Last year a client came to me with a problem, which in my line of work is not too unusual. The client was in contract to buy a spec home from a custom homebuilder. The contract was on the builder’s contract, not the CBR/CBA Real Estate Purchase Contract. The contract was contingent upon the buyer getting satisfactory financing. In addition, the client was going to move to the Columbus area from another part of the country when he went into contract, but circumstances had changed and now he was not making the move.
The home was priced under a million, but not by much, and the client had made a very significant earnest money deposit with the contract. The deposit was paid directly to the builder.
When the client discovered that the promised job was really no better than where he was, he decided it was not worth disrupting his family’s life to move to Columbus. He informed his agent that he would not be moving to Columbus and needed to terminate the contract. The agent understood the situation and knew that while the client would qualify for an owner occupied loan if he moved here, there was no way that he would qualify for, or would want, to buy the Columbus home as an investment property. So the agent decided to exercise the financing contingency as the way out for the client.
The agent prepared a Mutual Release form and sent it to the homebuilder’s agent and told the agent that the client was not moving to Columbus due to not taking the job. The builder did not agree or sign the Mutual Release. Instead, the builder sent back a letter stating that he would release the buyer only if he kept the significant earnest money deposit.
To make the story even more interesting, the builder sold the property to another buyer before the performance date had expired on the contract with my client, and for more money than my client had agreed to pay!
This all occurred prior to my involvement. I suggested getting a letter from the lender denying the loan and submitting a Notice of Termination to the builder, which was in fact done before the performance date in my client’s contract. Still, the builder has refused to return the earnest money deposit claiming that my client had terminated the contract without proper cause when his agent told the builder’s agent that he was not moving to Columbus and that was the real reason for the termination.
The builder’s attorney stated that he thought the financing contingency was exercised only after I was retained, and while he admitted that the Notice of Termination was received prior to the performance date, he questioned the motive. He suggested that it was just due to my analysis of the contract trying to find some way out.
The problem with this story is that the builder’s agent was given too much information that simply did not need to be given. All the buyer’s agent had to do was to submit a Notice of Termination stating that financing could not be obtained. End of story. By giving the other agent all of the other information, the validity of the termination due to the financing contingency is now in question.
Sure, the buyer can sue, and I think of several good legal theories to use. While I think he would win, I cannot guarantee it. Furthermore, legal action can take more than a year; all the while he is without his earnest money deposit and facing significant legal fees.
The point to this story is that an agent needs to be very careful when drafting and terminating a contract. If a buyer is moving here as part of a job transfer or relocation, it might be a good idea to write a contingency making the contract terminate in the event that the buyer does not move to Columbus.
The Notice of Termination Form from the Columbus Board of Realtors is probably the easiest and best way to effectively terminate a contract due to a contingency not being satisfied or waived, or due to an inspection which reveals material conditions that are not satisfactory to the buyer. While the Notice of Termination Form has been designed to be used with the CBR/CBA Real Estate Purchase Contract, it may also be used with contracts from builders as well. If you are not familiar with the Notice of Termination Form, now would be a good time to take a look at it.
Please do not use the Mutual Release Form to terminate a contract. The Mutual Release Form requires the seller to agree to terminate the contract. While that may be the case in some situations, you can’t rely on it. I can think of many sellers who would not like to see the contract terminate and if given a choice will not agree to do so. There are several sections in the CBR/CBA Real Estate Purchase Contract that gives the buyer the right to terminate the contract. In those instances, no agreement is needed from the seller at all, just a Notice of Termination. Time is of the essence, and you may not have a lot of time to get a termination done properly, and almost certainly there will not be enough time to do it wrong.
Damage and Destruction. Two words that can have a very detrimental effect on a real estate transaction.
The current CBR/CBA contract deals with two different types of damage. First, there is the damage that occurred prior to the contract being signed, pre-existing damage. Then there is the damage that occurs after the contract is signed but prior to closing. Section 4 of the contract is designed to discover and address the damage that occurred prior to the contract being signed. Section 9 is for damage that occurs after the contract is signed but prior to closing.
