Unless You Grab The Wheel And Make It Fair

The home inspection contingency is covered in two (2) paragraphs, 12 and 13 in the current Pennsylvania Association of Realtors agreement of sale. These are MUST READ paragraphs for both Sellers and Buyers because the majority of transactions involve some request to resolve an issue disclosed by the inspections.

This contingency strongly favors the Buyers because, at any time during the contingency period, the Buyers can terminate if the results of any inspection is UNSATISFACTORY. This my friend is a very low standard. It doesn’t even say that the Buyers have to be reasonable.

During this inspection period, which is often 15 or more days (the default if a time period isn’t inserted is 10), the Buyers can terminate the contract. The Sellers do not have the ability to terminate. This is a FREE PLAY for the Buyers. They can terminate the contract and unless otherwise specifically stated otherwise, all of the hand-money is refunded. The Buyers lose nothing other than the cost of any inspections. And, Buyers who may have found another home as an option could conceivably order the cheapest inspection, most likely the wood boring insect inspection and then provide a copy to the Seller with a letter of termination.

What makes this worse for Sellers is, at the end of the inspection period (assuming that the Buyers have made request for repairs, corrections, or some type of concession and supplied the Sellers with a copy of the inspections), there is by default a five (5) day period of negotiation where neither party can terminate the contract. And, if at the end of that five-day period, there is no resolution between the Sellers and the Buyers, the Buyers then have two (2) additional days to decide whether or not to proceed with the transaction.

All the time during the inspection period, and the five, and the two day period, the Sellers’ home is effectively off the market (unless the Sellers reserve the right to Continue to Market the home, which gives them the right to sell the property to another party without notice to the first buyer and then terminate the contract). Attempting to reserve this right will most likely result in a push back from the first buyer when negotiating because they will not want to pay for inspections on a home that the Seller can sell to someone while the inspections are taking place.

So, how does a Seller make this contingency more fair? The true goal is to shorten up the time period for which the home is off the market. As a Seller, you should want the Buyer to be able to engage in as much due diligence as they want in order to limit your liability to them after closing for problems with the property that they could claim were unknown to them and these lawsuits just got easier to them to win under the decision in Gregg v. Ameriprise where the action of one party that causes confusion or is likely to cause confusion, resulted in liability to the other party.

What to do?

  1. Give the buyers a reasonable period of time to do the inspections but reserve the right to Continue to Market the home to other buyers and “wipe out” the initial buyers while they are doing their inspections with the provision that you, the sellers, will reimburse them for the costs of the inspections up to a certain amount. This is certainly fair since the buyers have the ability to terminate “at will” during the inspection period.

  2. Sellers should always get their own home inspection for various reasons but with this report, they can attach it to the Seller Disclosure and draft a provision (REMEMBER ONLY REAL ESTATE BROKERS OR AGENTS WHO ARE ATTORNEYS CAN DRAFT PROVISIONS) which precludes the termination of the contact by the Buyers [ or they will lose their hand-money] for matters disclosed AND remove and replace the standard of “unsatisfactory” with a narrower reason to terminate. If you choose this option, make sure that the amount of the hand-money hurts.
  3. Sellers can request an upfront non-refundable amount of hand-money to compensate them for the time that they home is off the market in the event that the Buyers terminate during the inspection contingency period. Then require additional AND SIZABLE hand-money after the inspection clause is satisfied. Keep in mind, if there is a mortgage contingency, only the non-refundable hand-money is not returned to the buyer if for some reason, (such as the buyers losing their job(s)) that the mortgage is denied.
  4. Give the Buyers a shorter time to inspect, such as 10 days, eliminate the 5 and 2 day periods and provide that on the 11th day, a Continue to Market addendum goes into effect, such that you can change the status to ACTIVE in the multi-list and accept another offer then terminate the contract with the first buyers.

These are just a few options for Sellers to consider as an attempt to not put themselves in the vulnerable position of having their home off the market for two or three weeks; possibly getting closer to the date on which they need to close on a new house and be forced into concessions or face losing the home that they want and incurring cancellation costs for movers and other things.