Inspection obligations: What, when and by whom?
Nov. 5, 2018 – This article is part one of a three-part series covering paragraph 12 of the standard Residential Contract for Sale and Purchase (“FR/Bar”) contract regarding repairs to a property. This first article will cover the different inspection obligations. The second – which will appear in a future issue of Florida Realtors Legal News – will cover what happens when a repair estimate exceeds the repair limit in the contact. The third article will cover repair standards and re-inspection.
Based on frequent calls to Florida Realtors Legal Hotline, there is general confusion over repair obligations within the standard FR/Bar and the steps parties are to take when the contract calls for repairs. Realtors should understand how this section of this contract works if they want to avoid surprises later in the deal.
Failure to understand the parties’ obligations under this paragraph can, at the least, result in confusion over who is to do what and when they’re to do it – or, at worst, result in one party losing out on a contractual right given to them under this section.
On a practical note, I encourage readers to access a copy of paragraph 12 of the standard FR/Bar contract as they read the rest of this article.
Paragraph 12 of the FR/Bar contract provides for an inspection period, and during this period, buyers may have any and all inspections they deem necessary. It’s important to realize that there are several types of inspections a buyer may wish to have done beyond just a general property inspection. The standard FR/Bar contract specifically mentions three different types of inspections: a general property inspection, a wood destroying organism (WDO) inspection and a building permit inspection.
Before the inspection period ends, a buyer must notify a seller in writing, in accordance with each type of inspection, what items aren’t in the condition warranted by the contract.
General property inspection
With the general property inspection, it’s important for a buyer to realize that the seller isn’t obligated to fix everything mentioned on an inspection report. Paragraph 12(b)(ii) covers exactly what a seller may need to fix, so it’s vital to understand this part of the contract. The paragraph outlines which items must be free of leaks, water damage or structural damage. It specifies that torn screens, fogged windows and missing roof tiles or shingles must be repaired or replaced by a seller before closing.
However, as to other potential items listed on an inspection report, a seller is only obligated to fix those items that are not in “Working Condition.” This is defined as items “not operating in a manner in which the item is designed to operate.”
A seller is not obligated to repair “Cosmetic Conditions,” defined as “aesthetic imperfections that do not affect the Working Condition of the item,” and the contract lists several examples. Also important to note: The contract specifically states that limited roof life is not considered a defect as long as there isn’t “evidence of actual leaks, leakage or structural damage.”
So what does this mean, exactly?
For buyers: Once they receive a general inspection report from an inspector, they should go through the report carefully, noting which items may not be in Working Condition that the seller has an obligation to repair. Once deciphered, a buyer must notify a seller of those items before the inspection period ends or – and this is imperative to understand – a buyer waives a seller’s obligation to make those repairs.
For sellers: There are two options: A) Get an estimate of those requested repairs and deliver that estimate to the buyer within 10 days of receipt of buyer’s written notice of repairs or B) have a second inspection conducted and provide a copy of that inspection, plus an estimate on those repairs, delivered to a buyer within that same 10-day timeframe.
The seller may decide to have a second inspection if they feel a buyer’s inspection inaccurately reflects the condition of the property. In the event that the two inspection reports differ and the parties can’t resolve those differences, the contract calls for the parties to have a third inspection, the cost of which would be equally split between them. This third inspection would be binding on the parties.
Wood-destroying organisms (WDO)
Similar to the general property inspection, a buyer who conducts a WDO inspection must notify a seller if any evidence of WDO infestation or damage is found. For WDO repairs, however, a seller doesn’t have to re-treat a property if there isn’t a visible live infestation – so if a seller has had WDO treatment in the past, that doesn’t necessarily mean there will be a need for retreatment.
Again, a seller has a 10-day window to get any WDO damage estimated by an appropriately licensed person and deliver a copy of that estimate to a buyer.
Building permit inspections
Following a building permit inspection, a buyer has to deliver written notice of any open or expired building permits, or unpermitted improvements, to a seller within the Inspection Period.
Once noticed, a seller must provide all plans, written documentation or other information a seller may have relating to improvements on the subject property should a buyer’s building permit inspection find that permits relating to those improvements haven’t been properly closed out or are unpermitted. A seller is also obligated to get an estimate on the cost to remedy Permit Inspection items and deliver that to a buyer within 10 days of being notified.
This concludes the explanation of the various obligations of the parties under the standard FR/Bar contract with regards to the initial inspections of a property. In the next Florida Realtors Legal Newsletter, we’ll walk through the contract options when comparing the repair estimate to the repair limit in the standard FR/Bar contract.
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