The Supreme Court of Ohio upheld the doctrine of caveat emptor in Layman v. Binns (1988), 35 Ohio St.3d 176, let the buyer beware. In that case the Court stated at page 177, “The doctrine of caveat emptor is one of long standing. Since problems of varying degree are to be found in most dwellings and buildings, the doctrine performs a function in the real estate marketplace. Without the doctrine nearly every sale would invite litigation instituted by a disappointed buyer…A duty falls upon the purchaser to make inquiry and examination.”
The Court stated on page 178 of the decision, “To make the doctrine operate fairly, courts have established certain conditions upon the rule’s application. We summarize and adopt these conditions as follows: (1) the defect must be open to observation or discoverable on reasonable inspection, (2) the purchaser must have an unimpeded opportunity to examine the property and (3) the vendor may not engage in fraud.”
If the property has existing damage, the buyer has a duty to discover the damage. For example, if the contract is signed in November of 2003 and there was hail damage to the siding from the April 2003 hailstorm, the appropriate avenue for the buyer is through the procedures in Section 4, not Section 9.
Section 13 of the CBR/CBA Real Estate Purchase Contract states, “At the time the Seller delivers possession, the premises will be in the same condition as the date of acceptance of this contract, except as provided in paragraph 9, and normal wear and tear excepted.” If the siding had hail damage on the date of acceptance, the seller’s only duty is to deliver the premise in the same condition. However, the buyer could discover the damage and request a remedy through Section 4 and negotiate.
Likewise, if there is a fire in the house after the contract is signed but prior to closing, Section 9 of the contract would apply. Section 9 provides the requirements of the seller who discovers that the property was damaged or destroyed, and also the options for the buyer. The seller bears the risk of loss prior to closing. If the property is substantially damaged or destroyed the seller is required to contact the buyer, whereby the buyer has certain options available. The question that has come up is what qualifies as “…substantially damaged or destroyed.”
The Tenth District Court of Appeals in Franklin County Ohio decided a case in 1982 that dealt with the standard contract then in use which contained the same phrase as we have today, “substantially damaged or destroyed.” Drake v. Burch (1982) 82AP-19, 82AP-56, is a case where the sellers removed the shrubbery prior to closing without the consent of the buyers. The buyers chose to rescind the contract. The Court stated, “…the word “property” is used in a broader sense in the clause and separately refers to each integral part of the real estate. This follows because various features of the real estate, such as landscaping, may have a decided effect both on the desirability and the market value of property. Neither the contract, nor the common law, requires the defendants to accept the property without the shrubbery or to accept the realtor’s offer of a payment in money.”
When damaged property is discovered it is critical to know how to address it and which part of the contract applies. Remember that time is of the essence.
It is common for contracts from home builders to include arbitration clauses. These clauses have been the subject of many lawsuits. The principal question is generally whether they should be enforceable. My question is whether arbitration clauses truly serve the intended purpose.
I speculate that many builders and their lawyers publicly champion the idea of arbitration by stating that it is less expensive and less cumbersome than traditional litigation in the courts. I wonder if in private the reasons for desiring the arbitration process are so it can be private without public disclosure and without the conformity to case law and statutes. Arbitrators can decide however they please. They do not have to be lawyers; therefore, they are not expected or required to apply the law. But the question then becomes what do we have without the law?
The law is comprised of statutes enacted by the Ohio General Assembly and of court decisions where disputes have been decided. Law is public. Law is for the benefit of all. By having a public body of law in statutes and court decisions, people can reference how courts have decided similar situations and thereby provides a base of reference for how to proceed in any given situation. Unless there are significant compelling reasons not to, courts will follow the law as it exists. If a party receives a decision that they can prove is not in accordance with the existing law, they can appeal it. The possibility of appellate review is the “checks and balances” on the trial court system. It also provides the decisions which control and apply to future similar disputes.
Arbitration is arbitrary. Arbitrators do not have to apply law to their decisions and there is usually no oversight or appeal process, except for the most egregious cases where fraud is proven. Fraud is very difficult to prove. Most arbitration clauses found in home builder contracts require the decision to be binding.
So does a system that keeps disputes private and does not apply law benefit anyone? For the building industry, it sustains the perception of potentially being anti-consumer. For an industry dependent on the consumer, it is a mystery to this writer why they would ever want to be perceived as anti-consumer. Furthermore, does it benefit the truly good builders to create an environment where the bad ones can persist? If builders know that they can be taken to court where decisions are based on law and are public, will that affect how they treat customers? By being held to established law and consequences, builders could conduct themselves accordingly. Likewise, consumers would be able to rely upon established law to know when they do and do not have reasonable case.
