The Top Trends on the Legal Hotline in 2023

 Jennifer Lindsley, WRA staff attorney and director of training  |    November 01, 2023

The real estate market is always shifting with new trends and practices evolving to meet the current market conditions. Evolving trends and practices become known to the WRA’s Legal Hotline attorneys because of repeat calls on similar questions or topics. The trends and practices this year were often driven by the fact that many sellers were likely going to receive multiple offers. This competition led to buyers and their agents getting creative with offer terms to try to stand out in the crowd. It also led to sellers calling the shots as to showings and offer presentation. 

“No showings until …” and “offers will be presented at …

The practices of sellers delaying showings until a certain date or deciding to review all offers at one time are legitimate negotiation strategies, especially in a competitive market. A seller might rationally not allow any showings until a certain date with the hopes of stacking several showings on the same day to minimize traffic in the property. Similarly, if it seems likely that a seller might get multiple offers, it might make sense to collect them all and review them as a group, so the seller has the best landscape by which to compare the terms of the offers.

What prompts the calls to the WRA Legal Hotline, though, are when all of a sudden that property where showings were delayed until Saturday pops up on the MLS with an accepted offer on the Thursday prior. The same story occurs when the seller indicated they would review all offers on Tuesday at 5:00 p.m., and the Monday prior, the property shows up in the MLS with an accepted offer. From the outside looking in, these facts do make it seem that something suspicious happened. Perhaps the listing agent was not being truthful about no showings or maybe they snuck an offer they wrote in front of the seller in advance of the advertised time for when offers were going to be originally reviewed. In some cases, that may be true but anecdotally, based on hotline calls, it seems more likely that in the case of an accepted offer prior to any showing, the seller accepted an offer sight unseen, or the seller broke their own rules and accepted an offer in advance of the advertised time for offer review.

In the case of a seller who wants to delay showings until a certain date, there is nothing preventing an enterprising buyer from writing an offer sight unseen. The listing agent has an obligation to promptly present all offers unless presentation would be contrary to the specific written instructions from the seller. Sellers should be cautioned, though, about potential risks with a sight-unseen offer. Accepting a sight-unseen offer creates the possibility that when the buyer attends the home inspection or perhaps worse — does not see the property until the walk-through and does not like it — the buyer may start looking for ways to get out of the offer or refuse to close. Obviously refusing to close could lead to a breach of contract claim, but who wants that kind of hassle when the seller just wants to sell their property?

In the scenario where the seller wants to review all offers at one time but suddenly the property has an accepted offer, it is possible that an enterprising buyer submitted an offer with a deadline for binding acceptance prior to the advertised time for offer review. The listing agent again would have to promptly present that offer to the seller unless presentation would be contrary to the specific written instructions of the seller. If the offer is appealing, the seller might go ahead and accept it and break their own rule about when offers would be reviewed.

Concerns about offers not being presented

This trend too may be a result of the current market, but agents working with buyers are calling the hotline wondering how they can assure their buyer that the buyer’s offer was even presented. In the typical scenario, a buyer submits an offer and then hears absolute silence well after the date for binding acceptance. No counter-offer, no rejected offer, just nothing. Unfortunately for frustrated buyers, the listing agent cannot force a seller to initial an offer to show rejection so that something can be provided to the buyer to show that their offer was considered. A seller can choose to let an offer expire without action and not actually initial the offer to show that it was rejected. 

It would be prudent for the listing agent to complete the section of the offer showing when it was presented even if the seller will not initial to reject the offer. 

That said, the buyer’s or the buyer’s agent can request that the listing agent tell them when the buyer’s offer was presented to the seller and when it was rejected. The listing agent is to immediately provide a written statement indicating when the offer was presented and when it was rejected when this is requested by the buyer or the buyer’s agent. 

If the buyer or the buyer’s agent thinks the offer was not presented, the buyer or the buyer’s agent or both can file a complaint with the DSPS and/or the listing agent’s local board.

Escalation clauses 

Where to begin with the escalation clause discussion? First, it is not hard to see why these clauses are appealing to buyers who have lost the last five properties they wrote offers on and simultaneously appealing to sellers who are seeing dollar signs. The problem with escalation clauses often lies in the drafting and implementation. Some escalation clauses say the price can be increased once. Others allow for multiple increases.

Sometimes a seller gets multiple offers with escalation clauses, and it can be tricky trying to determine which offer triggers which escalation clause. Searching the WRA Legal Hotline archives of calls reveals countless calls from agents involving offers with escalation clauses where the seller and the buyer disagree about what the purchase price is based on the language in the escalation clause. Sometimes, just for good measure, the hotline attorney will attempt to work out the math and come up with a totally different purchase price. Often, there are viable ways to support each claimed purchase price depending on the different orders in which the escalation clauses were triggered.

An alternative to working though escalation clause math nightmares is for the seller to consider using the WB-46 Multiple Counter-Proposal and see what the buyers are really willing to pay for the property. 

Inspection “gap”

Including an inspection contingency where the buyer agrees not to issue a notice of defects unless the estimated cost to repair the defects exceeds an agreed upon amount can be a compromise between the “all or nothing” method when parties are negotiating whether the buyer can have an inspection contingency in the buyer’s offer. A buyer may be willing to accept defects up to a certain dollar amount with the understanding that the buyer will address those defects after closing. When including a provision like this in the offer, the buyer and seller should indicate which party obtains the estimates for repairs. Will the buyer obtain the estimates for repairs? Will the seller obtain the estimates for repairs? Will each party obtain an estimate and they will average the two estimates? All of these are acceptable options, but the parties want to make sure they agree on this ahead of time. 

If the parties are using this strategy, another consideration is to make sure there is enough time under the inspection contingency deadline for the parties to obtain an estimate or estimates regarding the expense to fix the defects. One possible safeguard would be for the parties to negotiate an automatic extension to the deadline for the inspection contingency if the parties are experiencing a delay in obtaining any necessary estimates regarding repairs. 

The parties will also want to consider what happens if the estimate for the repairs exceeds the dollar amount the buyer and seller agreed to in the offer to purchase. Say the buyer agrees not to issue a notice of defects if the estimate for the repairs does not exceed $5,000. The buyer has the inspection, the inspector finds a number of defects, and the buyer obtains estimates for the repairs as agreed to in the offer. The estimates for the repairs total $10,000. The seller has the right to cure. If the seller chooses to cure, do they cure defects to just the $5,000 difference, or do they cure all the defects? This should be addressed in the offer to purchase so both parties understand the path forward.  

Appraisal “gap”

In a standard transaction, the down payment plus the loan amount cover the purchase price at closing. Conceptually, a gap provision would be triggered if the down payment plus the amount of the loan is less than the purchase price as a result of the appraised value being lower than the purchase price.

To simplify, the purchase price funds may come from one, two or three sources:

  • One, the buyer may have the entire amount in cash.
  • Second, the buyer may have a down payment and finance the remainder. The buyer has the down payment, and the loan amount is what the buyer borrows to meet the purchase price at closing
  • Three is when an appraisal gap occurs — the appraised value of the property is lower than the purchase price.

Therefore, the down payment plus the amount the buyer can borrow is less than the purchase price. As a result, the buyer agrees to take to closing the necessary funds — the “appraisal gap” in addition to the down payment and the loan amount to arrive at $X purchase price. There are in essence three sources of funds: the down payment, the loan amount and the gap amount. 

When including an appraisal gap provision in an offer, the buyer will want to specify the amount of the gap and how the appraisal gap works with the seller’s right to cure under the appraisal contingency if the seller has a right to cure. 

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