The following questions recently asked of the Wisconsin REALTORS^® Association Hotline address the Secondary Offer provision on lines 287-292 of the 1999 WB-11 Residential Offer to Purchase.

No more than one primary offer 

The seller has an accepted offer to purchase with a short sale addendum, which indicates approval needs to come from the seller’s lender. Can the seller accept other offers in secondary position? Can the seller give all of the offers to the bank at the same time and let the mortgage company decide which offer they prefer? 

Standard of Practice 1-7 provides in relevant part, “REALTORS^® shall recommend that sellers…obtain the advice of legal counsel prior to acceptance of a subsequent offer except where the acceptance is contingent on the termination of the pre-existing purchase contract…” Clearly the safest practice from the seller’s standpoint is to make subsequent offers secondary offers that are subject to the approval of the seller’s lender for a short sale. The seller can submit the offers to the lender at the same time for the lender’s consideration.

Secondary buyer plays waiting game 

The seller accepted a short sale offer subject to bank approval and a home sale contingency and forwarded the offer to the bank. In the meantime, another offer came in that was accepted in secondary position. The broker for the secondary buyer is now pushing and inquiring as to why their offer has not become primary. What should the listing agent tell him? 

The secondary buyer’s rights arise solely from the language of the secondary offer. Some secondary offer provisions promise to make the secondary buyer primary if certain events occur while others, such as the provision in the 1999 WB-11, do not. The secondary buyer normally is not given the right to be advised when the first buyer has received the bump clause notice from the seller or to know the specifics of the bump clause procedure provided in the first offer. Licensees are prohibited from disclosing this information by the Wis. Admin. Code § RL 24.12 confidentiality of offers rule. The secondary buyer typically has no option but to wait for notice from the seller that the secondary offer has been made primary. This is why it is important for agents working with secondary buyers to manage their clients’ expectations from the start so that they understand that they are playing a waiting game.

The standard language of the WB-11 provides that the seller may, but is not required to, give the primary buyer notice that the seller has accepted another offer. If the seller elects to give the primary buyer a bump notice, the primary buyer may waive the home sale contingency by the stated deadline. If he does not, then that offer becomes null and void.

If the secondary offer does not obligate the seller to make the secondary offer primary when the first offer becomes null and void, the seller may decide if and when the secondary offer will become primary. If the seller has other secondary offers or receives a new better offer, he or she may make another offer primary and leave the existing secondary offer in secondary status.

Escape clause 

Does the secondary buyer have any options other than sitting and waiting to hear if he or she has become the primary buyer? 

In the secondary offer provision in the 1999 WB-11, the buyer is given an escape clause – the buyer can give the seller written notice withdrawing the secondary offer any time prior to receiving notice from the seller that the offer has become primary. This ability of the secondary buyer to withdraw his or her offer is subject to one limitation: the buyer cannot withdraw until after the “lock in” period has passed. The lock in period is expressed on line 291 as “Buyer may not deliver notice of withdrawal earlier than _ days after acceptance of this Offer.” This provision was designed to provide the period reasonably necessary to complete the bump clause process with the primary buyer. Where there is no bump clause, the “lock in” period may be very short or may be lined out when there is no independent need to tie down the secondary buyer.

Failed modification 

The buyer’s offer was recently countered into secondary and the buyer countered back to delete part of line 289 of the offer because he did not want his offer to be pooled with other secondary offers. The listing broker called saying that the seller accepted the counter, but that it would not prohibit the seller from pooling secondary offers. Is the listing broker correct? 

The WB-11 Secondary Offer provision is a discretionary provision that leaves the seller free to choose from among all secondary offers when it is time to give a secondary buyer notice that his or her offer has become primary. In this style, there is one primary offer and a pool of secondary offers.

Licensees may modify the terms of the approved forms according to the parties’ intent by using additional provisions or addenda, or by lining through the applicable terms and replacing them with the desired language. However, removal of the sentence, “Unless otherwise provided, Seller is not obligated to give Buyer notice prior to any deadline, nor is any particular secondary buyer given the right to be made primary ahead of other secondary buyers,” does not create an obligation for the seller to elevate this buyer into primary position. An affirmative statement would be needed to obligate the seller to elevate this particular buyer into primary position.

Secondary offers with contingencies 

Can a secondary offer that has a sale of buyer’s property contingency be used to bump a primary offer that is subject to the sale of buyer’s property? 

Yes, provided the secondary offer is a bona fide offer to purchase, the seller may give the primary buyer a bump notice. A bona fide offer is a legitimate offer from a serious third-party buyer, not a phony offer artificially created for the sole purpose of bumping the existing primary offer.

New primary offer 

The seller accepted a primary and a secondary offer. The primary offer failed to close and the buyers signed a Cancellation Agreement and Mutual Release (CAMR). Before giving the secondary buyer notice that the seller was moving him into primary position, another buyer submitted an offer. Does the seller have the right to accept the new offer as primary? 

It is the seller’s prerogative to choose whether to elevate the secondary buyer into primary position or not. If the secondary offer does not obligate the seller to make the secondary offer primary if the first offer becomes null and void, the seller generally decides when and whether the secondary offer will become primary. If the seller receives a better offer, he or she has the option to make the new offer primary and leave the existing secondary offer in secondary status. If the previous primary buyer signed a CAMR, the seller may accept the new offer in primary position.

Renegotiate with primary buyer 

Can a seller renegotiate an offer with a primary buyer once a secondary offer has been accepted? 

Unless the seller has agreed in the secondary offer not to negotiate with the first buyer, the seller may amend the terms of the primary offer. What happens before the primary offer becomes null and void and before the seller gives the secondary buyer notice that the secondary offer has become primary is ordinarily up to the seller.

Pooled versus priority styles 

If there is an accepted primary and secondary offer in place and a third offer is written as secondary, and the primary offer falls apart, does the first secondary offer that was accepted automatically get moved into primary position, or is it the seller’s discretion? 

The first secondary offer will automatically move into primary position only if the secondary offer language in the accepted offers provides for a priority approach. The optional Secondary Offer provision of the 1994 residential offer was a priority provision that required the seller to elevate the secondary offer to primary position if the primary offer was bumped. This provision is designed for the second offer accepted in a situation where the seller will elevate back-up offers to primary position only in the order in which they were accepted. The Department of Regulation and Licensing adopted this approach based on concerns that it was unfair for a secondary buyer to patiently wait in line only to have another secondary buyer skip past him or her to primary status after the primary offer is bumped. With this priority style, if another secondary offer (third offer) is accepted, this priority-based secondary offer provision would need to be modified to clarify that the new offer is third in line, and to indicate the order in which the secondary offers will be bumped. If a fourth offer were to be accepted, further modifications would be needed. This involves very tricky drafting that is a major source of potential liability.

Accordingly, the Secondary Offer provision in the 1999 WB-11 is a discretionary provision that leaves the seller free to choose from among all secondary offers when it is time to move a secondary offer into primary position. In this situation, there is one primary offer and a pool of secondary offers.

Debbi Conrad is Director of Legal Affairs for the WRA.