Home builders are hurting. We all know that times are tough in the real estate market, but that is not an excuse. The home building industry as a whole has to come to the realization that it is dependent on consumers and that it needs to embrace customer service. Some builders have always placed a strong emphasis on customer satisfaction. They survive in these difficult times. The question for those builders is whether they want to elevate the standards of all builders. It is not difficult to do, simply remove all arbitration provisions. Permit the legal system to work. It will make the unscrupulous builders, or those who simply deliver a poor product, to be held accountable. It is a public process. By being public, builders will know that they will not be able to hide within an arbitration proceeding.
In the end, both consumers and builders benefit by eliminating arbitration provisions and allowing builders to be subject to law and the legal system. If builders are concerned that the decisions rendered by the courts will be overly harsh or unfair, there are two options. One is the appeal process. The other is to treat customers like they would want to be treated; to respect customers, and thereby earn the customers’ respect, and by having contracts that are fair, balanced, and clear. No one enters into a purchase contract hoping for a lawsuit or an arbitration proceeding. They just want to buy a home that is built to the plans and specifications associated with the contract and in a good and workmanlike manner. The builder should strive to provide the same.
By eliminating the arbitration provisions, builders who are consistently sued will leave the business. The builders who have consistently earned the respect and trust of their customers will prosper. It is just that simple. The arbitration process has allowed problem builders to remain unknown to the consumers. By allowing builders to be subject to the legal system and held accountable to the law, both the industry and the consumers will benefit.
Since contracts from home builders vary significantly from the standard Board of Realtors® approved contract, it is the real estate agent/broker’s duty to alert the buyer that it may contain provisions unfamiliar to the agent/broker which may affect the buyer’s rights. Therefore, the real estate agent/broker needs to refer the buyer to a knowledgeable real estate attorney to make sure the buyer understands the contract and to help protect the buyer’s rights. Failure of a real estate agent/broker to refer a buyer to legal counsel in a home builder contract situation could be a breach of the statutory fiduciary duty owed to the buyer.
Over the years, I have represented many clients in breach of real estate purchase contract cases. I have represented sellers who did not want to sell, buyers who did not want to buy, buyers who wanted to buy with sellers who refused to sell, and a buyer who was sued for not buying because he exercised his right to rescind due to a fire prior to closing. The myriad of cases resulting from breach of contract in real estate has developed into a well-defined body of law. The decisions in these cases have been very consistent in Ohio with general principles that probably apply to most other jurisdictions.
Breach of contract of a real estate purchase contract for a home can have serious ramifications. If a buyer fails to perform by not buying a home, the seller may experience a multitude of downstream issues as the proverbial dominos fall. If the seller breaches by refusing to sell, the buyer is denied the opportunity to buy that distinct property. The law in Ohio as it pertains to breach of real estate contracts has developed differently depending on who breached the contract. I will examine both perspectives. Some have argued that the type of real estate involved should alter how the law is applied or what law applies to the facts of the case. However, in Ohio, the courts deciding breach of real estate purchase contracts make no distinctions based on the type of real estate involved, such as residential, commercial, or investment real estate.
Seller breach of contract usually refers to the seller deciding not to sell the property to the buyer pursuant to the executed contract. The remedy for the buyer is to force the sale by an action for specific performance. In theory, this makes perfect sense because each property is unique. The only way to compensate the buyer for the loss of the opportunity to buy that particular piece of real estate is to force the seller to perform.
The reality is that pursuing specific performance may not actually work. Last year I had a case where the seller came to the closing and refused to pay a judgment lien in order to convey the property free and clear of all liens as required in the contract. The deal did not close. The buyer promptly filed a Complaint for Specific Performance and a Notice of Lis Pendens. The seller had stopped making the mortgage payments some months before going in contract with my client. Consequently, the bank had started foreclosure against the property and it was sold at the Sheriff’s auction shortly after the filing of the Complaint for Specific Performance.
