Home inspections and timing problems

Confused about the timeline in the PAR Agreement of Sale Inspection Contingency? You are hardly alone. This subject probably draws as many Hotline questions as any other.

It is very easy to over simplify how the inspection timeline works. The buyer has the inspection completed within the 10-day contingency window and within those same ten days, submits a corrective proposal to seller. No matter when in the contingency window buyer submits the corrective proposal, sellers has five days from the end of the contingency period to reply. So, if the default provisions in the Agreement are not modified, and the buyer submits a corrective proposal on day six, the seller's response must be made on or before day 15 (ten day contingency window plus five days for seller to respond). Once the seller responds with anything other than a full acceptance of buyer's corrective proposal, then buyer has two more days to terminate or take the property. Easy. It really is easy . . . on paper. In real life it gets a little confusing.

Generally, if there is trouble, it begins with the seller's reply to the corrective proposal. What sellers are directed to do in the agreement, they rarely do. When the seller gets the corrective proposal, the seller is to inform the buyer in writing whether the seller will: 1) satisfy all terms of the buyer's corrective proposal, or 2) not satisfy all terms of the buyer's proposal. Do sellers really do this? Usually they counter with a modified corrective proposal and negotiations begin.

And while the corrective proposal is being negotiated, where do the parties stand in the timeline? It won't matter if the negotiations result in an agreement. But when they do not, who, if anyone, has defaulted? Does the buyer get her money back or did the buyer try to terminate too late in the inspection contingency period?

The best practice for the buyer who receives a counter-proposal is to treat it as a statement from the seller that the seller will not satisfy all terms of the buyer's corrective proposal. With that assumption, you go to the very next step in the formula which is: buyer has two days from receipt of the notification that seller will not satisfy all terms of the buyer's proposal (written notice that seller will do some of the things is the same thing as written notice that seller will not do all of the things) to notify seller that buyer is walking or buying. And that notification must be in writing.

I know, it still is not that easy. In real life when the seller responds to buyer's corrective proposal with a counter-corrective proposal, everyone is of the mindset that the transaction will be successfully negotiated. Buyer agent, when you receive the counter to your corrective proposal, the first thing you must do is understand that your buyer has two days to respond that they are accepting the property or rejecting it. Yes, you can use these two days to negotiate a satisfactory corrective proposal that everyone agrees to. But if that is not going to happen, you need to be mindful of the two-day limit and you absolutely have to do something before that limit passes. Why you? Because if you don't achieve a negotiated corrective proposal, and you haven't terminated the agreement, your buyer will buy without the benefit of any correction! Your choices are several.

First, if you think you can eventually reach a negotiated settlement, why not amend the Agreement of Sale to extend the two days that buyer has to respond with their written decision to proceed or walk? PAR publishes a Change in Terms Addendum to the Agreement of Sale that is perfect for this purpose. Second, if things are looking grim and if the buyer is not going to purchase the property unless the seller does substantially more than what the seller has offered in a counter-corrective proposal, then you can submit buyer's notice of termination within the two days. Terminating the Agreement of Sale is not the end of the world. You certainly can communicate with that termination that the buyer will entertain a more robust corrective proposal, but as negotiations stand, and given the buyer's limited choices of accepting or terminating the Agreement within two days, there is only one reasonable choice. The written notice of termination can be worded something to the effect that "buyer elects to terminate the Agreement, but is willing to accept it if seller increases the corrective proposal to the following . . ."

Buyer agents, the burden of watching the time limits rests with you. That is because if your buyer fails to act timely, he bought it! Of course, all agents should know the workings of this very important and universally used contingency inside and out so that you are spending less time pulling clients out of the fire and more time at the settlement table.

Copyright © James L. Goldsmith, Esquire, CALDWELL & KEARNS, P.C., 2012

All Rights Reserved

Jim Goldsmith is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees. He and his firm represent and defend real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. Jim also defends REALTORS® in disciplinary hearings conducted by the Real Estate Commission. He routinely counsels employers on employee relations issues and is one of the voices of the PAR Legal Hotline. He may be reached at www.realcompliance.com.