Request for Repair Guide for Buyers

said on September 29th, 2015 filed under: Localism, Negotiating, Real Estate Nuts and Bolts, Request for Repair

This is a compilation of fourteen brief articles about the Request for Repair process in California Real Estate.   The California Residential Purchase Agreement (RPA) is the governing document for this discussion, but the overall principles and strategies will apply to most states and situations.  Note that this article is not applicable to commercial real estate transactions in California or elsewhere.

stock-photo-5538759-pocket-kings-in-poker

1.  INTRODUCTION

At some point in the life of a residential real estate transaction, you will need to remove inspection contingencies built into the contract.  In California, that point, by default, is on the seventeenth day after the contract has been ratified by all parties.  That date can be negotiated to come sooner or later, but seventeen days is typical, so let’s use that time period for the purpose of these discussions.

If you have to remove inspection contingencies by the seventeenth day (or cancel the contract!), then any request by you for the seller to make repairs must be submitted and agreed upon before that date.

The inspection contingency removal is a pivotal event in the life of the transaction.  Frequently it is a time of great stress for both sides, you and the seller, and often the most dangerous period of the transaction.   The inspection contingency removal is a signal that you are satisfied with the property and ready to go forward to closure.

Different psychologies can come into play during this period, but let’s take a look at two typical kinds of stressful attitudes:

You, the buyer, beginning the purchase may be infatuated with the property, thrilled that your offer was accepted, but now facing the reality of the home as sliced and diced by the various professional inspectors, the flaws, problems, warts, and zits exposed for all to see, come down with a serious case of buyer’s remorse, second thoughts, jitters, what-ifs, and cold feet.

The seller, knowing that a Request for Repair is imminent, gets defensive and paranoid, aware that two things might happen, both of them bad.  The seller is worried that you may cancel, having decided, based on the inspections, that the property is no longer acceptable, or that you may slam down an ultimatum in the form of an extensive and expensive Request for Repair.  “Fix these things or I quit!”

In the following sections, we’ll d see what we can do to alleviate your concerns.  What can we recommend to  to help you chill out?  How about we start with these qualities:  fairness, flexibility, generosity, kindness, and plain old good manners?

 

 

2.  A PRIMER FOR BUYERS

 What’s good for the buyer is good for the seller.

What’s good for the seller is good for the buyer.

Many people don’t understand that sentiment, but it’s true nonetheless.  Buyers and sellers are not enemies.  They have a common goal:  to transfer title from one to the other.  Certainly, the seller wants the biggest check possible at the end of the transaction, and you want to spend as little as possible.  Of course.  Granted.  Understood.  But, neither you or the seller wants to see each other down the road in a courtroom.  And I don’t want to be there either.

So, drive as hard a bargain as you can, but play fair.  Be honest.

Okay, that’s it for today’s sermon.  Let’s get down to the nitty gritty.

You have the right to conduct inspections on the property and on all matters pertaining to the property (Home Owner’s Association documents, permits, liens, etc.)

Inspections must take place by agreed-upon deadlines. (In California, the default deadline is 17 days after acceptance, but this may be negotiated in writing between you and the seller.)  If you need more time, this must be agreed upon in writing via an official Request for Extension of Time.

Requests for Repairs are generally governed by the “subject to” clause in the purchase contract.  See the “Subject To” discussion below for more details.

Having conducted (or waived) inspections, you have the right to submit a Request for Repairs to the seller. You must make the request prior to the inspection deadline.

The seller has the right to:

  • Ignore the request
  • Deny the request
  • Agree to the request
  • Compromise (deny some items and agree to other items)

 

corporate arm wrestling

Regardless of how the seller responds to the Request for Repair, you are still obligated to:

(a) remove applicable inspection contingencies by deadline, or

(b) cancel the transaction (and receive a full refund of earnest money on deposit),or

(c) request more time to inspect, re-inspect, or continue to negotiate the Request for Repairs.

If you and the seller cannot come to a meeting of the minds about the Request for Repair, and you have not removed the applicable inspection contingency, the seller has the right to issue a Notice to Perform. If you fail to perform, the seller has the right to cancel the transaction.

QUESTION: Under what circumstances may the seller retain some or all of your earnest money deposit because of unsuccessful negotiation of a request for repair?

