Parties to a FAR/BAR transaction are often confused about repair obligations and remedies with a repair dispute. Much of the confusion results from the nuanced differences between the Residential Contract for Sale and Purchase (“Standard Contract”) and the “AS IS” Residential Contract for Sale and Purchase (the “AS IS”). While this will not be a complete elucidation of the plethora of home inspection disputes we see at Berlin Patten Ebling, the following are the most common sources of conflict between our buyers and sellers.
Responsibility for Repairs During the Home Inspection.
An AS IS seller is not obligated to make any repairs to the property, except for ordinary wear and tear and casualty loss. If the buyer cannot negotiate repairs within the cancellation period, the buyer is on the hook unless the issue is an undisclosed property defect known to the seller. A seller in a Standard Contract must make repairs on general repairs, wood-destroying organisms, and closing out any open permits; however, the buyer must follow the proper procedures with written notice and estimates, or the buyer may unintentionally waive repairs. Alternatively, suppose certain deadlines are missed, and notice is not given by either the seller or buyer. In that case, any party may terminate the Standard Contract, and the deposit will be returned to the buyer! Because of this, parties must follow the proper notice requirements and remember that texts no longer are considered proper notice under both the AS IS or Standard Contract! Best practices dictate that the parties consult a real estate attorney before the expiration of the inspection period because there is a lot of repair “gray area” not discussed herein.
Responsibility for Repairs After the Home Inspection.
Assume the home inspection period concludes, the parties do not cancel the transaction and further agree to make repairs. Under the Standard Contract, the seller makes repairs as enumerated in Paragraph 9. A licensed vendor makes repairs if the work requires a license (no roofing repairs are to be made by a handyman!) in a good and workmanlike manner. A seller makes repairs only for non-working items and is not obligated to make cosmetic or aesthetic repairs. Repairs must be documented with paid receipts and produced to the buyers. Under the Standard Contract, there is a procedure to assign repair, treatment, and maintenance contracts/warranties; however, this should be memorialized by an addendum in the AS IS if the seller agrees to make repairs. Also, not all repairs can be made timely, and there are mechanisms under the Standard Contract, or an addendum to the AS IS that could allow for extensions, repair escrows, or repair credits. Again, not to be a broken record, but consult an attorney if a timely repair is vital to your transaction. In some circumstances, if a repair is not timely made, the parties must still close even if issues arise during the walkthrough inspection.
Liability for a Refusal to Close or a Terminated Contract.
The worst-case scenario happens, and the transaction fails. With the AS IS and the Standard Contract, the buyer will still be liable to the seller for any damages associated with the buyer’s inspections. Additionally, the buyer must provide paid receipts to the seller for any work performed on the property to determine what condition the property was in pre-inspection. If a buyer refuses to do either, there is potential for litigation.
Note that if the parties to an AS IS or Standard Contract find themselves in Court, the prevailing party will be entitled to attorney’s fees and costs. No buyer or seller wants to spend tens of thousands of dollars in attorney’s fees to determine if a failure to make repairs excused closing, so (third time is a charm) consult your real estate attorney during and after your inspection period!
Michael E. Schuchat has been practicing in the areas of civil litigation, creditor bankruptcy, real estate, and personal injury since 2010. He has a wide range of civil litigation experience, which includes contract disputes, real property disputes, landlord-tenant litigation, residential and commercial foreclosure, plaintiff personal injury cases, premises liability, slip & fall, dog bite and motor vehicle accident litigation.