Repair Negotiations in North Carolina
Posted 07-27-2008 at 05:37 AM by MikeJaquish
Inspections and repairs continue to be flash points for emotions in a North Carolina real estate transaction.
Understanding of North Carolina laws, and the meaning of clauses in the NC Association of Relators' Standard Form "Offer to Purchase and Contract" helps a client negotiate the transaction with less stress.
Basically, there are two inspection/repair contingencies incorporated into the Form. This is assuming the parties have agreed to an "Alternative 1" contract.
First mentioned are the "Necessary Repairs." These specific items are NOT mandated by law as repairs that MUST be done. But if noted on the inspection report, requested by the Buyer, and denied by the Seller, refusal to complete these repairs by the Seller may open the door to allow the Buyer to terminate and request return of earnest money deposit.
The other repair contingency is the "Cost of Repair Contingency." This is also quite confusing to many parties. The "Cost of Repair Contingency" is in place to protect the Buyer from having to buy a home that is in need of significant structural repair. I compare it to protection against the purchase of a car with a salvage title.
Under the "Cost of Repair Contingency," the Buyer may be able to terminate and receive the earnest money deposit back if an estimate from a contractor exceeds a benchmark cost. That cost is negotiated and agreed to as part of the Contract.
If the negotiated "Cost of Repair Contingency" mentions $5,000 as the limit, and the home needs a $12,000 foundation repair, it would be common for the Buyer to decide not to proceed, to terminate and request refund of all earnest money.
This termination is despite any offer by the Seller to make any or all repairs, and at the Buyer's discretion.
The Cost of Repair Contingency does NOT imply that the Buyer will contribute any portion of the dollar limit to repairs. That dollar figure is just a benchmark.
Repairs that trigger deal-breaker clauses like the Cost of Repair Contingency are just one more reason for a smart Seller to pre-inspect the home, and to work off all noted issues before marketing the property.
The future will be interesting.
There is enough confusion and strife that the NC Association of Realtors has been working on simplifying the language and terms in the Standard Offer to Purchase and Contract.
We expect to see forms changes within the next 1 to 2 years.
It is expected that Repair Contingencies will be eliminated and replaced iwith an "Option" period, wherein the Buyer would pay the Seller directly for a period of time to perform due diligence with the home off the market. At the end of that Option period, the Buyer will either withdraw, or will proceed.
This arrangement will be simpler, with less emotion and subjective nitpicking over repairs. I wll welcome it.
Understanding of North Carolina laws, and the meaning of clauses in the NC Association of Relators' Standard Form "Offer to Purchase and Contract" helps a client negotiate the transaction with less stress.
Basically, there are two inspection/repair contingencies incorporated into the Form. This is assuming the parties have agreed to an "Alternative 1" contract.
First mentioned are the "Necessary Repairs." These specific items are NOT mandated by law as repairs that MUST be done. But if noted on the inspection report, requested by the Buyer, and denied by the Seller, refusal to complete these repairs by the Seller may open the door to allow the Buyer to terminate and request return of earnest money deposit.
The other repair contingency is the "Cost of Repair Contingency." This is also quite confusing to many parties. The "Cost of Repair Contingency" is in place to protect the Buyer from having to buy a home that is in need of significant structural repair. I compare it to protection against the purchase of a car with a salvage title.
Under the "Cost of Repair Contingency," the Buyer may be able to terminate and receive the earnest money deposit back if an estimate from a contractor exceeds a benchmark cost. That cost is negotiated and agreed to as part of the Contract.
If the negotiated "Cost of Repair Contingency" mentions $5,000 as the limit, and the home needs a $12,000 foundation repair, it would be common for the Buyer to decide not to proceed, to terminate and request refund of all earnest money.
This termination is despite any offer by the Seller to make any or all repairs, and at the Buyer's discretion.
The Cost of Repair Contingency does NOT imply that the Buyer will contribute any portion of the dollar limit to repairs. That dollar figure is just a benchmark.
Repairs that trigger deal-breaker clauses like the Cost of Repair Contingency are just one more reason for a smart Seller to pre-inspect the home, and to work off all noted issues before marketing the property.
The future will be interesting.
There is enough confusion and strife that the NC Association of Realtors has been working on simplifying the language and terms in the Standard Offer to Purchase and Contract.
We expect to see forms changes within the next 1 to 2 years.
It is expected that Repair Contingencies will be eliminated and replaced iwith an "Option" period, wherein the Buyer would pay the Seller directly for a period of time to perform due diligence with the home off the market. At the end of that Option period, the Buyer will either withdraw, or will proceed.
This arrangement will be simpler, with less emotion and subjective nitpicking over repairs. I wll welcome it.
Total Comments 6
Comments
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Mike,
I hope you don't mind if impose on your blog to ask a related question about how the "Cost of Repair Contingency" works.
Let's say the negotiated "Cost of Repair Contingency" mentions $5,000 as the limit, and an inspection turns up three separate structural repairs that will be needed. Collectively the repairs exceed the negotiated $5K benchmark but the individual cost of each repair item is below the $5K dollar benchmark. Would a buyer still be able to terminate and receive the earnest money deposit back if the combined repair estimate from a contractor exceeds a benchmark cost but no single one repair is above the benchmark?
Thanks in advance for your response!
~ NRGPosted 07-27-2008 at 01:35 PM by North_Raleigh_Guy
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NRG,
That is done sometimes.
It gets sticky when a Buyer has Buyers' Remorse, and aggregates a bunch of low cost handyman repairs to meet the "Cost of Repair Contingency" threshold.
That sort of activity is outside the intent of the provision.Posted 07-27-2008 at 10:56 PM by MikeJaquish 
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I'm a buyer having trouble terminating under a Cost of Repair Contingency.
Yesterday got back an inspection report that lists repairs 10 times the Cost of Repair contingency. Today I gave notice to terminate for that AND for the termite report, each of which gives me the right to terminate. There are several very large items - like replacing the entire substructure due to termite damage, and repairing undisclosed fire damage in the attic - so there's NO question in anyone's mind that the Contingency amount is met.
The listing agent (not the seller) has been hounding me since the day of inspection asking me to email her the full inspection report. I can't figure out why she wants it (doesn't she then have to disclose all these material facts?) She insists that I email her the whole inspection report - which I paid for - before she'll release my earnest money.
The termite report gives me grounds to terminate, it seems I could just provide that.
Any suggestions? Many thanks.Posted 03-24-2010 at 10:46 AM by pandora2
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Cost of Repair Contingency and Agency
Pandora,
I am sorry you are having this issue. I can imagine how stressful it is for you.
However, these are contract questions that your real estate agent should answer.
If you do not have an agent, I would strongly suggest you contact a real estate attorney for counsel.
Mike JaquishPosted 03-24-2010 at 10:58 AM by MikeJaquish
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Is the Seller supposed to provide a receipt and/or summary of repairs even if they did some of the repairs themselves?Posted 08-23-2010 at 08:19 AM by slantsix
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Slantsix,
Your agent should be telling you what the contract says. If you need to, speak with the broker in charge.
Thanks for the phone call.
I hope it all works out for you!
Mike JPosted 08-23-2010 at 09:22 AM by MikeJaquish
