The following questions and answers relate to the methods and tools brokers can use to modify the Department of Regulation and Licensing (DRL)-approved forms to meet the needs of parties in a transaction.
The DRL promulgates standard real estate transaction forms. The forms may be used by buyers and sellers engaging in transactions with or without real estate professionals or legal counsel and are mandatory for use by Wisconsin real estate licensees. While the DRL-approved forms address the basics for a real estate transaction, the forms may need to be modified to meet the unique needs and individual requirements of buyers or sellers.
Let the parties decide
When using the state-approved forms, REALTORS® may find the need to modify them to reflect the agreement of the parties. Agents should never substitute their judgment in place of the intent of the parties. As basic as it seems, brokers must make sure that their agents fill in the blanks on DRL-approved forms and include the details necessary to make an enforceable contract. The forms may be modified by use of the optional or additional provisions, or by striking or modifying the standard language. According to Wis. Admin. Code § RL 24.12, licensees shall encourage all prospective buyers to make their best offer. It is then the seller’s prerogative to choose which, if any, offer to purchase he or she deems to be acceptable.
Addenda
Incorporate an Addendum by Reference
How can a REALTOR® include additional provisions to a contract that are not contained in the DRL-approved forms?
Any supplementary terms and conditions may be included in the Additional Provisions sections of a DRL form, or in an addendum that is incorporated by reference. Wis. Stat. § 706.02(2) provides that additional terms and conditions can be added into a conveyance, such as a deed or an offer to purchase (1) by specific reference to separate writings in existence at the time when the conveyance is signed; (2) by physically attaching two or more writings to one another, with the mutual consent of the parties; or (3) if separate writings show expressly on their faces that they refer to the same transaction, and the parties mutually acknowledge by conduct or agreement that the writings taken together document the transaction.
What happens if an addendum is not signed or initialed?
An addendum does not need to be initialed or signed to be a part of the offer. If the addendum was properly incorporated into the offer to purchase, the terms and conditions of the addendum, as modified by any counter-offer, became a part of the offer. Brokers should confirm that all addenda are referenced in the offer, delivered to the parties and, when possible, initialed or otherwise acknowledged to minimize later disputes.
Legal counsel
When an agent is drafting an offer, when is it necessary or recommended that the buyer or seller bring in an attorney to help with contract drafting?
Some contract provisions should not be drafted by real estate licensees. Sometimes advanced technical or legal expertise is required to successfully reflect the position of one or more parties to a contract. Provisions such as environmental liability waivers, complex title warranties, letters of intent or rights of first refusal should be handled by an attorney. Licensees should be sure not to draft complex legal provisions or agreements or engage in the unlicensed practice of law. Licensees are cautioned not to draft provisions that would be outside the preprinted forms that would alter the parties’ contractual rights. Provisions dictating legal liability, responsibility for environmental contaminants and other issues outside the purview of licensed real estate practice should be left to the lawyers.
Right of first refusal
Is there a form for right of first refusal?
No. The agent may refer parties to legal counsel to draft a right of first refusal. Only an attorney, not a REALTOR®, may draft a separate, free-standing right of first refusal agreement.
Escrow agreements
The parties wish to have their earnest money in an interest bearing account or escrow account rather than the broker’s trust account. Can this be done? Can a broker draft an escrow agreement? Does it depend on whether the escrow funds are held in the broker’s trust account?
Wis. Admin. Code § RL 18.06 contemplated situations where parties to a transaction may not want the broker to hold the earnest money in the broker's real estate trust account. The parties may designate an escrow agent other than the broker. In such situations the broker may not draft the escrow agreement. The escrow agreement must be drafted by the parties or an attorney. If the parties are using a different escrow agent, the broker may not hold the funds in the broker's real estate trust account, nor may the broker act in any way as custodian of the funds. The funds, pursuant to the escrow agreement, shall be held by some other party, such as a bank, savings and loan association, credit union or attorney.
The parties are in dispute about repair work that cannot be finished before the closing. Do they need to have an escrow agreement and must it be in writing?
A well-written escrow agreement will minimize disputes regarding a post-closing escrow. Real estate licensees are not presently authorized to draft escrow agreements. If the parties place funds in escrow, the funds may be held in the broker's trust account or by another person until some future occurrence, provided an agreement to that effect is prepared by the parties or an attorney. The Administrative Code would allow a broker to draft the escrow agreement if a form for this purpose was approved by the DRL for use by licensees pursuant to § RL 16.03. However, the DRL has never promulgated such a form so the parties or counsel must draft the escrow agreement. Therefore, the broker may recommend the parties use the services of an attorney or draft their own agreement. There is an exception to these rules under § RL 18.07 (2) that provides a broker may hold occupancy and possession escrows, escrows for final tax prorations and escrows charges owed by the seller but not yet billed provided the closing statement shows that the broker has these funds.
Don't use white-out
Can a broker use white-out to change terms of an offer that the buyer or seller does not want as part of the deal?
According to Wis. Admin. Code § RL 16.06 (3), licensees may cross out provisions on an approved form to reflect the agreement of the parties provided the deleted provisions remain legible. The use of white-out would violate this rule.
The broker and agents are discussing changing items on an offer. Can brokers line through an offer provision, make a change and then have both parties initial it? The broker was taught that no cross-outs are permitted on the DRL-approved forms. What is the correct answer?
Wis. Admin. Code § RL 16.06(3) allows licensees to cross out provisions on an approved form to reflect the parties’ agreement, and the standard WB forms may be modified according to § RL 16.06(8) to meet the intent of the parties.
However, during negotiations, when a party wants to modify an offer, it is best practice for a broker to initiate a counter-offer representing the changes desired by the other party rather than using line outs-and initials. Use of the counter-offer during negotiations allows for clear timelines for acceptance and delivery. Once an offer is accepted, if the parties want to modify the terms and conditions of the offer, the broker may initiate an amendment to represent the contract modifications agreed to by the parties. The use of the counter-offer and the amendment are appropriate for the broker. However, if the buyer and seller agree to modifications of an offer and change it, initial it and have proper delivery, the contract and the changes may still be enforceable. It just may be more difficult to sort it all out.
More information about contract drafting is available in the September 2006 Legal Update, “Contract Law Basics,” online at www.wra.org/LU0609.
Wisconsin Clause Manual
What resources are available for finding additional contingencies?
It is always appropriate for a broker to refer parties to legal counsel to draft transaction-specific contingencies. In addition, a good reference tool for sample contingency language is the Wisconsin Clause Manual. The first section of the manual explains a sales agent’s obligations when writing offers. The second section provides a collection of clauses, special provisions and disclosures. The handbook also includes sample forms and the DRL drafting rules. For additional information, visit www.wra.org/PUB280.
Tracy Rucka is a Staff Attorney for the WRA.
Editor’s note: The DRL became the DSPS in 2011. Information above may not be current.