Vacant Land Disclosure Report (VLDR)

Is a condition report required on commercial/business vacant land parcels?

For any vacant land offers that are accepted on or after July 1, 2012, the seller will be required to provide a Vacant Land Disclosure Report (VLDR) per the newly modified Wis. Stat. § 709.033. The vacant land disclosure provisions generally must be completed by all persons who transfer Wisconsin real estate that does not include any buildings, including condominium units and time share property as well as commercial and business parcels — the current or intended use does not create an exemption. All sellers who are subject to Wis. Stat. § 709.033, whether broker-assisted or FSBO, must complete a disclosure report with the necessary provisions or risk buyer rescission of the offer to purchase or other contract for sale.

Vacant land sales and use-value/farmland preservation program

The agent has a listing for a 20-acre parcel currently assessed using the use-value assessment system. The seller heard that the use-value conversion charges have been repealed. Is that the case? If not, when an offer is made, who is responsible for the conversion charge, and must it be in the offer?

The Mark Twain quote “the rumors of my death have been greatly exaggerated” comes to mind. Under the use-value assessment method, Wisconsin farmland is assessed for property tax purposes based on its agricultural productivity rather than its fair market value or potential for development. If the use of land assessed under the use-value system is changed to a nonagricultural use, the then-current owner must pay a conversion charge (previously referred to as a penalty). The use-value system and conversion charges are still applicable. 

One of the items a seller must include on a VLDR is whether the seller is aware that the parcel has been assessed under the use-value assessment. If a buyer intends to buy and develop the farmland or otherwise change the use of the agricultural land being purchased, it may be wise to include a use-value investigation contingency in the buyer’s offer to purchase. The contingency can give the buyer ample time to confer with the local taxing authorities to determine the amount of any use-value penalty if the buyer pursues his proposed plans and timelines, and obtain any other pertinent tax information. The buyer may contact the local treasurer for additional information regarding any conversion charges.

The agent has a vacant land listing currently used as farmland. Is the agent correct that there is no longer any conversion fee/penalty to be paid when this is rezoned residential upon selling? To the agent’s knowledge, the property is part of a farmland preservation agreement. 

In July 2011, the farmland preservation program was modified to eliminate the imposition of a conversion fee upon the rezoning a property zoned exclusive agricultural to another classification. Conversion fees are still triggered if a farmland preservation agreement is terminated early or if land is removed from such an agreement. 

For more information on the farmland preservation conversion fee, visit datcp.wi.gov/Environment/Working_Lands_Initiative/index.aspx. At the bottom of the page, view the links for both Conversion Fee and Farmland Preservation Agreements.

New construction tax proration

A buyer wrote an offer on new construction property had not been fully assessed based on the new improvements, but the buyer is now being charged the full assessment. The listing agent is taking the position that because the box stating “the previous year or current year taxes if known” was checked in the tax proration section of the offer to purchase, then the sellers are not under an obligation to pay any additional amounts.

It is important that the parties understand how and why the taxes change substantially with new construction so that they can negotiate a reasonable proration agreement. The standard language in the offer provides that the proration will be based on the net general real estate taxes for the preceding year, or the current year if known. Unless the parties are aware of a new assessment and new mill rate, the proration often will be based on that vacant land assessment, which is arguably a disproportionally small share of the taxes. To modify this result the parties can negotiate for a different allocation for closing, for example, the parties could establish an escrow account for the payment of the taxes once the property is assessed with the new construction. Another tax proration option could be a formula using an estimated assessed value and the latest known mill rate. The recently revised offer allows the parties to re-prorate based on the actual tax bill. The re-proration approach is a post-closing obligation between the parties, not the brokers, and assures that adjustments are made to equitably allocate the costs.

See “Tax Proration for New Construction & Divided Parcels: Make Sure All Parties Pay Their Fair Share” in the June 2005 issue of Wisconsin Real Estate Magazine at www.wra.org/WREM/June05/TaxProration.

New homes and RECR

The buyers are looking at the builder’s spec home. The property is listed but there is no Real Estate Condition Report (RECR). Doesn’t the builder need to provide a RECR?

The seller’s obligation to provide a RECR is excused if the property has not been inhabited, however this does not allow the seller to hide or conceal defects. The offer includes property condition representations, and if the seller is aware of defects in the property, the seller should ensure that the offer is drafted accordingly. 

New construction and home inspections 

A buyer has an accepted offer on new construction. There is no inspection contingency in the offer. The sales agent sent an inspector to the property, and the inspector performed a home inspection. The listing agent then reminded the selling agent that the offer did not include a provision for inspection. Could the buyer bring his inspector to a pre-closing walk-through?

Unless the WB-11 Residential Offer to Purchase was modified, there is not an unlimited right for access by inspectors. The contract language does not expressly give the buyer or his inspector the right to enter the property without an inspection contingency. As indicated on lines 399-401, “Seller agrees to allow Buyer’s inspectors, testers and appraisers reasonable access to the Property upon advance notice, if necessary to satisfy the contingencies in this Offer.” 

The Buyer’s Pre-Closing Walk-Through (Lines 204-207) was recently modified. Instead of being referred to as the “Pre-Closing Inspection,” this section was renamed the “Buyer’s Pre-Closing Walk-Through.” This change in language was designed to eliminate buyer misconceptions about having a home inspector accompany them during that final “inspection.” This section does not give buyers the authority to conduct a new home inspection or a follow-up inspection. Rather, the buyer may simply walk through the property to make sure that there have been no major changes in the condition of the property and that the seller has repaired the property in the manner agreed in the contract, most often in connection with the Inspection Contingency. 

For further discussion of the 2010 change to the WB-11 Residential Offer to Purchase, review pages 16-17 of the November 2009 Legal Update, “WB-11 Residential Offer to Purchase – 2010 Edition,” at www.wra.org/LU0911. 

New construction home warranties

The buyer is looking to purchase a new construction property that is the builder’s spec home. Is there automatically a home warranty for all new construction?

A builder of a spec home is not required by law to provide a home warranty. However, where a builder has been hired to build a particular house for the buyer, Wis. Stat. § 706.10(7) (docs.legis.wisconsin.gov/statutes/statutes/706.pdf) provides limited protection. The statute sets forth an implied covenant that a house was built in a workmanlike manner and is suitable for the buyers’ use and occupancy. 

For a spec home, the buyer may negotiate the offer to purchase to include a home warranty. There is no standard language; the buyer and seller may negotiate for the terms and conditions of a warranty. The buyer may wish to work with legal counsel to draft specific warranty provisions.

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