Negotiating Repairs Best Kept Simple

Nobody buys real estate without looking it over closely. In the enthusiasm for ty­ing up the property, however, it is easy to forget the need to decide how to get out of the purchase if things don't turn out as expected.

The things to decide are what the buyer is going to inspect, how long the inspec­tion period runs, what the parties will do if the inspection surfaces a problem, and how they will cancel the transaction, if necessary, and dispose of earnest money on deposit.

There is room for confusion about what the inspection will cover. Does the in­spection cover everything about the property? Or, is the inspection limited to matters that the buyer could not easily observe before making an offer?

For instance, a seller may not be willing to take a property off the market if the buyer can freely cancel the deal weeks later, saying the garage door opener doesn't work right. That's easy to test before making an offer. On the other hand buyers of commercial properties often make offers before completing costly environmental studies. They want to be sure they have the property tied up before spending that kind of money.

If the buyer and seller intend for the inspection to cover "matters not easily identi­fied through casual inspection," then there should be language along these lines in the pur­chase agreement. If the language is on a boilerplate form, everybody should look it over agree that it carries the meaning they intend. Otherwise, rewrite it.

How long does the inspection period last? Some forms say "15 days from the date of this contract." Is that 15 days from when the buyer first signed the offer? From when the seller agreed on the phone? When the seller faxed back a signed offer? Received and signed the originals?

The better practice might be to agree on a specific date and time when inspection ends.

When the inspection period is over, what happens? Does the buyer have the right to cancel the transaction, saying they simply don't like the result of the inspection? If the buyer and seller agree when they negotiate the purchase that inspection amounts to a free look at the property, so be it.

They may have intended, however, that the buyer present the seller with any ad­verse results and give the seller a chance to correct the defect. If that was their intent, does the buyer have the duty to continue with the purchase if the seller corrects the defect?

Not even the forms are very clear on these points. Things can get muddier if the buyer and seller write their own language in an attempt to make the form language more clear.

Most forms say that the buyer and seller will negotiate if the buyer discovers a problem with the property. The buyer presents the seller with a request for correction, with a copy of the report, and contractor estimates, if available. The seller responds with what action, if any, they will take. They negotiate.

The disagreements often center on the nature and severity of the problem. What strikes the buyer as a big deal requiring an expensive correction may not seem like much to the seller.

One answer that seems to work in residential transactions is for everyone to agree that if the lender wants the matter corrected then it will be. Otherwise, it's not an issue. Many buyers and sellers will understand that if a defect is important to a lender it probably needs to be fixed if anyone is going to finance the property.

This kind of agreement tends to eliminate from the negotiation some less important defects like wobbly fences, cracks in driveways and marginal appliances.

Experience teaches that there is little a seller can do if a buyer sincerely wants to get out of a purchase contract. Property inspection may be an excuse for a deal going bad for other reasons, but the seller has little practical recourse, particularly if the purchase agreement is fresh and the property has not been off the market long.

It's a different matter if the transaction is close to closing, the property issue is not major and the buyer could have been discovered it earlier, and if the buyer made a large non-refundable earnest money deposit. Suits for specific performance may force a buyer with cold feet to close under obvious circumstances.