Who Pays for Defects Found During Inspections ?

by Dian Hymer

Real estate purchase contracts usually include an inspection contingency to protect the buyers. The contingency, which typically runs for 10 to 14 days from acceptance of the contract, gives the buyers the right to have the property inspected to their satisfaction.

Often defects are discovered during these inspections that neither the buyers nor sellers were aware of before they entered into an agreement. Who's responsible for fixing these defects? The answer isn't always clear.

State laws vary considerably regarding a seller's responsibility to the buyer when a property is sold. Many states have seller disclosure requirements, but many don't. The terms of the purchase contract also vary. Some purchase contracts are "as is" with respect to property condition, others include a "seller warranty" clause.

With an "as is" purchase, the sellers usually aren't obligated to fix defects that are discovered during the buyers' inspections. Still, depending on how the contract is worded, the buyers probably won't have to go through with the purchase if the inspections are unsatisfactory.

When the purchase contract includes a "seller warranty" clause, the sellers may be obligated to fix certain defects that are discovered during the buyer's inspections. For example, the seller warranty clause might obligate the sellers to provide a furnace that is in working order. If the buyer's home inspector finds that the furnace isn't operating, the sellers may have to fix it before the deal closes.

First Time Tip: Frequently buyers and sellers have to renegotiate the contract after the buyers complete their inspections. Suppose the buyers' home inspector thinks the roof looks like it's at the end of its life. He suggests that the buyers hire a licensed roofer to inspect the roof.

A roofer does an inspection and diagnoses that the roof needs to be replaced before the next rainy season. He issues a roofing proposal for the job in the amount of $5,000.

But the sellers insist that the roof is watertight and that they haven't had any leaks. Furthermore, they feel the buyers paid such a low price that they can't afford to pay for a new roof.

The buyers hadn't anticipated putting a new roof on the house at any time in the near future when they made their offer. They're leveraged to the hilt and have barely enough cash for the down payment and closing costs.

Both buyers and sellers want to keep the deal together, so they consult more roofers, one of whom is willing to repair the roof for $700. Repaired, the roof should last another few years. The sellers offer to pay for the repairs and the buyers accept.

One of the main reasons that home purchase transactions fall apart is due to defects that materialize during the course of the buyers' inspections. Ideally, both buyers and sellers will work together to resolve these problems. The alternative is to start the process all over.

The wording of inspection contingency clauses varies from one contract to the next. Some clauses state that if the buyers find unsatisfactory property defects that the sellers are unable or unwilling to correct, the contract can be cancelled. Other inspection contingencies give the buyers the unilateral right to disapprove the inspections for any reason, without necessarily giving the sellers an opportunity to correct the problems.

The Closing: Buyers might prefer to have the right to back out of the contract if defects materialize during inspections. But a contract that provides for further dialogue between both parties if problems arise is in keeping with the spirit of good faith and mutual cooperation.

Copyright 2002-2006 Dian Hymer. Distributed by Inman News Features