In the last year I have been asked on a couple of occasions to get the sellers out of the deal because they did not want to sell. I use the following procedure to evaluate these cases:
The first step in any analysis of seller breach of contract is to determine whether the contract was properly executed. One must carefully examine the contract and all counter offers that comprise the contract. Did all signatures occur within dates specified for acceptance? In Ohio, the Statute of Frauds is found in the Ohio Revised Code section 1335.05 which requires real estate purchase contracts to be in writing and signed by the parties. It is not unusual to find real estate agents writing “per phone authorization, signatures to follow.” While this may be a way for the real estate agent to avoid the hassle of actually obtaining the required signatures and to expedite the matter, it does not have a legally binding effect on the parties. If the actual signature is penned after the date permitted for acceptance is there a legally binding contract? If there is not a contract in the first place, there can’t be a breach.
The recent decision in the case of Park v. Acierno, 2007-Ohio-1564 dealt with a situation where a property was owned by a husband and wife. The husband signed a “napkin agreement” which was very scant on essential information, although it did contain a price. The wife subsequently signed an actual purchase agreement for the same property with the same seller. The wife did not sign the “napkin agreement” and the husband did not sign the purchase agreement. The buyer asserted the concepts of agency and ratification to try to solve the problem of the Statute of Frauds. Without actual signatures, the court held that the Statute of Frauds was not satisfied and there were no enforceable agreements to sell the property.
Time is of the essence in real estate purchase contracts. As a real estate attorney, it is my responsibility to make sure the contract is enforceable, and part of that means that the contract was executed properly. In the event that there is an issue or question as whether the contract was signed by the parties within the permissible window of time, I will prepare a basic addendum in which the parties will ratify their intent to proceed with the transaction on the previously agreed upon terms.
The next step in the analysis is whether any other term of the contract may have terminated the contract on its own. In the Central Ohio area, the Columbus Bar Association and the Columbus Board of Realtors have jointly created a residential real estate purchase contract. Within the boilerplate of the contract are a number of provisions which specify that if they are not strictly complied with, the contract shall terminate. That being said, it is not uncommon for parties to proceed to closing notwithstanding the fact that the contract had automatically terminated for failure of a specific provision. Generally, the buyer wants to buy and the seller wants to sell and the closing takes place even though the contract has technically terminated and would not be enforceable.
If the contract is solid, the recourse for the buyer facing seller breach by refusal to sell, is to file for a Complaint for Specific Performance and also to file a Notice of Lis Pendens with the county Recorder’s office. The filing of the Complaint and Lis Pendens generally gets people focused on finding a resolution to the issue. Sometimes they will comply and sell. Other times I have negotiated a financial settlement. I have never had a seller breach of contract case go beyond the filing of an Answer by the seller/defendant.
Buyer breach of a real estate purchase contract is a different beast. When a buyer breaches a real estate purchase contract, the seller still retains the property which can be used in any manner the owner desires and may be sold to another buyer. It is common for sellers to desire the breaching buyer to pay for expenses incidental to ownership pending resale.
Expenses incidental to ownership include, but are not limited to, mortgage payments, insurance, taxes, maintenance, homeowner association dues, and utilities. “To allow the recovery of such expenses would be analogous to allowing a car owner to recoup from a defaulting buyer the costs of maintenance, gasoline, and automobile club membership dues until the vehicle is sold. Such a result, in our view, goes far beyond the reach of recoverable contract damages.” Peterman v. Dimoski, 2002-Ohio-7337, ¶11.
The issue of foreseeability of damages is a logical approach for a seller seeking damages from a breaching buyer, however it is not successful. The court in Roesch v. Bray (1988), 46 Ohio App.3d 49,51 held, “Although [the breaching party] might have been able to foresee that certain expenses would be incurred in maintaining the property until future resale, the duration and extent of those expenses could only be speculated upon. Were we to hold otherwise, a breaching party could be subjected to liability for similar expenses for months or even years on end.”
When considering the purpose of a damage award in a buyer breach case, the court in Peterman v. Dimoski, 2002-Ohio-7337, ¶13 stated, “The primary purpose of the damage award is to restore the vendor to his or her pre-sale position in other words, to compensate the vendor for the loss of the bargain on the sale. Although the vendor may be entitled to appropriate special damages that follow naturally from the breach, these damages, being contract damages, are not as broad as those available in tort, which applies a simple but for test. Ever since the decision in Hadley v. Baxendale (1845), 156 Eng. Rep. 145, consequential or special damages in contract have been limited to those that are certain, foreseeable, and within the contemplation of the parties at the time the contract was entered into. See Calimari, Contracts (1976), Sections 206-209.”