ANSWER: Hardly ever. Typically not worth the effort, and the seller usually loses the fight, at which time the seller may be liable for a fine of $1,000. Most of the time the seller is advised to return your deposit, dust of the chaps, and get back in the saddle.

 

3.  PEST INSPECTIONS

The subject is somewhat complex, but it is worth your concentration.  Successful transactions (and substantial funds) hinge on your understanding of the topic).

dueling

We have noticed an upturn in pissing matches between Wood Destroying Pest inspectors. A new pest inspection “environment” has evolved from recent changes in the California Residential Purchase Agreement (RPA), and those changes have caused us to rethink our tactics regarding the timing and responsibility for pest inspections and repairs.

Let me remind you of four of crucial points about Wood Destroying Pest Inspections. Pay close attention to number four.

  1. Unlike home inspections which are private and proprietary, pest inspections are public and permanent. They are filed with the California State Pest Control Board.
  2. If a pest inspection is made part of the contract, the lender is going to demand a pest clearance before funding the loan. This requirement takes a useful negotiating tool right out of your hands.
  3. The results of any and all pest inspections must be disclosed to you. Sellers cannot hire multiple inspectors and then select the most favorable report to disclose to you–and conceal those reports less favorable.
  4. You have the right to get your own pest inspection regardless of whether the seller has already provided a current inspection, and regardless of whether the seller has already provided a current pest clearance. Can you see how this sets the table for conflict between dueling pest inspectors, between you and the seller, between real estate agents?

Let’s look at an example:

The sellers’ pest inspector says that there is such-and-such damage. He estimates repair and clearance to cost about $2,000. The sellers pay for the repairs and get the clearance. But you don’t trust the previous report, so you bring in your own inspector and he/she reports additional damage and estimates $5,000 to repair and clear. The sellers’ inspector accuses your inspector of inflating the report in order to have a big pay day—and of “self-inflicting” the additional damage by aggressive poking and probing. Your inspector accuses the seller’s inspector of incompetence and laziness. You accuse the sellers (and their agents) of hiring an inspector that will “go easy” on them. The sellers accuse you of bringing in a hired gun to ramp up the cost in order to beat down the price of the home or gain some other advantage. The real estate agents on both side try to keep the transaction together while going nuts.

There has to be a better way. There is.

Let’s look at the change in the Residential Purchase Agreement (RPA) that has contributed to the hostile new environment, and has caused us to alter our tactics. The Wood Destroying Pest Addendum (WPA) has been discontinued and is no longer used as a rider to the contract, nor is there (1) specific mention of wood destroying pest inspections in the RPA or (2) specific sections for assigning responsibility for pest clearance within the contract itself. There is a blank section in the contract wherein you can propose that the seller  order a pest inspection,  pay for it, and correct any pest issues. But, the California Association of Realtors, and its lawyers, think that the best place, and best time, for dealing with pest issues is in the Request for Repair.

Crucial Tactic Number 1

In years past we felt that the optimum tactic was for sellers to get their own pest inspection before going on the market, and in some cases, to complete necessary pest repairs before going on the market. This allowed the seller to advertise the home as pest-free. No more. We now think it is best to put the responsibility for ordering pest inspections entirely on the buyers (who can elect not to have a pest inspection if they so wish). Based on your own report, you have the right to request pest repairs, along with any other repairs, on a single document: the Request for Repair. Keep in mind this critical point: the Request for Repair is not a part of the contract. Why not? Because the seller does not have to sign it, and can, in fact, ignore it altogether.

Isn’t that interesting?

I’ll speak more on how sellers respond to Request for Repairs later, but let’s stick to pest tactics for the moment.

Because the Request for Repair is not part of the contract, it does not cross the desk of the lender. Consequently, negotiations for repairs, and their costs, remain in the hands of sellers and buyers—where they belong. How important is that? It’s everything. If  lenders get involved in repair negotiations, it may render the transaction much more challenging.

Crucial Tactic Number 2

Do not write pest inspection language into the blank spaces of your offer, because if you do, the lender will demand a pest clearance, and you will no longer be able to negotiate a price concession or credit in lieu of pest repairs.

