Home Radio Segments Real Estate Round-up The “Right To Inspect” Clause Can Come Back To Bite You

The “Right To Inspect” Clause Can Come Back To Bite You

Terry Story, Right to Inspect

With Terry Story, 29-year veteran Real Estate Agent with Keller Williams in Boca Raton, FL

Sellers Confused About Right To Inspect Clause

Continuing on last week’s Real Estate Round-Up thread, Terry Story believes sellers are often unclear about a buyer’s “as is with right to inspect” a property before completing a sale.  This leads to confusion and frustration, especially after sellers have completed price negotiations on an as-is sale and believe it’s a done deed.

The right-to-inspect clause gives a home buyer the right to have the property inspected before concluding the sale.  If they don’t like the results of the home inspection, buyers have three choices: a) accept the property and move forward, b) renegotiate price and repair terms with the seller, or c) just flat-out walk away.

Right To Inspect Time Limit

The “as is with right to inspect” clause includes a time limit that is mutually negotiated by the buyer and seller and typically ranges from 7 to 10 days to complete the inspection. For instance, say you have 10 days to complete the inspection.  You receive the inspector’s report on day 8, go through it, and find issues but still want the house. On day 9, your agent reaches out to the seller and says you’d like to move forward provided the seller takes care of, say, two items flagged on the report.  The seller then agrees to fix those two items.

Get It In Writing

At this point, it’s crucial that you have the seller agree to the fixes in writing, within a mutually-agreed time frame.  If you don’t get it in writing and just take the seller’s word, you could either end up paying for those repairs or lose your deposit if the seller reneges on day 11. So, make sure everything is in writing when you buy a house.

This may be nerve-wracking, especially if everything’s left for the last minute on day 10.  The easy way out is for the buyer’s agent to tell the seller that the buyer will walk away from the contract under the “as is with right to inspect” clause if the seller does not furnish a statement of repairs in writing before the day-10 deadline.  The buyer’s agent should have templates for this and should consult a lawyer to make sure the agreement protects the buyer.

The Buyer’s Deposit

If the buyer fails to get an addendum on repairs within the 10-day deadline and walks away from the sale, the buyer will lose his/her deposit.  If the buyer decides not to walk away, she/he will have to accept the house in as-is condition and pay for any repairs or changes the buyer wishes to make to the house.

From experience, Terry has seen several instances where repairs were not agreed to in writing and strongly recommends not dilly-dallying through the process.  If you like a house you see, order the inspection immediately after you have an executed contract because it could take four or five days for an inspector to get out to the property and, at least, a few days to write-up their inspection report, leaving the buyer with very little time to digest it all and choose a course of action.

Contentious Condo Resident Vs. Board Relations

In closing, Steve gets to a listener’s question on contentions between condo residents and condo boards.  In this case, the Board wanted to replace an elevator and some residents were keen that the association retain internal community residents with elevator expertise.

Terry believes hiring residents to do the job is a definite no-no because it can lead to catastrophic liabilities.  Moreover, the association could lose its insurance for the entire complex if the job was performed by non-licensed “experts”.  Instead, Terry advises bidding the project out, hiring qualified and licensed professionals, and having internal experts supervise the project so it’s done to high standards.

Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital.  Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.  Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances.  The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.

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Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 29-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the show, Terry.

Terry Story: Thanks for having me, Steve.

Steve Pomeranz: Last week, we talked about the right to inspect, and as we were discussing this show this week, you said you wanted to get into more detail because I know this is important. What is it that you want to tell us?

Terry Story: You know, Steve, a lot of people don’t realize and they don’t understand what it means “as is with right to inspect,” and especially the sellers. They get a little frustrated when, you know, that you’ve negotiated a deal, they’re selling it as is, but they don’t understand “with the right to inspect.” So this is what it means. So, the buyer reserves the right to have the property inspected, and if they don’t like it, they have three choices. They can accept the contract the way it is the condition of the property and move forward, b) they can try to renegotiate with the seller, or c) just flat out walk away.

Now the problem is there’s a time limit. There’s usually say anywhere from seven to 10 days, depending on what you negotiate to get those inspections completed. So typically, what happens is, let’s say it’s ten days that you have for the inspections. You get the report back on day eight. You go through the report, it’s now day nine. You want the house, but there’s items on that report you want the seller to take care of. So, on day nine, you tell your agent and you reach out to the seller and say, “Hey, Mr. Seller. I’d like to move forward, but I want you to take care of these two items.” And then the seller says, “Okay. I’ll go ahead and take care of it.”

Well, you really have to cement that in writing. If you don’t have it in writing, and you’re taking the word that the seller’s going to take care of it, you’re putting yourself in jeopardy here because a) you don’t have it in writing. The seller can decide he’s not going to do it. You have to proceed because once you get to day 10, you can lose your deposit if you don’t go through with it, or you have to keep going forward with the condition in which the property has been presented to you.

