Anytime we meet with our buyers following their home inspection, we try to make sure they understand what the expectations can be around any repair requests. Home repairs post-purchase can be a significant expense, and even though inspection reports do not necessarily translate into fix-it lists, it is critical to know as much as possible about the home before finalizing the purchase.
So, for first-time buyers or anyone else new to how a purchase contract unfolds, we’ll back up here for a moment and describe what takes place in the escrow process up to this point.
Once the purchase offer is accepted, the buyers have three days to make their earnest money deposit (EMD). They are now committed to the purchase, and their deposit (usually 3%) is at risk if they break the contract. However, buyers have three exit windows in a routine 30-day escrow, allowing them to cancel the contract without penalty. Unless otherwise stipulated in the agreement, buyers have 17 days to complete all investigations and the appraisal to ensure they are fully aware of the physical condition and the value before they finalize their commitment to the purchase. (the third window in a standard escrow comes at 21 days when the buyer must release the loan contingency.)
As soon as possible, the buyer hires a home inspector at their own expense (usually $300-$500). It is best to get this inspection done early, leaving time to evaluate the results and to determine if there will be any requests for repairs.
We always remind our buyers that they have agreed to buy a used property in “as is” condition unless the home is brand new. While an inspection may reveal some imperfections, it is not a fix-it list. And though most sellers will often be willing to make some repairs within reason, their only ethical responsibility would be to repair anything “called out” as a code compliance or safety issue. On the other hand, if the inspection reveals extensive problems that indicate neglect, the buyer can exercise their option to negotiate repairs or cancel the contract. The buyer has leverage here because it lost time and money for the seller to put the house back on the market.
If the seller agrees to repairs, there are two options to settling on them. Either the seller completes the agreed-upon repairs before the close of escrow, both sides agree to a fixed dollar amount that the seller pays instead of doing the repairs. The second option is often preferred to avoid any concerns about the quality of work or time.
Regardless, the inspection and request for repairs can be critical in the escrow process. Good faith negotiations on both sides will go a long way toward ensuring a successful transaction. And this is a time where it is beneficial for the respective agents to be doing the negotiating. Agents can be objective about items that can become personal between the two parties.
Five Things California Home Buyers Need to Know about Requesting Repairs:
An inspection contingency deadline comes up fast. As s I said earlier, the default in California for a buyer to release all inspection contingencies is 17 days. Any agreements on requested repairs need to be in place by this time.
The buyer has the right to control the inspections. The buyer chooses the inspector, has the right (and is encouraged) to be present at the inspection. Any inspector will welcome questions from the buyer. If the seller makes it difficult in any way to grant access to the buyer’s inspector, the buyer has the right to an extension of the contingency deadline.
The seller may not honor the request. The seller has the right to ignore, deny or attempt to negotiate a compromise.
If the parties cannot agree on repairs, the buyer can retain their earnest money deposit: This is why there are contingency deadlines in the contract. If the buyer is unsatisfied with the seller’s response to the repair request, the buyer can cancel the contract as long as the request was before the contingency deadline.
The buyer has to take action by the deadline: By the contingency deadline, the buyer must either rescind any requests and contingencies on the sale, request additional time to complete more inspections or repairs, or cancel the transaction if repair requests are ignored or denied.
In the end, it is essential to remember that both parties entered into this agreement, hoping to reach a result satisfactory to both. While a list of deficiencies in an inspection report is not a fix-it list, buyers should expect to get the value they anticipated when they entered the contract. At the same time, sellers have a right to expect buyers to understand they are purchasing a “used” home, and most of the time will price their homes accordingly.