Let’s look at an example:

The home you are in love with has an old porch with a bunch of dry rot. Cost to correct? Let’s say $5,000. For $5,000 you get the same old porch with some new boards and posts here and there, different stains that don’t match, and let’s face it, an eyesore.  But you will get a pest clearance to satisfy the lender.   What you really, really want to do is tear off the porch completely and build a brand new, totally re-designed modern porch with state of the art materials. Cost for that? Let’s say $15,000. You best move is to get $5,000 in lieu of pest repairs from the seller to offset the cost of the new porch.

The lender is not going to allow you to do that—if the lender knows about it. Does the lender want to know about it? No. The lender does not want to know about it. What the lender wants to know is that all reported wood destroying pest damage has been corrected before funding the buyers’ loan.

Sellers may not accept contracts with language that requires them to provide pest clearance. How do they know how much such a pest clearance is going to cost? Do they like writing blank checks for strangers? In the old days, agents might write a counter offer that says something like “Pest damage repairs to be capped at $2,000” or some such bullshit. It doesn’t work. Why? Because if the lender gets wind of any pest inspection they will have no choice but to require that all corrections be made before funding–and that $2,000 “cap” be damned.

Let’s look at an example:

You and seller agree to a $2,000 “cap” on pest repairs. The actual cost of the repairs comes in at $4,000. Seller says, “I agreed to $2,000 and the other $2,000 is on you.” Even if you agree to share the cost, the work must be performed, and the clearance issued, before the transaction can close. This puts you in a position of spending $2,000 on a house that doesn’t belong to you (yet—or maybe never if something goes wrong). Are going to do that? Not if you’re my client! There are numerous reasons (liability, insurance, etc.) for you to stay out of repairs before you actually own the home, but for now, let’s just agree—you do not pay for repairs in advance of owning the home.

(Hey, maybe we can do this “on the side,” you know, “outside of escrow,” just a friendly little agreement between you, the seller, our agents, and a contractor? The only problem is that it’s illegal. It’s called fraud if a loan is involved, and risky business if a loan is not involved. Don’t do it. Do you want CJ to lose her license? Nah, I didn’t think so.)

To sum up:

(1) Do not write wood destroying pest language in the purchase contract, (2) you should be responsible for hiring the (one and only) pest inspector, and (3) negotiate any and all pest repairs in the Request for Repair.

Epilogue to this section: There are special circumstances when a pest clearance is going to be  necessary. (a) VA loans, for instance. (b) When Home Owner Associations get involved, for instance. (c) When elderly or incapacitated persons are buying or selling, for instance. (d) When termites or beetles or bats or snakes have infested the home, for instance. I’m sure every agent has examples or reasons for demanding a clearance, but for normal transactions, we will recommend the tactics summarized above.

 

4.  DEADLINES

QUESTION:  How much time do you have to conduct your investigations and deliver a Request for Repair to the sellers?

ANSWER:  By default, the California Residential Purchase Agreement (RPA) gives you seventeen days (17) to conduct your investigations.  This deadline is negotiable between you and the seller.

QUESTION:  Why would you or seller want to shorten or lengthen the default seventeen day investigation?

ANSWER:

  • Four reasons to shorten the investigation period: (1) a quick escrow, (2) buyer agrees to accept previously conducted reports, (3) the market is overheated with intense buyer demand, and, should there be a cancellation, the seller insists on an accelerated inspection timetable in order to get the property back on the market, (4) the seller wants to know for sure that the buyer will “stick.”
  • Four reasons to lengthen the investigation period: (1) the property is occupied by a tenant or otherwise unavailable, (2) buyers are out of the country or unable to investigate for valid reasons (hospitalization, etc), (3) the property itself poses difficulties or complexities that will take longer than seventeen days to resolve (permits, inspectors or appraisers are booked weeks in advance, bad weather, etc.), (4) the initial inspection may call for further inspections by busy specialists.

QUESTION:  How much time does the seller have to respond to your Request for Repairs?

ANSWER:  This is trickier that it seems.  Bear with me as I tell the easy, non tricky, story first:

Prior to the seventeenth day, you, having completed all your investigations, submit a Request for Repair.  The seller responds.  There is a negotiation and a meeting of the minds.  You removes the inspection contingency.  Everybody breaths a sigh of relief.  The transaction moves ahead into the next phase.