You have to love it anytime a court cites to Hadley v. Baxendale!
The one item which a few Ohio courts have carved out as a recoverable expense is real estate broker commissions. The scenario is that the first sale involves either a “for sale by owner” or a discount broker and then a full commission broker is subsequently employed to sell the property after the breach. The use of a full commission broker is foreseeable as a reasonable effort to get the property sold as quickly as possible. The courts in Peterman v. Dimoski and Saylor v. Eno, 2007-Ohio-351 both awarded to the seller the additional real estate broker commission the seller had to pay.
In McCarty v. Lingham (1924), 111 Ohio St. 551 the Supreme Court of Ohio, provided the basis for determining damages in a buyer breach case. “The measure of damages in such Case is the difference between the market value of the property at the time when the conveyance should have been made and the sale price stated in the contract.” Over the years since, this concept was modified to be the difference between the value of the property at the time of the breach and the price in the contract. Simply stated, if the property is worth as much or more than the price in the contract, there are no damages. This basic concept has been the basis of the numerous decisions that have followed.
One method to determine the value of the property at the time of the breach was addressed by the court in Roesch v. Bray:. “When, following the breach of a real estate sales contract, the seller resells the property, the resale price may be used to determine the market value of the property at the time of the breach if the resale occurred within a reasonable time after the breach and at the highest price obtainable.” A sale not at arms length and at a substantially lower price would probably not qualify. It is the burden for the seller to prove that the subsequent sale price was the highest price obtainable.
From time to time the issue of a new build home breach of contract comes up. Applying the basic law of Ohio, the builder would have to prove that the house was not worth what was being charged. I have yet to have a builder put forth such a proposition.
A few of years ago in a trial, the opposing counsel put forth the concept of mutuality of remedies as a reason why his client should be able to use specific performance to make my client buy the property after the alleged breach. Although the theory is applicable in many other breach of contract settings, real estate is different. The court also rejected his theory, but I must admit it was interesting. The courts in Ohio have firmly established that while specific performance is perfectly acceptable to use against a seller in breach, it is not the common remedy in a buyer breach case.
Recently I had lunch with my opposing counsel the day after I won on a Summary Judgment in the defense of a buyer breach case. He commented that it just did not seem right that his client should not be able to recover expenses incidental to ownership. After all, my client breached the contract by not closing within the stated time. The seller had promptly resold the property for $5,000 more than my client was going to pay, but he had to hold it for 65 days beyond the scheduled closing with my client. It was a million dollar home with alleged significant per diem expenses. The court found the seller had no damages that were recoverable under Ohio law. As we discussed it further, he reluctantly acknowledged the problems that would be incurred if there were not such a bright line rule limiting recoverable damages to the difference between the contract price and the value of the property at the time of the breach. While in our case it was a matter of only 65 days, but what if it had not sold so quickly? Where do you draw the line? Of course, the litigation would be endless.
The Real Estate Purchase Contract approved by the Columbus Board of Realtors and the Columbus Bar Association, “the Contract,” contains provisions for inspections and requests for remedies if unsatisfactory conditions are discovered. Paragraph 4.3 of the Contract has a blank that must be filled in with a number for the days of the Specified Inspection Period. It is during this time period that not only inspections and tests may be performed but also any Requests for Remedy must be submitted.
Paragraph 4.4(a) has a blank that must be filled in with a number for the days of the Agreement to Remedy Period. This time period follows immediately after the Specified Inspection Period. The intent is to provide a pre-designated period of time after inspections during which the buyer and seller are able to negotiate the resolution of unsatisfactory conditions discovered during the Specified Inspection Period.
The importance of artful drafting of a Request for Remedy cannot be understated. Paragraph 4.4(a) of the Contract specifies that the Request be in writing, signed by the Buyer, stating the unsatisfactory conditions, along with the inspections or tests specifying the unsatisfactory conditions. I suggest that in drafting a Request for Remedy, careful thought be given to exactly what is being requested. It is not enough to say, “See items 4, 6, and 10 of the home inspector’s report attached hereto.” That will only identify what has been found, when what is really desired is to have the conditions fixed or a reduction in the purchase price.
