The Money Pit: Inspection Reports and Older Homes

The delivery of the inspection report is always a scary time for realtors (and all closing parties) when an older home is being purchased. In a perfect world, buyer’s and seller’s expectations would be set at realistic levels for the property before the contract. The character of the parties brings a lot to bear on how an inspection report will be dealt with later on.

The basic standard of disclosure for residential real estate in Florida is the representation that a seller knows of “no facts materially affecting the value of the Real Property which are not readily observable and which have not been disclosed to Buyer.” This standard is true for both regular FR/BAR residential contracts as well as “AS IS” residential contracts.

The difference between those two contract forms lies primarily in the rights and remedies of the buyer and seller in the event a property inspection report discloses problems. In a regular FR/BAR residential contract, a seller is typically required to remedy defects or problems up to a repair limit that can be manually inserted in the contract prior to signing, but will default to 1.5% of the purchase price. There is also a procedure laid out for notification, alternate inspection reports and then arranging for repair work to be completed. Repairs in excess of the repair limit will result in the buyer deciding whether to terminate the contract or to accept the property as is, in which case the buyer will assume any additional repair costs. However, in an “AS IS” contract, the seller will have no contractual obligation to repair any problems or defects, and the buyer will just have to decide whether to terminate the contract and receive the return of their deposit.

As we know, further contract negotiations end up as one of the primary solutions in both of the contract scenarios. How the parties and/or realtors conduct these negotiations is for a different blog article or continuing education class, however, these negotiations are sometimes more critical, and more difficult, than the price negotiations that were undertaken at commencement of the contract.

Some general guidance is as follows:

  1. As a buyer or buyer’s representative don’t try to renegotiate the repair of cosmetic or normal wear and tear items. If an older home is being purchased, these are regarded as normal occurrences and should just be accepted as part of home ownership.  If the report shows something contrary to the seller’s disclosure report, and it materially affects the value of the home (not the costs the buyer will have to incur), then it may be acceptable to raise those issues.
  2. As a seller or seller’s representative, do not assume that because you had no knowledge of a problem or defect, you are not responsible for it. Attorneys have become very persistent and creative in establishing why a seller should have had knowledge of the problem or defect. But more importantly, now that the inspection terms have been presented to the Seller, in a future contract negotiation those items will need to be repaired or remedied since actual knowledge will then exist.

Inspection report problems cannot be written off or ignored.  They must be noticed and solutions between the parties must be pursued in a timely and reasonable manner.  If problems persist, make sure to involve a good real estate attorney as early as possible.

 

Sincerely,

Berlin Patten Ebling, PLLC

Article Authored by Christopher Caswell, Esq. ccaswell@berlinpatten.com

 

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

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