Here’s the tricky version.

You submit the Request for Repair.  There is no meeting of the mind.  In fact, the seller ignores your request (and by contract, it is the seller’s right to ignore your request.  Can that be true?  The seller has the right to ignore your request?  Yep.  Hey folks, you can’t make this stuff up.)

But wait, the best is yet to come.  You are still obligated to remove the contingency.  Or what?  Or cancel the transaction.

Hold on a damn minute!

“The seller ignored my request, or refused it, and I still have to remove the contingency and go ahead with the purchase?”

Yes.  Or quit.  Cancel the transaction, and start all over.

“But I paid for inspections,”  you sputter.

Tough.  We call it, you-gotta-pay-to-play.

“Can I get my inspection costs back from the seller?”

Sure.

In your dreams.

QUESTION:  How can you tighten up the sellers’ deadline to respond?

You can put a clause in the Request for Repair that says:  “Seller to Respond to this Request by such-and-such date.

Is this clause enforceable?  Only if the seller signs it.  Does the seller have to sign it?  No.  But it does send a message.

QUESTION:  When must agreed-upon repairs be completed?

Five days before scheduled close of escrow.

 

5.  THE “SUBJECT TO” CLAUSE

From paragraph 11 of the California Residential Purchase Agreement (RPA), please read this subtle, confusing, profound, and difficult passage:

CONDITION OF PROPERTY:  Unless otherwise agreed in writing: (i) the Property is sold (a) “As-Is” in its PRESENT physical condition as of the date of Acceptance and (b) subject to Buyer’s Investigation rights.

What does it mean?

Make your offer based on what you (you intelligent, observant grown up) actually see.  If the windows are broken, let that be reflected in your offer price.  Don’t think you can make the offer and then come back and say to the sellers that they have to reduce the agreed-upon price because of broken windows.  You knew the windows were wonky when you made your offer.  If the house is pink, and you want it blue, reflect the cost of a paint job in your offer price.  Again, offer on what you actually see with your non-professional naked eyeballs, the Property in it’s PRESENT physical condition.

You have the right to bring in inspectors of your choosing, or examine existing reports, and based on the additional information discovered by your professionals after they crawl, climb, open, test, twist, poke, and pry in all the dark, low, high, spidery, icky , hard-to-see corners,  (which you could not reasonably be expected to know about at the time of making your offer), request that the seller make repairs or offer concessions to you.

That’s the “subject to” part of the contract.

 

6.  YOU CREATE A REQUEST FOR REPAIR

From the California Residential Purchase Agreement:

14B(1) Buyer has 17 (or ___) Days After Acceptance, unless otherwise agreed in writing to: (i) complete all Buyer Investigations; review all disclosures, reports, lease documents to be assumed by Buyer pursuant to paragraph 8B(4), and other applicable information which Buyer receives from Seller, and approve all matters affecting the Property; and (ii) Deliver to the Seller Signed Copies of Statutory and Lead Disclosures and other disclosures Delivered by the Seller in accordance with paragraph 10A.

14B(2) Within the time specified in paragraph 14B(1), Buyer may request that Seller make repairs or take other action regarding the property (C.A.R. Form RR).  Seller has no obligation to agree or respond to (C.A.R. Form RRRR) Buyer’s requests.

In short,  you get a reasonable amount of time to inspect the property, after which you may request the sellers take action, usually in the form of repairs or cash concessions or a combination of the two.

Having completed inspections, you devise a list of items you want the seller to correct (or compensate you for)  in order for the transaction to move forward.  As you refine the repair list keep in mind:

  • You should consult with your real estate agent about each item and your list as a whole.
  • Items that concern health and safety are the most potent items and the most likely to be granted by the seller.
  • Some items may already be agreed-upon in the contract (pest repairs for example).
  • The seller may be obligated to make some repairs by law or local governance (smoke and CO detectors, water heater strapping, sewer retro fits, home owner association regulations, etc.) so you do not have to include these on your request.  You may include them if you want, but you don’t have to.  The seller is still obligated to make these mandated corrections.
  • Request items generally must fall within the scope of the “subject to” clause in the Purchase Contract.  Please review the relevant section about “Subject To” clause.
  • You may require that some or all of the repairs be conducted by licensed contractors.

