates either the time of closing or who has the right to establish the closing time. The brokers should encourage the parties to agree on a reasonable closing timetable that provides for the seller moving out and the buyer moving in. If they cannot agree, the parties should consult an attorney.

Leaky roof and leaky basement

The offer is written and accepted. Inspections were completed, a notice of defects was given, the seller elected to cure, and defects were fixed in a timely manner. After a recent storm, though, the buyer found a porch roof leak and also a leak in the basement.

The leaks were not disclosed on a real estate condition report (RECR), nor included in the inspection report because there was no evidence of leaks prior to the storm. What are the ramifications for the seller?

The property damage between acceptance and closing provisions of the offer would be triggered when there is damage to the property between acceptance and closing. Per lines 206-215 of the WB-11 Residential Offer to Purchase, the offer provides that the seller will maintain the property in substantially the same condition that it was in on the date of the offer to purchase. If there is damage, it must be determined how much the repairs will cost because the seller is obligated to repair the damage unless the cost of the repairs exceeds 5 percent of the sale price. The broker may refer the seller to workmen to obtain bids on repairs and suggest the seller consult with the insurance company to determine what coverage is available. Presuming the repairs are less than 5 percent, the seller is required to restore the property to the condition it was in at the time of the offer. Although the contract lays out the method to address property damage, the parties are always able to renegotiate regarding the repairs if the prenegotiated terms are unacceptable.

Frozen pipes

After the offer was accepted, frozen pipes caused extensive damage to the property. The seller had to have plumbing work done prior to closing, resulting in a fairly large bill. The cooperating broker and plumber know each other, and the broker asked for the paid receipt from the plumber because the plumber claimed that he was not paid. 

Should those bills be paid prior to closing with receipts showing they are paid, or should the bill be placed on the closing statement? If either does not happen, couldn’t that come back on the property if the seller does not pay the bill? 

According to the Property Damage Between Acceptance and Closing provisions of the offer, the seller agrees to provide the buyer with lien waivers for all lienable repairs and restoration. The requirement to provide lien waivers specifically applies to work conducted when there was property damage after acceptance. 

If the work was completed to comply with the seller’s right to cure, the buyer is required to deliver to the seller a written report detailing the work done within three days prior to closing. At closing, the title company will provide evidence of title. Generally the title company will obtain an affidavit stating the seller has paid for any work that could result in a lien against the property. As a policy, it is prudent to assure payment, however the offer to purchase does not explicitly require such payments be made out of closing proceeds unless the parties negotiated in that manner. The buyer may have a claim against the seller if the seller’s failure to pay the plumber and other contractors results in liens on the property.

Tracy Rucka is Director of Professional Standards and Practices for the WRA.