The summer selling season is in full swing, and many questions to the WRA Legal Hotline are up about buyers lining up to make offers on limited inventory. The questions and answers this month look at how to manage buyer expectations in these markets.

Price is not everything

The broker has a customer who wants to write an offer with an accelerator or escalation clause. Is there any standard language for this?

There is no one standardized clause to use for a price escalation provision. Given the multiple variables, there are different clauses in use — some drafted by attorneys or brokerage firms. 

It is a legitimate negotiation strategy to negotiate price at an amount above another’s offered price. Remind the buyer that price isn’t everything. The basics are that a buyer is willing to increase his or her offered price up to a certain amount over the highest offer, up to a maximum dollar amount. The offer to purchase must state the price the buyer is willing to pay to purchase the property. The price may be determined by referencing the price of another offer to purchase. If the buyer wants to use such a strategy, the equation used to determine the offered price must be clear and unambiguous.

Drafting issues to consider include: using only another bona fide offer to determine price, a maximum price that would be offered, requesting the seller provide copies of other offers directly to the buyer, and the time allowed for other offers to be used to set the buyer’s price. The buyer may also be reminded that price may not be the seller’s most important condition for the sale of property and the use of an escalation clause may not guarantee an accepted offer.

The seller may provide the buyer with the price escalation clause a copy of the other buyer’s offer. The importance here is the seller — not the broker — provides the document because the broker must observe the duty of confidentiality to the other buyer. Under Wis. Admin. Code § REEB 24.12(1), a licensee may not disclose “any of the terms of one prospective buyer's offer to purchase … to any other prospective buyer or to any person with the intent that this information be disclosed to any other prospective buyer.”

For more information, see the January 2017 Legal Update, “Price Escalation Clauses and Multiple Counter-proposals,” at www.wra.org/LU1701. Also see the WRA LegalTalks video, “Escalation Clauses and Multiple Counter-proposals with Tracy Rucka” at www.wra.org/LegalTalks/EscalationClause. 

Multiple counter-proposals

A buyer received a multiple counter-proposal from the seller. Before the buyer responded, the listing broker called to say the seller went with another buyer. The buyer is upset as the seller gave the buyer several days to respond. What is the best course of action?

Although the multiple counter-proposal allowed the buyer time to approve the seller’s offered terms, it does not prevent the seller from accepting another offer before the buyer approves and the seller accepts. Timely response to a multiple counter-proposal, either by approval or a new counter-offer, allows the seller to know that the buyer wants to continue negotiations. Having a buyer ready to respond quickly may make the difference in fast-moving markets. 

If the buyer does not like the seller’s terms in the multiple counter-proposal, can the buyer counter the multiple counter-proposal? What is the numbering on the counter-offer by the buyer?

Yes, the buyer can make his or her own counter-offer, including terms and conditions that would be acceptable to the buyer. In general, the numbering of counter-offers is consecutive, regardless of who initiates the next counter-offer. In a case like this where the seller did not use a counter-offer, the buyer may initiate counter-offer number 1. The number designation refers to the total number of counter-offers that have been issued in the transaction, not to the number of counter-offers issued by the particular party. The WB-46 Multiple Counter-Proposal would not be considered the same thing as a WB-44 Counter-Offer to be included in that count.

Remove contingencies

The seller issued a bump notice that stated the buyer is required to remove all contingencies. Can the seller require this? 

The Closing of Buyer’s Property Contingency does not require removal of all contingencies unless that is specifically written into the offer and the buyer agrees to that at the time of negotiation at lines 307-308. Per the standard language, the buyer is only required to deliver timely a written notice waiving the Closing of Buyer’s Property Contingency. The seller may not unilaterally add additional conditions to the terms of the contract. 

Verbal acceptance

The buyer submitted an offer to a divorcing couple on homestead property. The husband and wife verbally said they would agree. The wife signed the offer, but before the husband signed, the sellers received a better offer and decided to go with the second offer. The buyer is now upset at the broker for saying the offer was accepted. What is the next step? 

Wisconsin law is clear about binding acceptance: A seller’s acceptance must be in writing and delivered to meet the requirements for conveyances of real property per Wis. Stat. § 706.02. A contract for a real estate transaction shall not be valid unless evidenced by a conveyance that satisfies the following: identifies the parties, identifies the land, identifies the interest conveyed, recites material terms, is in writing, is signed by the parties and is delivered. Except for rare situations where a court may, under equity or fairness grounds, waive the requirement, the offer must be signed and delivered to be binding.

Acceptance is defined in the WB offers as when all the parties have signed an identical copy of the offer. Timelines running from the time of acceptance require evidence that the seller has signed the offer. If the binding acceptance date passes without the signed offer returned to the buyer, the buyer may continue the negotiations by initiating a counter-offer for the seller’s signature and delivery.

Dates and deadlines

The buyer and seller have an accepted offer. The buyer’s lender has not provided the loan commitment by the deadline, and the seller has issued a notice to terminate the offer with a Cancellation Agreement and Mutual Release. Is the seller allowed to terminate this offer?

In hot markets, it is imperative for buyers to meet their deadlines or they may lose the transaction. Lines 247-249 of the WB-11 Offer to Purchase state, “If Buyer does not make timely delivery of said commitment; Seller may terminate this Offer if Seller delivers a written notice of termination to Buyer prior to Seller’s Actual Receipt of a copy of Buyer’s written loan commitment.” Therefore, once the buyer’s deadline for delivery of the loan commitment has passed on line 219 and the seller has not yet received the buyer’s loan commitment, the seller has the ability to terminate the offer by delivering a written notice of the seller’s termination. Meeting dates and deadlines is important in all transactions. When a seller has a better secondary offer, the seller may just be waiting for the opportunity to terminate the primary offer.

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