The below article is a great reminder about negotiating repairs and how to use the forms, but the details are key. Please see below for a few additional deal points that I wanted to make and read the article for a great example and strategies.
- Use the form “INSPECTION NOTICE LIST OF SYSTEMS AND EQUIPMENT WHICH ARE DEFECTIVE INSPECTION ITEMS” along with the Buyer Election Seller Response Form;
- These specific forms are not mandatory, there are only meant to help;
- Do not use the Election Form together with an As-Is Contract;
- As-Is Contracts do not have a period for the response like the standard contract. If you have them, use these time periods to get estimates;
- Check with your Lender before executing;
- Listing Agents will want to ensure the 2nd Deposit has been made before their response.
The Metro Atlanta market utilizes the As-Is contract for nearly all residential transactions.
Having lived in Atlanta for over 10 years and having practiced at the law firm Campbell & Brannon, I can attest that its a great contract and that deals still get closed.
The practice here in SW Florida is quite different… the standard NABOR or standard FR/BAR make up the majority of closings. These contracts define “defects” that the seller is obligated to repair, or risk losing the buyer (and their earnest money).
There is obviously room for interpretation, and the Inspection Notice Buyer Election Seller Response does not help… let me explain!
Recently, a Buyer submitted an inspection report and asked that the Seller perform remedial action. See below for a screen shot of the form:
The Seller responded by electing to Accept Buyers Election. See that section of the form below:
The parties were relieved and the Sellers had the relevant work completed prior to closing.
A problem arose when the buyer noticed that the seller had not done all of the work on the inspection report.
Was there a mistake? Fraud?
The Seller had the work done, but only the defective items. The Buyer was notified that the Seller, per the Inspection Notice, only obligated themselves to completing Defective Inspection Items only and NOT as to Cosmetic Conditions or Other Inspection Items.
The Buyers argued, stomped their feet, and yelled some more…
Their anger ultimately lead to a rift between them and their Realtor, likely causing irreputable damage to their relationship.
CONCLUSIONS AND STRATEGIES
Knowing the difficulties of managing expectations, educating clients, and maintaining relationships with other Realtors, we would suggest the following strategies in handling inspections items.
- Educate Your Clients. The best client is one who educates themselves and reads the contract, conferring with you or an attorney regarding their understanding of specific terms. In the very least, make sure to point out specific parts of the contract and follow up with them in writing. A safe bet is to always refer them to an attorney for further review.
- Share Inspection Report. During the Inspection Period, deliver a copy of the report to the Listing Agent to preserve the Buyers rights to object to certain Defective Items. You do not HAVE to make an election at this time.
- Call The Other Realtor. Before sending the election notice, we recommend calling the listing agent and working out an agreement regarding specific terms. For example, negotiate a credit to be given to Buyer or a hybrid of remedial action and a credit. If the Seller refuses on a particular item, you can have the contract reviewed by an attorney for whether its a defect, or simply negotiate on other items.
- Agree Using An Amendment. In the event you can work out an arrangement that the Buyer and Seller will mutually accept, submit a signed amendment to the Seller for their acceptance. An example might read:
“Seller shall provide a credit to Buyer in the amount of $_____. Seller shall fix the garage door so that it is in working condition. Buyer hereby waives any further right under the inspection period.”The benefit of this is that there is much less risk that the Buyer or Seller will misinterpret the contract and what the Seller is agreeing to do. The buyer may even get more than they would otherwise! - Send Inspection Notice As A Last Resort. In the event you cannot work out an amendment between the parties, ensure that you submit the inspection notice form with the Buyers election within 5 days of the expiration of the inspection period. This will preserve the Buyers right to demand the defective items be addressed or their right to terminate the contract.
DON’T DO THIS.
Stay away from attaching the inspection report in full, or referencing it by section number as part of the notice or amendment. Instead, break out each defect and what you are requiring the Seller to complete. This should prevent the Buyer from assuming that the entire report is being remedied and provides the Seller with more direction on what to fix.
For example:
- Seller shall replace the garage window at least 3 days prior to closing.
- Seller shall caulk the front door molding at least 3 days prior to closing.
- Seller shall…..
These strategies can be used in both NABOR and FR/BAR contracts, and also have some relevance when using an as-is form. If using FR/BAR, note that the election form is not to be used, even in the standard contract. Instead, use and Amendment or Addendum.
As you determine what is right for you and your clients, do not hesitate to reach out to our office for legal advice and to schedule your closing – we would be honored to help. We hope that you enjoyed these articles. If you should have any questions, please don’t hesitate to contact us directly!