All items on the Repair list should be evidenced by professional inspections and should be referenced by inspector, date, page, and item number.

(Shhhh. Now, let’s talk strategy, just you and me.)

If you are trying to blow up the transaction, an awesome way to do it is to present the seller with an excessive repair list.

Don’t do it.  You may, however,  want to include one or more items on your list that you are willing to give up.  Capiche?  This doesn’t mean to list everything you can think of and “see what you get.”  Unless you are trying to piss off the seller.  Sellers who get mad, get unreasonable, and then you don’t get anything.

The Request for Repair phase is an excellent opportunity to demonstrate your best manners.  This phase is nerve-wracking for both you and the sellers.  More transactions crash at this point than at any other time.   Flexibility and understanding, grace and generosity, grease the wheels and keep the transaction on track.

Decide ahead of time if you will accept compensation (price reduction or credit at close of escrow) in lieu of actual repairs.

Get your request in well before the deadline.  You need a few days before your inspection contingency removal deadline to (a) negotiate with the seller or (b) to learn that the seller is not going to negotiate.  After which you must (a) lift your contingency and go ahead with the transaction anyway or (b) cancel the transaction.

You need to remove the applicable contingency or cancel before deadline or risk losing your earnest money deposit!

 

 

7.  THE SELLER RESPONDS TO YOUR REQUEST FOR REPAIR

How does the seller respond to the buyer’s Request for Repair.

scream

Let’s take a look at Section 14B(2) in the California Residential Purchase Agreement (RPA).

(2) Within the time specified in paragraph 14B(1), Buyer may request that Seller make repairs or take other action regarding the Property (C.A.R. Form RR).  Seller has no obligation to agree or respond to Buyer’s request.

However, if the Seller ignores or rejects your request, you may cancel the contract, retrieve your earnest money deposit, and go elsewhere.  And, by the way, to clear up any misconception about the deposit, it will be returned to the you.  You have the right to request.  The seller has the right to refuse. And you have the right to get your deposit back–all of it.

Unless the sellers are deliberately trying to blow up the transaction, they should give careful consideration to your request.  Ignoring it altogether is, in my opinion, insulting and rude unless you have given the sellers ample reason for such bad manners.

It is advisable in most situations  for the sellers to respond with some concession, however small, to your request.  If your requests are modest, sellers might consider granting most or all of them.  If your requests are more substantive, sellers may consider granting some of them. but not all.  You can see at this point, midway through the transaction, you and the seller will probably be involved in a secondary negotiation–one that can send the transaction spiraling down the toilet.

Here are the various methods the seller may respond to your requests.

(1)  Agree to accomplish some or all of the repairs requested by you.

(2)  Offer a cash concession in the form of a credit to you at close of escrow.  You may benefit from this approach.  Why?

  • You can use the credit to cover closing costs.
  • You can personally supervise the repairs after you take possession, perhaps using contractors and materials of your choice, perhaps using the money for other items (furniture, landscaping, whatever)

(3)  Offer to reduce the price.  This will cost the seller the same amount as a credit, but has  different results for you.

  • It may reduce the annual property tax basis depending on what state the property is situated.
  • It will usually lower mortgage payments.

(4)  Offer some combination of the above.

One final note:   I prefer credits or a price reductions for my buyers instead of having the sellers actually performing repairs.  It is much cleaner and less stressful on all concerned if a cash settlement can be reached.  There are, of course exceptions:  (a) state or local safety requirements that must be met before close of escrow, (b) occasional conditions foisted upon the transaction by the lender, (c) repairs agreed upon in the original contract, (d) the seller is a licensed tradesman capable of making satisfactory repairs, and (e) so forth, most of which exceptions are known long before your Request for Repair arrives on the sellers doorstep like an unwelcome house guest.

 

 

8.  THE BUYER RESPONDS TO THE SELLER’S RESPONSE TO THE BUYER’S REQUEST FOR REPAIR

You Respond to the Seller’s Response to the Your Request for Repair.

I  had fun making up that title.

