Samuel Goldwyn once said, “[a] verbal contract isn’t worth the paper it’s written on,” about the word of a colleague whom he felt so strongly about that he did not require a written agreement from this person and actually preferred to work only with a verbal commitment and a handshake.
While the sentiment behind this contrary statement is admirable, it is not one that should be adopted by real estate licensees practicing in Wisconsin.
In my opinion, “get it in writing” is one of the major mantras that all real estate licensees should follow. Now it may be the attorney in me, but I want everything in writing. I even want your lunch order in writing because I want to have a full understanding of the terms of our agreement, even if it’s just extra mayo. And yes, we will even define “extra” as it applies to that mayo.
“Get it in writing” may seem like a simple mantra, however in practice, there are often others that attempt to derail your refrain. For example, is it not uncommon to hear agents complain or comment about the attempts of relocation companies, bank-owned (REO) properties, short sale transactions and For Sale By Owner (FSBO) sellers to create contracts verbally rather than executing a written agreement. Sometimes these situations arise because the respective sellers don’t understand Wisconsin contract law, while others may be attempting to have the buyer believe and proceed as though they are contractually obligated to fulfill their obligations, with the seller knowing they have contractual freedom because there is no written agreement.
Verbal acceptance is not binding
In Wisconsin, a verbal contract for the conveyance of an interest in land is void unless there is a writing that meets the requirements of Wisconsin Statute Chapter 706. Wis. Stat. §§ 706.02(1)(d) & (g) indicates that the offer is invalid until it is signed by the grantors and delivered.
Verbal negotiations are lawful, but if the proposal is in substance a counteroffer, it must be in writing. In addition to Wis. Stat. Ch. § 706.02, Wis. Admin. Code § REEB 24.08 requires brokers to put all agreements in writing. A licensee shall put in writing all listing contracts, guaranteed sales agreements, buyer agency agreements, offers to purchase, property management agreements, option contracts, financial obligations and any other commitments regarding transactions, expressing the exact agreement of the parties unless the writing is completed by the parties or their attorneys or is outside the scope of the licensee’s authority under Wis. Admin. Code § REEB 16.
Until the parties have a written, signed and delivered contract, there is not an accepted offer according to Wis. Stat. § 706.02. Despite the verbal negotiations and apparent “agreement” on terms and conditions, a binding agreement between the buyer and the seller has not materialized because there is no written agreement between the parties.
In Marking v. Suwillo (No. 2006AP 659, Ct. App. 2006), the court strictly applied the formal contract requirements set forth in Wis. Stat. § 706.02(1) to an offer to purchase, including the requirement that an offer be signed by, or on behalf of, all parties. The court also noted that while intent to contract is a necessary component to contract formation, it does not eliminate the requirements of Wis. Stat. § 706.02.
Role of licensee
When a cooperating broker is informed that the buyer’s offer was accepted, and there is no written documentation of such on the offer to purchase or other written evidence, the buyer is not in a contract. Too often, brokers relay the seller’s message of “acceptance” to the buyer, and the buyer does not have a full appreciation that the warm fuzzy feeling is an illusion — the buyer is not any closer to contractually owning that home than the moment they submitted the offer. The buyer should be told candidly about the reality of a verbal acceptance; and while it may seem promising, the parties have not entered into a contract.
The licensee should caution the buyer that Wisconsin law requires an offer to purchase to be signed and delivered before it is valid. Lines 23-24 of the WB-11 Residential Offer to Purchase clearly state that the offer is accepted when the buyers and sellers have signed an identical copy of the offer — and until such time as the offer is accepted and delivered to create binding acceptance, the real estate licensee should not represent that there is an accepted offer to purchase.
A licensee may indicate to the buyer that the seller is giving favorable consideration to the buyer’s offer, but that the offer cannot be valid until it is signed and delivered. If a buyer has any questions regarding his or her legal rights or the status of the offer, the buyer should be referred to legal counsel for appropriate advice.
Due to the lack of written acceptance, many of the offers will expire if the company does not sign and deliver them, per the terms of the offer to purchase, by the stated deadline for binding acceptance. This may require brokers to draft a counteroffer extending the date for acceptance — assuming the buyer is still willing to wait.
If the time for binding acceptance passes on the offer, either the buyer or seller can initiate counteroffers to extend the timelines to allow for written acceptance and delivery. In transactions with pending foreclosures or REO sellers, it may be difficult to get the seller to initiate counteroffers or sign offers in a timely fashion. Therefore, to obtain a signed contract, it may be necessary for the buyer to initiate the counteroffers.
Risk management when functioning in an imperfect world
I recognize that you cannot control the behavior and practices of others in a real estate transaction. When an acceptance or a counteroffer is not being documented in writing by the other side participating in the transaction, caution your party about the risk of acting as though they are in a contract and encourage them to speak with legal counsel as to their legal obligations. And when you make this caution and recommendation for your party to follow up with legal counsel, go back to your mantra —“get it in writing.” A paper trail of both this caution and recommendation to follow up with legal counsel is as important as defining your expectation of the “extra” mayo.
Cori Lamont is Director of Regulatory Affairs for the WRA.