This month’s magazine theme is safety to coincide with the official REALTOR^® Safety Month for September, and this article looks at safety from the viewpoint of your personal well-being and health. We do not want any members to swoon or experience a heart attack or any other negative physical reaction to the change looming on the horizon. We would like to break the news as gently as possible. You may have heard rumors, and it looks like this finally will happen. Yes, you guessed it, there will be a revised WB-11 Residential Offer to Purchase by the first of the year!

And what will an updated offer to purchase entail?

Transaction flow layout

The updated WB-11 at first glance may look like a completely different contract, but please do not panic! The majority of the offer provisions are substantially the same as before. What is different is the order of the provisions.

Before, the offer was organized to meet the needs of paper forms: all of the blank lines to fill in and the boxes to check had to be on one side of the page, and the other side could only be text. That is no longer the case. Freedom at last! 

Without these restrictions, the provisions in the offer can be sequenced to approximate the flow of the transaction. Obviously not everyone is going to agree 100 percent on what that sequence should be, but most should find the new format carries them through various provisions as they will typically arise in the transaction.

What else has changed?

Hard closing date

The Closing provision calls for the parties to write in a specific date as the closing date in the blank line provided. The preprinted text no longer gives the closing date as “no later than ______.” There also is a safety net provision indicating if the stated date falls on a weekend or holiday, the closing will instead be held on the next business day. And for those who were fond of the “no later than ______” language, the blank line for insertion of the date is long enough to write in that phrase if that is desired.

Wire fraud warning

The ever-present danger of wire transfer fraud and other cybercrimes aiming to steal private identification information, personal identities and money have led to the inclusion of a wire fraud warnings in the modified offer.

The caution tells buyers and sellers they should personally contact the title company or other party hosting the closing to confirm the details of any wire transfer. This contact should be by telephone or in person, is the responsibility of the parties and does not involve the licensees.

The parties should be urged to contact the title company or other closing provider using contact information from an independent source and to not rely on contact information that appears in an email from a party providing wire transfer instructions at the last minute or changing the instructions. If that email is from a scammer, the crook has likely made a tiny change to the email address, phone numbers or other contact information such that reliance on those contacts may lead back to the crook and not to the title company. The parties should also be told that they should not use the agents in the transactions as conduits for wire transfer information because this only increases the possibility of a hack and a crook being set up to steal the parties’ money.

Financing commitment contingency modifications

The first thing you will notice is that the financing contingency has a new name: Financing Commitment Contingency. The name was changed to make clear to sellers that the contingency is about whether the buyer will be able to secure a commitment for a loan and not about financing in a global sense.

Another change of note is the manner in which a buyer can authorize a licensee to send a financing commitment from the lender to the seller. In the 2011 offer, this requires written instructions of some sort that are to be forwarded along with the commitment to confirm the buyer reviewed the commitment and wanted it sent to the seller. This safeguard is in place to prevent situations where a lender or agent, perhaps squeezed by an imminent financing contingency deadline, forwarded a commitment the buyer had not yet seen that contained provisions the buyer could not fulfill or otherwise were adverse to the buyer. The updated WB-11 continues to contain this safeguard but also provides the buyer’s signature on a written loan commitment and also constitutes such authorization. This practice may be familiar to some because it is contained in some company addenda.

While financing unavailability triggered the seller’s option to finance the transaction in past versions of the offer, the updated WB-11 takes a different approach and splits what had been the Financing Unavailability subsection into two separate provisions. The Financing Unavailability language remains as a subsection under the Financing Commitment Contingency, but Seller Financing has become a separate optional provision with a checkbox. This will allow those parties and practitioners who embrace the seller financing option to continue to utilize this possibility by checking the box. If financing is unavailable, then the seller will have 10 days to respond to the buyer as to whether the seller will finance the transaction with a seller mortgage and note. If seller financing is not desired, the parties and practitioners need not do anything as the Seller Financing language is not included unless the box is checked.

