NABOR differs significantly from FR/BAR regarding inspections and repairs.
NABOR does not require the Seller to make repairs. In strong markets we find that Sellers frequently say “No” to these requests, knowing that other Buyers would quickly swoop in and buy the property as-is. This is especially true regarding minor repair items.
Despite this attitude, some Sellers still make a few minor repairs in order to generate goodwill with the Buyer. Making a few repairs may facilitate a smoother closing. As I tell my Sellers, “You may need a favor from the Buyer prior to closing”. But bottom line, the Seller still can say “No”.
FR/BAR is quite different. FR/BAR mandates that the Seller make repairs if the costs equal or are less than the repair limit in the appropriate repair category in paragraph 9 (see below). The 3 categories are General Repairs, WDO (Wood Destroying Organisms), and Permits. In contrast with NABOR, a Seller cannot contractually say “no” to the Buyer if the repair or replacement cost is within the agreed amount… they are obligated!
If the repair or replacement cost exceeds the repair limit for any of the 3 categories, then the Seller options vary depending on the repair category. The Seller can agree to pay the excess costs for the General Repair Items and Permits, and compel the Buyer to close. But as to repair costs that exceed the WDO Repair limit, the Buyer may give the Seller written notice agreeing to pay the excess, or designating which repairs to make and accepting the balance of the property “as is”. If no notice is sent within the 5 day Contract period, then either party may terminate the Contract, with the deposit refunded to the Buyer. Stated differently, the Seller does not have the unilateral right to pay the excess WDO cost and force the Buyer to close. The Buyer is in control when it involves excess WDO costs.
We occasionally hear from clients who did not fully understand this prior to signing the contract… do not let that happen in your deals!
FR/BAR also differs significantly from NABOR by failing to include mold or radon under the General Repair Items definition in paragraph 12. FR/BAR recently added a Mold Inspection Comprehensive Rider (link here) that allows the Buyer to cancel the Contract if the mold repair costs more than the specified amount (default amount is $500). I am not yet sure if I like this Mold Rider, as the Seller may prefer having the option to remediate and keep the deal together. Ultimately, it depends on which party you represent.
INSPECTION TIMELINES
Under NABOR, the default timelines are as follows:
15 days – Inspection Period
5 days – Buyer’s Election
10 days – Seller’s Response.
The response can be “No”.
5 days – Buyer’s Termination Option
The key, again, is the Seller is permitted to refuse repairs with their response. It is important to keep an eye on the timeline so that your client doesn’t miss its opportunity under the contract. Remember, the client generally blames you for things like this!
Practice Point: Get an estimate for the repairs. For example, if the mold remediation estimate is $1,000, the problem now has a definite, rather than an indefinite, solution. Having the estimate lowers the emotion for everyone. In my experience, this greatly improves the chance of a reasonable solution.
FR/BAR’s default inspection timeline is as follows:
- 15 days to conduct inspections and give a written notice or report to the Seller;
- Note that this is two separate items in NABOR
- 10 days for the Seller to provide estimates or a second inspection report to the Buyer if the request pertains to a General Repair Item;
- 5 days – after receiving an estimate higher than the amounts set forth in paragraph 9 of the contract, the parties have certain options regarding the excess costs.
Two prior articles provide more details on the FR/BAR timelines, and strategies for filling out paragraphs 9 and 12.
- Inspection Timelines
- Filling out the FR/BAR Inspection Provision
Finally, we do not recommend going with the default of 1.5% per category (there are 3!) without reviewing the worst case scenario with your Seller. For example, on a $1,000,000 sale with the default amount of 1.5% of the Purchase Price, the Seller’s maximum liability could be:
- General Repairs: $15,000
- WDO Treatment: $15,000
- Permits: $15,000
Grand Total: $45,000
Show this to your Seller and allow them to pick a maximum amount that they are willing to pay. Otherwise, he may ask for a contribution from your commission!
I know this seems overwhelming. We regularly review these provisions with Realtors when working on an offer, and will also discuss with your clients. We try to do more than simply handling a closing. A little extra work helps everyone.
Feel free to contact us anytime with help in this area.
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!
