The Florida Association of Realtors and the Florida Bar provide excellent forms for residential real estate transactions. The two main contract forms are the “AS IS” Residential Contract for Sale and Purchase and the Residential Contract for Sale and Purchase, commonly referred to as the “Standard” contract. This blog will detail major differences between the two forms regarding inspection periods and repair obligations.
Section 9 – Closing Costs
Section 9 reveals the first major difference between these two forms. This section discusses Buyer and Seller closing costs. Section 9(a) specifically lists the Seller’s closing costs. The bulleted list of closing costs in Section 9(a) is the same in the AS-IS and Standard contracts. However, the Standard contract also provides blank spaces where you fill in the Seller’s “repair limits.” The three repair limits relate to the Seller’s inspection period obligations detailed in Section 12 of the contract, including the General Repair Limit, WDO Repair Limit, and Permit Limit. If you do not fill in the blanks in Section 9(a), the repair limits each default to 1.5% of the Purchase Price.
Also provided in Section 9(a) is an escrow requirement if the Seller’s repair obligations cannot be satisfied prior to Closing. If the Seller cannot meet the repairs, replacements, treatment, or permitting requirements in Section 12 prior to Closing, then sums equal to 125% of the estimated costs to complete the applicable items, up to the repair limits, are to be escrowed at Closing. After Closing, if the cost of the required items exceeds the amounts escrowed, the Seller shall pay the additional amounts up to the repair limits. After completing the repairs, the Seller receives any unused portion of the escrowed amounts. If post-closing escrow is necessary, it is important to prepare and sign an escrow agreement at Closing to specify how to handle the escrowed funds.
Section 12 – Inspection Period
The second major difference between the AS-IS and Standard contracts is found in Section 12 relative to property inspections and repair obligations. Section 12 of the AS-IS contract provides that a Buyer may terminate the contract for any reason during the Inspection Period. Also, under the AS-IS contract, the Seller has no repair obligations and is not required to close open or expired permits.
Section 12 of the Standard contract provides that the Buyer shall, within the Inspection Period, have the property inspected (including General Repair, WDO, and Permit inspections) by a “Professional Inspector,” and the Buyer must provide written notice to the Seller of General Repair Items, WDO Inspection Items, and any open or expired building permits or unpermitted improvements to the property.
You must provide this notice before the Inspection Period expires. If the Buyer fails to provide such written notice, then the Buyer waives their right to have any repairs, replacements, treatment, or permitting issues remedied by the Seller.
Section 12(b) – General Property Inspection and Repair
As to General Repair Items, the Seller must ensure that the major structural components of the home are free of leaks, water damage, and structural damage. Additionally, the pool, major appliances, heating, cooling, mechanical, electrical, security, sprinkler, septic, and plumbing systems are to be maintained in “Working Condition” until Closing. “Working Condition” is defined in the contract as “operating in the manner in which the item was designed to operate.” This leaves room for argument as to what is or is not in “Working Condition.” The contract specifically provides that the Seller is not required to repair “Cosmetic Conditions,” which is defined as “esthetic imperfections that do not affect the Working Condition of the item.”
Within ten days after receipt of the Buyer’s written notice of items not in Working Condition, the Seller shall either:
- have the repairs completed;
- have repairs estimated by a licensed person and delivery a copy to the Buyer; or
- have a second inspection made and provide a copy of such report and estimates to the Buyer.
If the Seller obtains their own estimate or inspection, they must do so within their ten-day response period. If the Buyer’s and Seller’s inspection reports differ and the parties cannot resolve the differences, then the Buyer and Seller together shall choose and split the cost of a third Professional Inspector whose report would bind the parties.
If the cost to repair the General Repair Items equals or is less than the General Repair Limit provided in Section 9(a), then the Seller shall have the repairs made. If the cost to repair the General Repair Items exceeds the General Repair Limit, then within five days after receipt of the last cost estimate to complete the repairs, one of the following must occur:
- The Seller may elect to pay the excess costs by providing written notice to the Buyer; or
- The Buyer may deliver a written notice to the Seller designating which repairs they want completed up to the General Repair Limit and accepting the remainder of the items in their as-is condition.
If neither party provides notice, either party may elect to terminate the contract, with the Buyer receiving the deposit and the parties having no further obligations under the contract. Therefore, if the Seller wants to keep the Buyer locked into the contract, the Seller must be prepared to pay for the required repairs if they exceed the General Repair Limit. If the Buyer wants out of the contract, the Buyer can elect to terminate the contract only if the required repairs exceed the General Repair Limit and the Seller does not agree to pay the cost of the repairs above the limit.
As you can see, you must meet very specific requirements and deadlines to preserve your client’s inspection and repair rights. Missing deadlines could prove catastrophic to a party’s ability to enforce their rights under the contract. There are also inspection rights, seller obligations, and strict deadlines relative to the WDO and Permit inspections, which differ from the General Repair inspections discussed above. It is best to contact your trusted real estate attorney when dealing with a Standard contract to ensure your client’s legal rights are properly maintained.
