There are things that the seller should understand about necessary repairs and the cost of repair contingency. When you receive an offer on your house you need to pay attention to the amount that appears in the cost of repair contingency paragraph. This amount will be important when you get to the inspection process. Larger houses and older houses should have a higher number in the cost of repair contingency. Think about it...this only makes sense. If the house is old or is large then you can expect that the house will need more repairs than a newer/smaller house. The larger the amount in the cost of repair contingency the stronger the offer in the eyes of the seller.
Once the house is under contract, the buyer will pay to have multiple inspections performed on the house. The buyer has the right to inspect the structure and any equipment that is being conveyed with the property. Once the buyer is satisfied with the inspections, they will present a repair request to the sellers. The buyer will usually allow the sellers to view the inspection reports and most reports include a repair quote.
If any part of the structure or if any of the fixtures that are being conveyed with the property are not functioning to the extent in which they were suppose to perform then this is a necessary repair that the sellers should be responsible for fixing.
This could include a roof leak, window seal wood rot, cracked vinyl siding or cracks in the bricks or mortar, cracked heat exchange, light bulbs burnt out in the light fixtures, loose toilet seats...pretty much anything that is not working correctly. Now here is what many sellers don't understand...the buyers can get out of the contract even if the sellers agree to complete all of the necessary repairs. If the buyers do several inspections and conclude that the necessary repairs add up to more than the amount in the cost of repair contingency then the buyers can walk...even if the sellers agree to complete all of the requested repairs.
Please contact me if you have any questions about any part of the house buying/selling process.
Brandon,
Great reminder!
Kathy Opatka
This is quite different from what occurs in my area...found your post very interesting.
What happens when the Cost of Repair Contingency is left blank by the buyer's agent? We have a buyer for our house that wants to walk before we even get a quote from a licensed contractor on the repairs, and this part of the contract was blank. We are willing to make the repairs, regardless of cost.
Michelle - obviously that part of the contract should not be left blank. Your agent should have also noticed this and you all should have negotiated a number here before you signed the offer. Since the paragraph is left blank I would think the buyer has the right to walk if there are any repairs, even if you are willing to repair everything. I am not 100% about this because I have not come across this issue. I recommend that you call a local real estate attorney. They are very helpful and can give you a quick answer.
What if the buyer walks over something that is not, or debatable as being a "necessary repair"? For instance, the Inspector comes the day or the day after a flood in the area and claims the property is "too wet". Buyer freaks out and has a full drainage system estimate done for the entire yard. Cost is WAY above the opt out in the contract for "Necessary Repair". Inspector also notes foundation is in GOOD condition, and Moisture content to be well within acceptable parameters.
Can buyer still walk even if you agree to do the drainage or not?
Sally Ann,
You have to decide if it is a necessary repair and usually the inspector can tell you if it is or is not. If the issue is that the water is not draining the proper way and you find out that the water is draining towards the foundation of the house then I would think this is a necessary repair. The price of adding a drainage system for the entire yard is not a necessary repair and I would tell this buyer that they are still obligated to be in the contract and that the amount for the yard's drainage system is not part of the cost of repair contingency.
If the amount of necessary repairs is over the amount stated in the cost of repair contingency then the buyer can walk even if the seller says they will make all of the repairs. It doesn't sound like this is the issue. I would be arguing that the issue is that a drainage system for the entire yard is in no way a necessary repair.
I'm a buyer and yesterday got back an inspection report that lists repairs 10 times the Cost of Repair contingency. Today I gave notice to terminate for that AND for the termite report, each of which gives me the right to terminate. There are several very large items - like replacing the entire substructure due to termite damage, and repairing fire damage in the attic - so there's NO question in anyone's mind that the Contingency amount is met.
The listing agent (not the seller) has been hounding me since the day of inspection asking me to email her the full inspection report. I can't figure out why she wants it (doesn't she then have to disclose all these material facts?) It's my property but she's holding my earnest money hostage.
The termite report gives me grounds to terminate, it seems I could just provide that.
Any suggestions? Many thanks
You should send her the termite report so that the listing agent and owner can see that the house has active infestation. If your agent put in the contract that you have the right to walk away because of this then you should have no problem receiving your earnest money. That is the way it is in NC.
If there has been previous termite damage but it is not active then this may not be an out for you in the contract. You would then need to provide the listing agent/seller with a copy of the inspection summary report. In NC, even if they say they will complete all of the repairs you still have the option of walking and receiving your earnest money as long as the "necessary repairs" are over the amount you put for the cost of repair contingency. I would contact the listing agent's BIC (broker in charge) and tell them that you would like to get your earnest money back.
And yes, it is true that she will have to disclose all material facts about the subject property. Now that she knows that there are expensive issues, she will have to disclose this to future buyers.
Your best bet is to give them a copy of the inspection report and hopefully they will release your earnest money without you having to take it to court.