The Inspection Reply Addendum
In most residential real estate transactions sellers are required to provide buyers with a Seller’s Disclosure listing known problems and issues associated with a property. But buyers should not reply on this documentation alone to determine the condition of the home they are interested in purchasing. In the majority of cases buyers will hire a certified home inspector to examine the home and provide a report with their findings. Are you aware that the time lines associated with a home inspection and response/s is one of the most commonly misunderstood sections of the Agreement of Sale?
In this post we will review the time lines associated with Inspection Contingncies, and via two example scenarios outline buyer and seller time based responses.
It is a common misconception among parties in a transaction that the process of working through the Inspection Contingency invariably takes 17 days, assuming default times have been elected. It is also very common to hear disputes among agents regarding the time lines relating to Inspection Contingencies.
As in any contract “time is of the essence”, and the days when written proposals and responses are received must be duly noted in order to track the progression of time through the negotiation process.
Paragraph 12 of the agreement details buyer and seller rights and responsibilities pertaining to inspections, and the selection of the inspections to be performed. Paragraph 13 outlines the time line associated with inspections.
The buyer has 10 days to complete any of the inspections elected, 10 being the number of days designated as the default value. The buyer can also chose to specify a shorter or longer inspection period if desired. It is also possible to create time lines of different lengths for different inspection contingencies. The contract has four blank lines on which to identify a contingency and the number of days for completing the inspection.
The buyer’s right to terminate the agreement or submit a corrective proposal is subject only on the buyer observing a reported condition that is “unsatisfactory to Buyer” on their Inspection report. If the buyer fails to have the inspections performed – or fails to seek a written report – then the buyer’s right to terminate or to submit a corrective proposal are lost under the Inspection Contingency, so adhering to the timeline is a must. Assuming that the buyer had an inspection, received a report and can cite a condition/s that is unsatisfactory, a corrective proposal along with a copy of the inspection report can be submitted to the seller. This corrective proposal must be submitted within the period for completing the inspection (10 days unless amended).
On the seller’s side the Agreement gives the seller five days from the end of the contingency period to respond in writing. Like all contractual time limits, this period may be altered by agreement of the parties; there is a blank line on which the number of days may be altered.
The seller’s reply will indicate that the seller will or will not agree to satisfy the terms of the corrective proposal. What typically happens is that the seller agrees to satisfy part of the corrective proposal or the seller proposes a counter-offer. Anything short of agreeing, in writing, to the full corrective proposal is considered a rejection which serves to put the ball back in the buyer’s court. buyer may then terminate the Agreement in writing.
The buyer has option of terminating the Agreement within two days (if not otherwise specified) from receipt of the seller’s written notification “that Seller will not satisfy all terms of Buyer’s Proposal.”
So that is the formal explanation of how the Inspection Reply timeline works. Let’s now use that information in two example scenarios. For purposes of this example, we will assume that the default time periods were elected, and the buyer has elected to terminate the agreement in both cases, in order to illustrate the maximum time frames in each scenario.
Example #1
– Buyer completes inspections on day 10 and submits in writing a corrective proposal to the seller the same day
– Seller responds 5 days later in writing to buyer’s corrective proposal
– Buyer responds 2 days from receipt of seller’s written notification stating that the seller will not satisfy all terms of buyer’s corrective proposal, and chooses to terminate the agreement..
Under this scenario, the buyer elects to terminate on day 17, the maximum time allowed. The corrective proposal was submitted on day 10, on day 15 seller replied in writing that seller will perform some but not all of the corrections; and two days later, on day 17, buyer terminates in writing.
Example #2
– Buyer completes inspections on day 6 and submitted a corrective proposal the same day.
– Seller takes 2 days from receipt of buyer’s corrective proposal to respond in writing that seller would agree to some, but not all the corrective proposals.
The buyer must respond in writing that she is electing her right to terminate the Agreement no later than day 10. The buyer submitted a written corrective proposal on day 6 and even though seller could have waited until day 15 (five days from the expiration of the contingency period), the seller responded on day 8. According to the Agreement, the buyer has 2 days from receipt of seller’s written notification that seller will not satisfy all terms of the corrective proposal. Buyer received that notification on day 8 and two days later brings us to day 10.
Much of the confusion regarding inspection time lines surrounds the dynamic nature of the days upon which buyers and sellers can respond. It is important to know your time frames within your transaction in order to preserve your contractual rights.
Wallingford PA Real Estate – Wallingford, PA 19086
