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Inspections play a vital role in any real estate transaction, and it is imperative agents understand the inspection procedures proscribed in the purchase agreement. Real estate agents across the state of Florida are largely familiar with and utilize both versions of the FAR/BAR Contract. This contract may be the most widely used contract within the Sunshine State. However, other contracts are in use depending on location. In Southwest Florida, two contracts are in circulation. In Collier County, the predominant contract utilized is the NABOR Contract, while in Lee County, both the FAR/BAR and NABOR Contracts are used. This blog will focus on those rights and obligations found within both the standard versions of NABOR and FAR/BAR contracts as they pertain to inspections.

FAR/BAR:

Section 9(a) of the Standard FAR/BAR contract specifically lists costs to be paid by the Seller. The Standard contract provides blank spaces that allow parties to negotiate repair limits imposed on the Seller. These limits can be an expressed dollar amount or percentage of the purchase price, with the default limit set at 1.5% of the purchase price. Section 12 allows for the Buyer to conduct a property inspection for general repair, wood-destroying organisms, and any open or expired permits. The FAR/BAR Contract stipulates that all systems should operate as designed. Sellers need not address cosmetic issues. If an inspection reveals defects, the Buyer must notify the Seller before the Inspection Period ends; failure to do so will result in the Buyer forfeiting their right to repairs.

If defects are found, the Seller shall, within 10 days of receipt of the Buyer’s notice, have the requested items repaired, obtain estimates of the costs to repair and provide them to the Buyer, or have a second inspection performed. If repair estimates fall below the repair limit set out in Section 9(a), the Seller will be obligated to conduct repairs. However, if quoted estimates surpass the repair limit, the Seller may choose to pay the excess, or the Buyer may elect which repairs the Seller shall complete up to the repair limit and accept other defects in their as-is condition. If neither party provides notice, either party may cancel the agreement, and the Buyer shall be returned their deposit.

NABOR:

               Much like the FAR/BAR contract, the NABOR contract provides for a default 15-day inspection period. However, the items permitted to be inspected are much more comprehensive. Within 15 days of the Effective Date, the Buyer is permitted to have the property, appliances, and all systems inspected in addition to radon gas, lead-based paint, termites, and wood destroying organisms, the presence of toxic or pathogenic molds, and the existence of any open or expired permits.

               In the event Defective Inspection Items are discovered, the Buyer must notify and provide a complete copy of the inspection report to the Seller along with the Buyer’s election as to what they wish the Seller to do within 5 days of the expiration of the Inspection Period. The Buyer may request the Seller to conduct all necessary repairs as stated in the inspection report, receive a credit in the amount of estimated costs of repairs from the Seller, or a combination of the two. If the Buyer fails to make an election, the Buyer waives their right and is deemed to have accepted the property in its as-is condition.

               Within 10 days of receipt of the Buyer’s inspection report and election, the Seller has a duty to notify the Buyer that they accept, refuse, or counter the Buyer’s election. If the Seller refuses the Buyer’s election, the Buyer may terminate the agreement within 5 days of receipt of the Seller’s refusal and receive the deposit back. If the Buyer fails to terminate the agreement, the Buyer is deemed to have accepted the Seller’s refusal and accepts the property in its as-is condition. If the Seller counters the Buyer’s election and the Buyer does not timely terminate the agreement, the Buyer is deemed to have accepted the Seller’s response.

As you can see, the procedures relating to inspection vary greatly depending on the contract used for any given real estate purchase. While the FAR/BAR Contract provides for upper threshold limits the Seller is obligated to pay to remedy any inspection defects, the NABOR Contract contains no such obligation and instead allows for continuing limited negotiation as it relates to inspection defects. Understanding these differences is vital to navigating inspection related issues and guide your clients to a successful closing. If you have any questions regarding these two contracts, please do not hesitate to reach out to your local real estate attorney.

Jacob Van Duren

Jacob Van Duren

Jacob focuses his practice on residential real property transactions.

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