One rule of thumb that I use is whether it matters who does the work. If it matters, I always want to specify the contractor, or to have approval from the Buyers of the contractor selected by the Seller. If the roof leaks or the plumbing needs to be repaired, the Buyer would probably rather have the well established contractor instead of the local handyman. Of course, the Seller would rather save money and have the handyman. Request the contractor by name, not just “a licensed contractor,” or simply “fix the leak in the roof as indicated in the report.” An important consideration is who will stand behind the work if there is a problem and whether they will warrant the work. It will be the Buyer’s home and the Buyer should have significant input as to how the repairs are completed.
Request copies of the paid receipts prior to closing and the right to re-inspect the repairs. If repairs are not possible for whatever reason prior to closing, money may be placed in an escrow account with the title agency to provide for the repairs when possible in the future. (Be sure to check with the title agency before putting it in the Request or agreeing to it in subsequent negotiations.) Another option is to reduce the purchase price, however, that may not always provide cash to the buyer. Each situation is different and one should consider all factors, including what is acceptable with the lender, when drafting the Request for Remedy.
The temptation is to confine the writing in the space provided on the CBR Request for Remedy form. That is fine if that is all that is needed, but if the situation requires more words and space, simply refer to an additional page or two. Be sure to clearly reference all aspects of the original contract on additional pages, such as contract date, property address, buyer and seller names.
In some ways, drafting the Request for Remedy is more difficult than drafting the Contract. With the Contract, much of the drafting has been hammered out between the CBR and the CBA with only blanks to fill in. With the Request for Remedy, you are given a blank sheet; carefully think through what you write and what outcome you and the Buyer desire. You may want to have your broker, or the Buyer’s attorney, review it before submission. Try to write it in such a way that there is only one interpretation as to what is desired. Ambiguity will be construed against the drafter.
One last point, time is of the essence. If you need additional time for the Specified Inspection Period, immediately contact the Seller’s agent and get a written extension of time signed by all the parties prior to the expiration of the Specified Inspection Period.
While following the suggestions in this article will probably result in longer Requests for Remedy than what you may have submitted in the past, your clients will be well served by your efforts.
Home inspection. Two words that can make some sellers and agents tremble with fear and loathing. Section 4 of the CBA/CBR Residential Real Estate Purchase Contract provides very detailed and specific rights concerning inspections and tests. But before I get into my guide through Section 4, I think it is important to understand the law of Ohio as it concerns a purchaser of real property.
In 1988, the Supreme Court of Ohio decided the case of Layman v. Binns (1988), 35 Ohio St.3d 176. It states that, “the doctrine of caveat emptor precludes recovery in an action by the purchaser for a structural defect in real estate where (1) the condition complained of is open to observation or discoverable upon reasonable inspection, (2) the purchaser had the unimpeded opportunity to examine the premises, and (3) there is no fraud on the part of the vendor.” As proving fraud is very difficult, for all practical purposes, once a deal is closed, the buyer will be responsible for the property.
Therefore, purchasers need to inspect property and, if not satisfied, have a way to terminate the deal. That is why Section 4 is so detailed. That is not to say that the seller does not have rights under Section 4, because sellers do have significant rights as well. There is a balance; one just needs to know how to understand what is contained in the contract.
Paragraph 4.1 advises buyers to get the property inspected and that if the inspections cause damage to the property, the buyers are responsible to repair the damages.
Paragraph 4.2 states that sellers “…shall cooperate in making the premises reasonably available for inspections and/or tests.” Unless specified and agreed to in the contract, sellers cannot prohibit a buyer from using a particular inspector. I had the call where the agent was standing in front of the home telling the inspector, who she knew, that he could not do the inspection. A call to the attorney for the brokerage cleared the way for the inspection.
Paragraph 4.3 provides a space to write in the number of days for the Specified Inspection Period. It is during these days that a buyer, at the buyer’s expense, can inspect the property and conduct any tests desired. It is also during this period of time that all requests to remedy must be submitted. Time is of the essence, if more time is needed be sure to get an extension in writing signed by all of the parties. I suggest no less than 10 days for inspections. Any less can cause timing issues. Remember, you have to have the reports in order to submit a request to remedy.
