Whether it is a FAR/Bar Residential Sale and Purchase Contract, “AS IS” Contract, or even a Vacant Land Contract, the Buyer will typically have a right to inspect the property they want to purchase. The inspection can range from high-level environmental impact issues to seeing if there has been prior water damage. In most FAR/Bar Contracts, there is a section titled: “PROPERTY MAINTENANCE, CONDITION, INSPECTIONS, AND EXAMINATIONS.” Paragraph 12 establishes the terms of a Buyer’s right of inspection, including how much time the Purchase has to get the inspections done, the Buyer’s right to cancel the Contract based upon those inspections, and most importantly for this blog, the Buyer’s obligations to the Seller, and the Seller’s property during and after an inspection is complete.
Paragraph 12
So what does standard paragraph 12 say regarding the Buyer’s obligations? “Buyer shall be responsible for prompt payment for such inspections, for repair of damage to, and restoration of, the Property resulting from such inspections, and shall provide Seller with paid receipts for all work done on the Property (the preceding provision shall survive termination of this Contract).” Now that we know the specific language, what does this mean to a Seller or a Buyer? Let’s say you are a Buyer and want to exercise your right of inspection on a home you wish to purchase. You hire an inspection company that sends out an inspector to the property. During the electrical wiring inspection, an electrical fire starts, resulting in smoke and fire damage to the property. So now what? You, as a Buyer, decide to cancel the Contract within the inspection period because you do not want to buy a home with extensive smoke and fire damage. That may be your right to do so, but not without your contractual obligation “for repair of damage to, and restoration of, the Property resulting from such inspections.”
Further, you must “provide Seller with paid receipts for all work done on the Property.” And even if you cancel this Contract, paragraph 12 provides that the obligation to repair and restore the property “survives termination of this Contract.” The Buyer may have additional obligations for breaching this Contract, including consequential damages such as reimbursing the Seller for having to pay for alternative housing while the repairs are made, diminished value of the home, and carrying costs.
Reducing the Risk
While you may be unable to avoid an incident like this, you can take steps to reduce the risk of it happening and ensure that the costs to you as a Buyer are significantly reduced should an unfortunate incident occur. First, don’t hire your “buddy” or a “friend of a friend” to save a few bucks. Usually, these “inspectors” are unqualified, not licensed, and, most importantly, not insured. This leads to the second recommendation: always hire an inspection company that is licensed, bonded, and insured and one that is qualified in the filed you are hiring them. For example, if you want a termite inspection, hire a pest control company that does termite inspections. Third, ask the inspection company for a copy of their license, bonding information, and insurance policy to ensure that they are all current, active, and in effect. Finally, make sure you enter into a written contract with the inspection company that will protect you should any damage occur during an inspection.
This is not an exhaustive list of things to do before an inspection, but if you want to have a home inspection done, consult a qualified real estate attorney to review any contract, licensing, or insurance information before hiring an inspection company.