Well, here we are at the end of the Request for Repair process.  Sometimes it’s easy.  You request two new windows, the seller says okay, and badda bing, you’re done!  Or, realizing that you got a great deal, you decide not to make any repair request at all and remove your inspection contingency.  Now, that was really easy!

But, most of the time, it’s more complicated, involving multiple inspections, soliciting bids from contractors, your request is met by seller’s counter-offer, and your re-counter offer, and so on.  Fortunately you received good advice along the way and kept your lender out of this, so it’s come down to you and the seller.

Ideally, through the exercise of good manners, flexibility, and fair play, you and the seller are able to come to a meeting of the minds.  You remove your inspection contingencies and go forward.  Everybody is happy.

But what if there is an impasse?

You, the buyer, should step back, take a deep breath, and look at the big picture.  If the impasse is over $5,000, and the sales price is $760,000, and it’s the right house for you in the right location, and you have already secured a sales price reduction from $799,000 to $760,000, and the seller has already agreed to $4,000 of repairs, then perhaps you should shake out the cobwebs, realize that $5,000 is pocket change in a transaction of this size (less than 1% of the purchase price!), remove the inspection contingency, and move forward.

So why don’t you?  At this critical point in the transaction, you, the buyer, are at your lowest point.  The fabulous house you agreed to buy has warts and zits.  Your inspectors have poked and pointed their flashlights and written their alarming reports.  (BTW inspectors write alarming reports so they can justify their fees and cover their behinds.)  You are doubting the house, doubting your judgment, doubting your agent.  “Maybe we should have waited?  Maybe we should have seen more houses?  Maybe we rushed into this?  Maybe this is a mistake?”  You are getting cold feet, the nervous nellies, and second thoughts.

Just remember one thing:  buyer’s remorse is perfectly normal.  Every home buyer goes through this.  In the majority of cases, the home will begin to swing upwards in your affection as soon as you get through this icky Request for Repair phase.

 

9.  FINAL THOUGHTS

Here are  summary points to keep in mind:

In the majority of cases, the interests of you and the sellers are well-served if you never meet each other face-to-face.  Let the agents do their jobs.

Sellers should never be in the home during your scheduled inspections.  You have  a right to “be” in the home, and to “try it on” without nervous sellers following you around, breathing down your neck, eavesdropping, and making a nuisance of themselves.  You have a right to consult privately with your inspectors in the home during and after inspection.  The same goes for the sellers’ listing agents who should facilitate your scheduled inspection and then go sit in the corner and play with their smart phones.

Cold feet will warm up.  Take two of Doctor Bob’s Buyer Remorse Pills and don’t freak out.

Older homes have wrinkles just like the rest of us.  It’s part of our charm.

What’s good for the seller is good for the buyer.

What’s good for the buyer is good for the seller.

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To find out more about real estate in the Golden Hills of the Sierras, just call Bob at (530-906-1023) or CJ at (530-9064715) or email us at [email protected] or [email protected]

  1. Nico

    Great article. Love the stories and feel the pain of this topic. You mentioned that the sellers have to complete the repairs 5 days before COE. Is that printed somewhere or is that just based on the Verification process? Also what happens if the repairs arent done by then?

  2. bobjenkins

    Repairs completed five days before COE is the custom in northern California where we practice real estate. I’ll make no representations for other parts of the country, but it’s logical isn’t it? As you point out, if the five-day-before-COE Verification of Property Condition is exercised, then it follows that verification cannot be thorough or complete unless agreed-upon repairs are completed by that deadline. Keep in mind, all sorts of things can be negotiated. “No, we didn’t complete the painting, but we’ll give you an additional $1,000 and you can complete it yourself.” And dozens of other variations if buyer and seller are honest with each other, flexible, understanding. To your question, what happens if repairs are not done by then?” Well, this could get messy. Buyer has the right to halt COE until the matter is cleared up–but it raises all sorts of issues with the lender, the escrow company. The settlement statements which are date-specific may have to be re-drawn, new federally-mandated rescission periods re-started, and on and on. This is not usual, but it does happen. Most important takeaway for this problem–GET EVERYTHING IN WRITING. Especially make sure that proper EXTENSIONS OF TIME are signed by all parties and filed with the lender and escrow holder. DO NOT FORGET THIS.

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