Drafting requests for remedy is a topic for another article, but I think the general rule should be that requests for remedy should concern material conditions.
If the inspections do not reveal any condition which necessitates a request to remedy, there is nothing to do but to proceed to closing.
Paragraph 4.4 provides the procedures and rights of the parties in the event that the inspections and/or tests reveal conditions which are not, in good faith, satisfactory to the buyer. In that event, a request to remedy or a notice of termination may be submitted.
Paragraph 4.4(a) defines the Agreement to Remedy period by inserting a number for the days requested by the buyer. As with everything else in our world, the days in 4.3 and 4.4(a) are subject to negotiation. Once agreed, they are set in stone and can only be modified by a written agreement signed by all parties.
The Agreement to Remedy period starts after the end of the Specified Inspection Period, not necessarily when the request to remedy is submitted. It is possible that a buyer could submit more than one request to remedy during the Specified Inspection Period, and perhaps on different days.
The idea behind the Agreement to Remedy period is to allow the parties some time in which they can negotiate the request to remedy. It is foreseeable that the parties may need to get more information, such as estimates for work, in order to make intelligent decisions.
Once a request to remedy is submitted, the seller can agree to the request, provide a counter proposal, or do nothing. The contract specifically states that “the commencement of the Agreement to Remedy Period does not obligate the Seller to reach an agreement with the Buyer.” If the seller has other buyers in the wings, and the request to remedy is onerous, the seller may decide not to respond at all. “In the event the Buyer and Seller do not reach a written agreement regarding remedying the unsatisfactory conditions within the Agreement to Remedy Period, and the Buyer and Seller have not executed a written extension of the Agreement to Remedy Period, this contract shall terminate.”
Also listed in 4.4(a) is the right of the buyer to submit a notice of termination prior to the end of the Agreement to Remedy period in the event that there has been no agreement and no waiver. As is required in 4.4(b) of the contract, the reason for the termination must be a material condition. I think about it this way, if the roof functions (doesn’t leak) but is 15 years old, that is not a reason to terminate. However, if the roof leaks, that is a material condition which would justify a termination.
Paragraph 4.4(b) is the buyer’s right to terminate the contract. In the event that the inspections and/or tests reveal unsatisfactory material conditions, prior to the end of the Specified Inspection Period, the buyer can terminate the contract. The reports must accompany the notice of termination and must specify the unsatisfactory condition.
Remember to watch the days. It is not by accident that the words “time is of the essence in completing any of the inspections, tests and/or reports” appear in this section of the contract. Furthermore, “the number of days cannot be modified or waived except by a written agreement signed by both parties.” It is not in compliance with the contract to write in a different date and time that the request to remedy shall be open for acceptance, as that is an attempt by the buyer to modify the already agreed upon number of days.
I think sellers and their real estate agents fear home inspections for a couple of reasons. Fear of the unknown is one. The fear of having to disclose problems is another. The fear of losing the deal or having to renegotiate are a couple of more. The only way to combat fear is with knowledge. I always suggest that sellers get a good, thorough home inspection before putting their home on the market. That way the seller can deal with known issues.
But then doesn’t the seller have to disclose what they discovered? Yes, but an astute buyer would find the issues anyway and then wonder why the seller did not disclose what the inspector said “the seller should have known.” Or did the seller know and just not disclose? And if that is the case, what else does the seller know that is not being disclosed?
I think that if all the cards are face up on the table, the seller has the opportunity to build some trust with the buyer. The seller can use the report as a sales tool to show what was discovered and what was repaired. There may be items that a seller may decide that the buyer should have an opportunity to have some input as to who or how the repairs are made.
While it may be OK for an ostrich, sticking one’s head in the sand is probably not good for a seller. Be proactive. Understand that no house is perfect, new or old. Realize that buyers are probably out of luck if they decide to complain after the closing about conditions that were identifiable by inspecting the premises. Even if a buyer does not inspect the property, they are deemed to have the knowledge they would have had if they had inspected the property. Kramer v. Raterman, 161 Ohio App.3d 363,368.
A good report is one that is legible, preferably computer printed, and is clear in identifying exactly what the issues are. I like to get photos of specific problem areas as well. It is only with a good report can the issues be addressed.
Of course, the report is only as good as the person doing the inspection. The inspector needs to be qualified and experienced. Look for professional association memberships.