Image via Wikipedia

A Tricky Issue That Can Mean a Lot of Money for Either Side of the Transaction!

After a Real Estate Sales and Purchase Contract is signed in most cases there is a period for the buyer to inspect the property and determine what functional/structural repairs may be needed. The standard period is between 5 to 10 days. A Home Inspector will prepare a comprehensive report of the conditions of the property readily observable and makes recommendations and in the best cases a realistically estimate of the cost of fixing those issues. Home Inspector’s reports are as good as their ability, it means that a poor report can oversee many important issues.

What are the options:

-Seller’s Warranted Contract: The Seller caps upfront his liability on repairs. It can be either “0″ or an specific amount. If repairs go above the repair limit the seller may cancel the deal or has the right to do the repairs and avoid the deal to fall-thru. This type of contract gives the Seller more control of the transaction even if the repair limit is “0″.

-Seller’s Warranted Contract with an addendum giving the Buyer the Right to Cancel Based on Inspections Results. A few years ago we run across a sale on a Seller’s Warranted Contract with 1.5% repair limit. There were no leaks but the roof would need to be replaced in about one year. Technically the roof was water tight and the buyer would have had to buy the property anyway with the financial burden it implies. Fortunately we had and Addendum granting the Buyer the right to Cancel based on Inspections results and it gave him a way out. For a Seller it might not be the most convenient clause because it gives the Buyer the ability to cancel the contract despite the Seller’s willingness to make a repair. It is mostly needed when we suspect major items such as Roofs or A/C systems could be close to the end of their expected life. When I add or accept this clause I try to shorten the Inspection Period to be fair with the seller.

-As-Is Contract or Addendum:The Seller is not responsible for making any repairs. The Buyer caps his out -of-pocket expense to repair any item(s) or decides that he can walk from the deal if any repair/replacement is needed. If the repairs exceed the amount established the Buyer may cancel even if the seller is willing to pay for repairs. An As-Is Contract does not relieve the Seller/Agent from the obligation to disclose any material fact that might affect the value of the property, including non permitted additions.

-No Inspection Contingency Contract: Some Banks on Foreclosed Properties or in Auctions request that Inspections won’t be a contingency. It means either an Inspection is performed prior to presenting the offer or the Buyer waives the right to perform an inspection and accepts the property As-Is.

To receive future articles from My Weston Real Estate Blog directly by e-mail you can subscribe here.

If you want to share your experience or have questions please leave a comment or contact me.