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June 29, 2004
GAZETTE Newspapers
By: Arthur S. Lazerow
Ask Mr. Home Inspector
Property
Condition and the Real Estate Contract
Question: Tom from the District of Columbia emailed me through my radio
program the following question: I am a new real estate agent
and have not been able to attend your class on the Property
Condition Clause of the sales agreement. That
is the clause causing me most of my problems in negotiating
contracts. Is
there any way we can make it more concrete or exact?
Answer: TomÕs
question caught my attention, since I teach a continuing education
course for Realtors on this subject. Non-Realtors
probably have no idea what this is about, but in fact, the
property condition clause establishes the degree of responsibility
that the seller has for repairs to the home prior to settlement. This
is clearly a key ingredient of the real estate transaction.
But
letÕs drop back and understand the real estate purchase agreement. When
both buyer and seller execute the contract, each in essence
gets a candy jar full of sweet and sour candies, and the two
jars are different. The
sweet candies are the benefits and the sour candies are the
responsibilities each party assumes. For
instance, the buyer gets the home at settlement but promises
to bring money to the settlement table. The
seller gets the money (usually to pay off the mortgage) but
is obligated to keep the home in the same condition as at the
time of contract acceptance.
From
the sellerÕs perspective, the property condition clause may
be the sourest of all candies, because this clause requires
the seller to make repairs, on a mandatory basis, to any deficient
mechanical system. Paragraph 12 of the standard Maryland agreement, known as
the MAR (Maryland Association of Realtors) Residential Contract
of Sale, says ÒAll electrical, heating, air conditioning (if
any), plumbing (including well and septic) and any other mechanical
systems and related equipment, appliances and smoke detector(s)
included in this contract shall be in working condition.Ó (Bold and italics added)
The Greater Capital
Area Association of Realtors (GCAAR), which covers Montgomery
County and the District of Columbia, originated a second agreement
several years ago known as the ÒRegional Sales ContractÓ. The
property condition clause was moved to paragraph 3 and clarifies
the language by eliminating the words Òany other mechanical
systems and related equipmentÓ. It also contains the phrase Ònormal working
conditionÓ.
It seems simple. The
seller promises that all mechanical systems are working properly,
both at the time of execution of the agreement and at settlement. Components
covered by the property condition clause found not to be in
working condition must be repairs or replaced. The
consequence of this language is that components not in working
condition, but not included in the property condition clause
listing of categories are not considered mandatory repair items
and become subject to negotiation between the parties after
the contract is executed. This
is the sticking point that caused Tom to ask his question.
Like many things,
the devil is in the details. (I
forgot to mention, Meriam Webster defines the word ÒworkingÓ to
mean, Òto operate in accordance with its plan or design.Ó) This
definition is very helpful, since if an electric outlet has
power to it, it can power a light bulb or motor. However,
if it has reversed polarity or open ground or any other technical
deficiency, it is not operating in accordance with its design
and is therefore deficient under the real estate contractÕs
property condition clause.
Based on the above
information, I can now answer Tom. Purchasers
typically have a home inspection immediately after the seller
accepts the contract. The
home inspectorÕs report lists a series of components that are
not in working condition. Tom
should separate the deficiency list into two groups. Group
1 consists of mechanical deficiencies covered by paragraph
12 or paragraph 3 of the two contracts and the seller must
repair or replace these to put them into proper working condition. Tom
needs only to give written notice to the seller through the
sellerÕs Realtor that this list must be corrected. The
work should be performed in most cases by licensed mechanics
and completed 5 days before settlement to allow for the final
walk through inspection prior to settlement.
The remaining deficiencies require
negotiation between the parties. Tom
should consult with his client to determine which items on
the list are important and should be included on the request
for repairs as a tradeoff for releasing the home inspection
contingency and proceeding to settlement. The remaining deficiencies are accepted by the buyer and will
be taken care of after settlement. Clearly,
the process if simplified by not negotiating mandatory deficiencies
and merely giving notice to the seller. This reduces the negotiable items to a more manageable list.
Tip of the Month: Electrical
Safety: The last several
weeks I have observed the same electrical safety deficiencies
in homes that I have inspected. Perform
a quick inspection of your home or apartment and correct
this short list of electrical deficiencies: Ground Fault
Interrupting Circuit Breakers (GFCIÕs) that are inoperable
(at least push the test button to test trip the circuit);
smoke detectors that have dead batteries; electrified wires
hanging loose and not terminated in an enclosed junction
box; no safety covers in outlets of homes with infants;
electric panel boxes with missing knockout covers; and,
too many extension cords.
Have a question relating to a housing problem? Email it to
aslaz@erols.com. Each question will be answered and some will
be included in this column.
Arthur Lazerow, president of Alban Home Inspection Service,
Inc., was a homebuilder for 25 years and is now a nationally
certified ASHI home inspector, having performed more than 5,000
inspections during the past 10 years. He can be heard every
Saturday from 10 to 11 a.m. as co-host of Real Estate Today
on WMET 1160 AM.
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