In the Sarasota real estate market, the two most widely used real estate contract forms are the FR/BAR-3 Contract commonly referred to as the “Regular Contract” and the FR/BAR As Is Contract. Under the As Is Contract, the buyer has an absolute out within the inspection period thus many Realtors prefer the Regular Contract. In fact, under the As Is Contract, a buyer doesn’t even have to spend money on an inspection to be able to terminate the contract. However, there is one sentence that Realtors should be aware of when using the Regular Contract. The following sentence is in Paragraph 12(b) giving the parties the right to terminate the contract all the way up to closing if timely notice is not given:
“If neither party delivers such written notice to the other, then either party may terminate this Contract and Buyer shall be refunded the Deposit, thereby releasing Buyer and Seller from all further obligations under this Contract.”
Let’s take the following fact pattern using the Regular Contract. The General Repair Limit under Paragraph 9(i) is listed as Zero. Within the inspection period, buyer has a home inspection completed and delivers notice to the seller of numerous repair items that need to be addressed. In accordance with the contract, seller obtains and delivers to the buyer the repair estimates totaling only $500. Buyer is pleased with the inspection results and wishes to proceed with closing. However, buyer fails to notify the seller within 5 days of buyer’s receipt of the estimates agreeing to accept the property in as is condition. Mr. Moneybags contacts the seller and makes him an offer he can’t refuse. Consequently, a week before closing, the buyer receives written notice from the seller that seller is terminating the contract under Paragraph 12(b). Although buyer gets his deposit back, buyer is not happy that he just lost the property to Mr. Moneybags.
A similar sentence is found in the Wood Destroying Organism (“WDO”) Paragraph 12(c) but it reads if buyer does not deliver such written notice to seller, then either party may terminate. For instance, buyer has a WDO inspection and there is evidence of live termite infestation. The WDO Limit is $500. Buyer delivers the WDO report to the seller within the inspection period. Seller, within 10 days from receipt of the WDO report, obtains and delivers to buyer estimates totaling $600. Weeks go by with no response from the buyer and then a week prior to closing, buyer notifies seller that buyer is terminating the contract under Paragraph 12(c). Here, seller isn’t happy since buyer gets the Deposit back and the contract is terminated.
In summary, if the inspection items exceed the respective limits under Paragraph 9 of the Regular Contract, then make sure the parties give proper notice to the other party and don’t remain silent. Likewise, it is important when the parties do reach an agreement concerning the inspection items to reduce it to writing by an addendum to the contract. If the party is represented by an attorney, it is always a good idea to reach out to the attorney to prepare the addendum which is just one of the many benefits when using an attorney as the closing agent versus a title company. As always, if you have any questions concerning the foregoing, we urge you to consult with your real estate attorney.
Berlin Patten Ebling, PLLC
Article Authored by Julie Horstkamp, Esq. firstname.lastname@example.org
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