Steve Pomeranz: Let me ask you this question. Let me just interject here. First of all, that sounds incredibly nerve-wracking.

Terry Story: It is very nerve-wracking. As an agent when you’re watching the clock and you know that they verbally have put things together, but now you’re trying to put it in writing. What’s really tricky about getting in writing, if your cut-off is 5 pm and it’s the day of, the last day and you’re putting it in writing and the buyer says, “Okay. I’m going to proceed. Here’s what I want the seller to take care of,” yet the seller doesn’t sign it by 5:00, well, guess what? You could be, you know … Here’s what’s important. You’ve got to put the proper language and when you write up those addendums, basically you’re going to say something to the effect … And again, consult your attorney because I don’t want to give you the exact language of what should be written in there, but the idea is you go back to the buyer in the event that the contract isn’t executed by 5 o’clock this day, then the buyer reserves the right to cancel this contract under the “as is with right to inspect” clause. So, you’re making in a statement you’re sharing with the seller, “Mr. Seller, if you don’t sign this and you don’t agree with this by such and such a time, I still am reserving my right to cancel the contract.” That’s your safety net.

Steve Pomeranz: Okay, but let’s talk about the other side of the transaction. You as a buyer have put down a deposit.

Terry Story: Right.

Steve Pomeranz: The inspection … You’ve got 10 days. The inspection comes back on day eight. You’ve got now 48 hours to submit a new addendum and get it signed by both parties.

Terry Story: Correct. If you’re asking them to make repairs, correct.

Steve Pomeranz: Yeah. If it’s not done within the 10 days, you’re going to lose your deposit?

Terry Story: Well, no. You’re not going to lose your deposit. You’re going to lose your right to get anything done.

Steve Pomeranz: Oh, okay.

Terry Story: You’re going to be forced to proceed in the “as is” condition, and if you choose not to, then you’re going to lose your deposit.

Steve Pomeranz: So, if you submit it in writing as the buyer, it’s still not considered enough because you have to have the seller’s signature as well?

Terry Story: That’s correct, and this is where I see a lot of contracts get into big trouble because they’ll verbally have said they agree to do it, but you can’t rely on that. You have to follow it up in writing, unless you’re really willing to accept the fact that if they don’t do it, it’s “as is.”

Steve Pomeranz: Which, if you’ve found problems, you’re not going to be willing to do that.

Terry Story: Right. It depends on how serious it is. Some of these issues, some of these buyers will say, “Well, if the seller will take care of it, it’ll make me happy.”

Steve Pomeranz: Yeah, okay.

Terry Story: It depends on the severity of it, but if you really want the seller to take care of something, what’s important to understand is there is a timeline. It has to be fully executed by that time and day.

Steve Pomeranz: Yeah. Do it right and do it quick.

Terry Story: Correct. Do it right. Do it quick. Don’t dilly dally. I can’t tell you how many times I’ve begged my buyers, “Order the inspection immediately after we’ve got an executed contract,” because it takes sometimes four or five days for an inspector to get out there.

Steve Pomeranz: And then they got to actually create the report-

Terry Story: And then they got to do it, and then get the report back to you and then if there’s issues, you might want to research it, and now you find yourself, you’re up against the tenth day or the seventh day, whatever the end of the inspection period is.

Steve Pomeranz: Okay.

Terry Story: And you’re scrambling.

Steve Pomeranz: As my father used to say, “Forewarned is forearmed.”

Terry Story: That’s right.

Steve Pomeranz: I think we got it. Let’s change gears here. Here’s a question. Condo owners are sometimes at odds with the board because sometimes the board wants to do renovations, and there’s individuals who live in the condo that feel that they can do those renovations. And you’ve got an example here where an elevator was going to be replaced, and there was a demand that the association retain certain tenants because they had internal expertise. What’s the deal on that? We got about a minute left.

Terry Story: Yeah, no good. Don’t do it.

Steve Pomeranz: No good.

Terry Story: No good. No way, Jose. Here’s the problem. As a board, you have the responsibility to hire currently licensed professional people, and you’re also creating a huge liability, a catastrophic liability potential for your association for loss of insurance coverages if there’s problems arise. It’s a great idea and a thought of having somebody within the association take care of these things, but they can work along the side with the contractor, maybe, be a liaison if you will, an internal expertise-

Steve Pomeranz: Or maybe watch over them. Yeah, report back to the board.

Terry Story: … But absolutely, don’t even touch it with a ten-foot pole.

Steve Pomeranz: Yeah.

Terry Story: Do it right. Hire someone else.

Steve Pomeranz: Yeah, the board’s got fiduciary responsibility here. You want to have someone that’s licensed in the state. You also want to take bids from people who are in the business and you want to be very, very careful. We are out of time. My guest as always is Terry Story. Terry is a 29-year veteran with Keller Williams, located in Boca Raton, Florida, and she can be found at terrystory.com. Thanks, Terry.

Terry Story: Thanks for having me, Steve.