As far as those offers without a financing commitment contingency, the provision for If This Offer Is Not Contingent on Financing Commitment will be modified to give the buyer the ability to indicate what sort of documentation the buyer will submit to demonstrate he or she has the funds to make the purchase. The provision continues to state the buyer will deliver “reasonable written verification from a financial institution or third party in control of Buyer’s funds that Buyer has, at the time of verification, sufficient funds to close,” and that will control unless the buyer writes in other documentation the buyer will deliver to show that he or she has the funds to purchase. If the buyer writes in something, sellers will have to determine whether it is sufficient to protect them, or ask their legal or financial adviser, and then decide whether to counter the offer if they are dissatisfied.

Clarification for earnest money 

The earnest money provisions are being modified to clearly establish that the offer provisions for disbursement of earnest money apply only to disbursements by a real estate firm. If the earnest money is being held by a third party, the parties are reminded that they or an attorney should prepare an escrow agreement. The language also allows the electronic delivery of earnest money.

Right to cure for appraisal contingency

A modified Appraisal Contingency allows the parties to give the seller a right to cure if the buyer delivers an appraisal with an appraised value less than the purchase price and a notice objecting to the appraised value. The seller may cure by adjusting the purchase price to the value shown on the appraisal report. The parties can always amend the offer to state a different price or agree to other arrangements to keep the offer in place, or they can allow the offer to fail if the property did not appraise out.

Closing of buyer’s property contingency consequences

If the offer is contingent upon the closing of the sale of the buyer’s property, and the deadline for that closing is in advance of the main closing date and the transaction for the sale of buyer’s property does not close by that date: what are the consequences? Under the 2011 offer, that answer is not clear because it is not specifically addressed. The language in the revised offer says the offer becomes null and void unless the buyer delivers reasonable verification of funds or proof of a bridge loan to the seller by that date.

Bump clause on its own

Over the years, the offer has gone back and forth with the bump clause in the same provision as the sale of the buyer’s property in some years, and with the bump clause appearing separately on its own in other years. In the latest revisions, the bump clause has been cut loose from the closing of the sale of buyer’s property contingency and is standing on its own once again. As a free-standing checkbox item, the bump clause has been reconfigured so that is can readily be used in conjunction with provisions in addition to the closing of the sale of buyer’s property, if desired.

New additions

The proposed updated form also has some new additions. The first is a radon testing contingency. Because so many licensees try to write radon testing into the inspection contingency, and so many home inspectors write it into their reports or simply proceed with the test, it was thought best to include the contingency to establish some standards for the testing and some standards for the installation of a radon mitigation system if the seller ends up taking that step to remediate the radon levels in the property.

A provision regarding homeowner associations has also been added. This new provision basically alerts the parties that if the property is subject to a homeowner association, there might be fees to pay. A STRIKE ONE feature allows the parties to agree which one of them will pay any homeowner association transfer fees due at closing. 

Another new provision alerts the parties to the possible consequences if the seller is a foreign person and does not pay the taxes due to the Internal Revenue Service upon the sale of the property. The Foreign Investment in Real Property Tax Act (FIRPTA) found in Section 1445 of the Internal Revenue Code (IRC) seeks to find a way to collect the tax on the sale if the seller conveniently disappears, typically leaving the country without paying the Internal revenue service (IRS). The IRS unfortunately makes the buyer the fall guy and provides the buyer may have to withhold money from the sale for the IRS to hold to ensure the tax is paid. In some circumstances the buyer could end up liable for the seller’s unpaid tax or with a lien for the seller’s unpaid tax on the property purchased. The FIRPTA provision looks to protect the buyer from that rare but clearly painful outcome. The purchase contracts in other states, such as Minnesota, also include a FIRPTA provision. 

This information is just a general “heads up” to offer you a small taste of what is heading your way in the future with a revised WB-11. The WRA will provide more specific information in the upcoming months. Stay tuned for more information coming your way!

Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.