Drafting that winning offer for clients and customers requires good listening, knowledge of the market and applicable laws as well as all of the wonderful expertise and training required of a real estate professional. Real estate licensees drafting an offer have many parameters to guide them.
Licensee drafting authority
First of all, Wis. Stat. § 452.40(1) codifies the Dinger case and the Wisconsin Supreme Court rules that authorize real estate licensees to complete state-approved forms:
452.40 Use of forms; provision of legal advice.
(1) (a) In this subsection, “use a form” means to complete a form by filling in blanks or modifying printed provisions on the form at the instruction of one or more parties with whom a licensee is working or representing in a specific transaction.
(b) A firm and any licensee associated with the firm may use a form approved by the board under s. 452.05(1)(b) in real estate practice.
Wis. Admin. Code § REEB 16.02(5) reinforces that “use a form” means “to complete a contractual or conveyance form by filling in the blanks or modifying printed provisions on a form for the purpose of accomplishing the instruction of a party in a specific real estate transaction.”
Licensees no longer draft to accomplish the parties’ intent and instead work per the party’s instructions. These provisions allow licensees to insert contingency clauses and other provisions into approved offers to purchase so long as the insertion is necessary to accomplish a party’s instruction in a specific transaction.
Approved forms
The Real Estate Examining Board (REEB) approves real estate contractual forms, sometimes referred to as the WB forms, and these forms may be found on the Department of Safety and Professional Services website. In addition, the REEB also approves the forms listed in Wis. Admin. Code § REEB 16.03, including forms such as governmental, quasi-governmental and tribal forms, contractual forms used in other states and property management agreements.
The starting point for drafting that winning offer is the selection of the REEB-approved offer to purchase form that best reflects the type of property and transaction contemplated by the parties. No two properties have the same physical or legal characteristics nor do all parties have the same desires and expectations.
While a basic form may sometimes be enough to address all of the contemplated issues in the transaction, often additional provisions need to be added to achieve the party’s stated goals. Additional language may either be written into blank lines in the form or added via an addendum.
Adding provisions
The REEB does not have any approved addenda forms for real estate. Licensees may use pre-prepared offer addenda that comply with Wis. Admin. Code § REEB 16.06(4) or (5), depending upon whether the addendum amplifies optional provisions or alters pre-printed language.
Examples of pre-printed addenda that have been drafted by attorneys include the various addenda developed by local REALTOR® associations to address common concerns present in that market area.
Contingencies
Contingencies, such as financing contingencies, have been construed by Wisconsin courts to be a condition precedent to the buyer’s performance. Thus, a contract that is subject to a condition precedent is not enforceable until that condition has been fulfilled.
Often, a party may insist upon a clause that is based on the unilateral satisfaction of that party, and does not provide objective standards. However, a contract with vague terms or that gives unlimited discretion to one party may be unenforceable. There can be no agreement if satisfaction of a condition depends upon the unrestricted discretion of the party to be satisfied.
Accordingly, it is good practice to provide details and standards to measure the buyer’s or the seller’s attempts to satisfy a condition. A good testing or inspection contingency, for example, should specify who conducts the test or inspection, who evaluates the results, when and where the activity is conducted, who pays for the inspection, sampling and/or testing, what credentials must be held by the tester or inspector and any lab, what standards trigger the buyer’s ability to request remediation or to terminate the offer, whether the seller has the right to cure, and what standards are applied to curative measures taken by the seller. Enforceable contingency drafting answers the basic questions of who, what, when, where, how, who pays and what will happen if not.
Read the contingency aloud. The contingency should use clear, precise language and should be reviewed by the parties. Never dissuade a party from consulting legal counsel; saying, “check with your attorney” is always appropriate. If the buyer and seller disagree over how ambiguous language should be interpreted, courts in Wisconsin will interpret the unclear contract language against the party who drafted it. Thus, it is the party whose agent drafted the offer who will be hurt if the provision is not clear.
Let’s put these drafting principles into action in the following hypothetical scenario.
Mice management
There have been a few mice from time to time in the basement level of Zelda’s home, but it never was a concern to her because her cats were adept mouse-catchers, and periodically a dead mouse “trophy” would appear in the living room or family room to show Zelda what a remarkable feline feat had just occurred. But when it came time to sell the house, she felt it right to disclose these past additional occupants. Brutus the buyer had no cats and was not so forgiving of the rodent residents, so he directed his agent to write an offer that was contingent upon a pest control inspection of the house to try to make sure the mice would be eliminated. If any evidence of mice is found, he wants Zelda to pay for whatever preventative measures are recommended. Since rodents are not within the purview of home inspectors, a separate contingency will be needed.
Not being aware of any mice inspection contingencies in any forms or addenda, the agent may wish to check his firm’s policy manual and speak with the supervising broker to see is she has any suggestions or insight. One option may be to have an attorney draft this provision since it is a bit out of the ordinary. If the licensee pushes forward and decides to draft this provision, the Wisconsin Real Estate Clauses Manual is a good resource.
The licensee comes up with the following contingency:
This Offer is contingent upon Buyer obtaining, at Seller’s cost, a pest/rodent inspection by a professional pest control contractor selected by Buyer, and the delivery to the parties within 15 days after acceptance of this Offer of a written report indicating no evidence of the current presence of mice or other rodents on the premises. This contingency shall be deemed satisfied unless Buyer, within 20 days after acceptance of this Offer, delivers written notice to Seller listing the evidence of rodent presence to which the Buyer objects and those eradication measures recommended in the report that the Buyer wishes the Seller to undertake (the Cure). Seller may satisfy this contingency by: (a) delivering a written notice of Seller’s election to perform the Cure within 5 days of Buyer’s delivery of Buyer’s notice; (b) having the Cure completed per the notice and (c) delivering to Buyer a written report and paid receipt detailing the work done no later than 3 days prior to closing. If Seller does not timely deliver notice of the election to perform the Cure, then the Buyer shall have 5 days in which to terminate this Offer by delivering written notice of termination to Seller. If Buyer does not deliver a notice of termination within the 5 days, or if Buyer does not obtain a report within 15 days of acceptance, then this contingency shall be deemed satisfied.
Contingency evaluation
- What needs to be done? Obtain a pest/rodent inspection and eradication recommendations.
- Who is going to do it? A professional pest control contractor selected by Buyer.
- Who will pay for the inspection? Seller.
- When does it need to be done? Report within 15 days of acceptance, any notice by Buyer within 20 days of acceptance.
- What happens if it is not done? Contingency deemed satisfied if no report obtained. If Seller won’t eradicate, Buyer can choose whether to terminate.
- What credentials must be held? Buyer selects contractor because the pest control profession is not regulated except for the use of pesticides/insecticides.
- What standards trigger the buyer’s ability to request remediation? Evidence of current presence of mice/rodents.
- Does the seller have the right to cure? Yes.
- What standards are applied to the curative measures taken by the seller? Recommendation of pest control contractor.
- Will the contingency be waived unless a written notice is delivered? Yes.
- Are there solid dates and reasonable deadlines that recognize a logical sequence of events? Yes.
- This contingency is not typical because the buyer chooses the contractor, decides what measures will be taken if there is an objectionable reported presence of rodents, and ultimately decides whether to back out of the offer if the seller does not elect to cure. The pest control contractor recommends what measures to take if there is a problem and thereby sets the standards for a cure.
Resources
Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.