Proven Results • Smart Strategies • Ethical Advocates
Relin Real Estate Quarterly
A Quarterly Newsletter for Real Estate Professionals
October – December 2021
Topics Covered This Quarter:
Timing is Everything: Tips for Your Final Walkthrough, Jacqueline A. Carosa, Esq.
Avoiding Vague Inspection Contingencies, Jacqueline A. Carosa, Esq.
Timing is Everything: Tips for Your Final Walkthrough
Sound familiar? You meet your client at a property to conduct a final walkthrough only to find some unanticipated and unwelcome issue. Right. Before. Closing. It might be some sort of property damage. Maybe there’s a dumpster’s worth of garbage left behind by the seller, or a missing appliance that is supposed to be included with the purchase.
Making the decision of whether to get attorneys involved can be a tough one. Many issues can be resolved by the agents, while others may require attorney intervention. To alleviate some of the stress associated with walkthroughs gone bad, we have a few tips to share.
Let’s start with timing. It’s difficult to resolve complex issues at the closing table. We suggest that agents conduct final walkthroughs at least several hours prior to closing. If a problem is raised and cannot be resolved quickly by the agents, contact the attorney. The more time the attorneys have before closing to hash out problems that come up in a final walkthrough, the more likely you’ll close on time. Long gone are the days of sellers attending closings. In most cases, nor do their attorneys or real estate agents. That means we need to coordinate a resolution by phone. When a last-minute walkthrough issue comes up for my client-buyer at the closing table it can stall the closing. I may need to coordinate with both my paralegal and the seller’s attorney or paralegal, who will then need to communicate with the seller, (who may be at work in a meeting for 2 hours or out of town!). It takes time to coordinate a mutually agreeable resolution.
In the meantime, we are in a holding pattern at the closing table.
I once met a client at a closing who was visibly upset about the condition of the property she was about to buy. She had just come from her walkthrough. She told me the owner’s bedroom closet was missing the storage racks. The issue didn’t sound too complicated or costly until she showed me the before and after pictures of the closet. The closet system had been professionally designed and built by a well-known, custom closet design company. It was beautiful. Floor to ceiling shelves, drawers, storage cubbies – you get the picture. The MLS listing boasted of the custom closet and there was no indication on the purchase contract that the sellers would be uninstalling it. Once built into the space, the closet system became a part of the property. Much to the buyer’s surprise, the sellers disassembled and removed everything from the closet, leaving only the nail holes in the walls! After quite a bit of back and forth with the seller’s attorney, we were able to resolve the issue and close on the same day; however, it stalled the closing for quite a while and created avoidable stress for the buyers and agents.
We had another closing where significant water damage was discovered just hours before a closing. The property was vacant, and the seller was unaware of the issue. A leaky roof had caused water stains on the ceilings and walls. This was a more complex issue because we needed to get one contractor to look at the roof and another to look at the interior drywall damage. Coordinating contractors and getting repair quotes can be tricky and can take several days or longer. It’s not something we want to be doing on the day of closing. Because the seller was unwilling to escrow funds, the repairs needed to be completed before closing. We were able to close the following week, in large part because the buyer was willing to bend when the seller wasn’t and had contractors who were willing to drop everything, provide repair quotes, and make the necessary repairs.
Giving your seller a gentle reminder of what should stay with the property and what should go could be helpful. The property should be in broom clean condition. All trash and personal property not included in the sale should be removed by the seller. If the buyer hasn’t agreed to allow the seller to leave 20 paint cans in the basement, they need to be removed. Have the seller confirm that items included in the purchase remain at the property. Those items might inadvertently be removed from the property, especially when sellers enlist the help of overzealous friends and family in the moving process! Arrangements will need to be made to have the items returned or the buyer may receive a credit at closing for the missing items. If the property is vacant, it might be a good idea for the seller to check the property condition prior to the walkthrough. The property should be in the same condition as it was at the time the contract was accepted, allowing for normal wear and tear. If repairs are needed, they should be made.
Prior to closing, the buyers should confirm that all items included in the purchase are present and all other items have been removed. If that’s not the case, a credit to the buyers may be in order. Have your buyers inspect repairs and confirm, in writing, that they are acceptable before closing. If closing proceeds are escrowed for repairs, be sure to have your client inspect the repairs and confirm, in writing, that they are acceptable before escrow funds are released. Those escrowed funds are your buyers’ protection that the seller will remain sufficiently motivated to make quality repairs in a reasonable timeframe.
We strongly discourage buyers from conducting their final walkthrough on the way to the closing. Of course, there are instances when a last-minute walkthrough cannot be avoided, but allowing time to straighten out issues can help reduce the likelihood of delaying or having to reschedule a closing.
Avoiding Vague Inspection Contingencies
Contract contingencies can instill fear in the most confident of sellers. Engineer inspections rank at the top of the list. Those who can avoid them are happy to do so. It’s one less obstacle to overcome; one less headache for a seller (and the agent!). Our seller’s market has found many buyers waiving their right to inspections; however, when your buyer or seller is dealing with an inspection contingency, you should know how best to protect your client’s interests. The devil is in the details, and vague language can lead to confusion and uncertainty. Before we examine language to use for an inspection contingency, let’s first consider the content of the addendum used to demand the inspection.
The Property Inspection Addendum used by GRAR is approved by the Monroe County Bar Association. It gives a buyer a fixed number of days to conduct an inspection and to advise a seller of issues raised by the inspector. Buyer and seller then have a fixed number of days to enter into a written agreement that addresses the buyer’s objections. The Addendum doesn’t specifically discuss the buyer’s right to inspect the repairs upon completion, however, since the form requires repairs be completed at least 48 hours before closing, it seems the folks who drafted the form may have contemplated that the inspection of repairs take place during the buyer’s final walkthrough. But is it wise to wait for the final walkthrough before releasing an inspection contingency and signing off on repairs?
Dragging out repairs and contingency releases can turn a deal sour or worse, kill it completely. Clean deals are the best deals. The sooner a contingency can be removed, the better it is for both buyer and seller, but rushing to remove an inspection contingency can put your client at risk, especially if the contingency is vague and open to interpretation or the repair has not been inspected and approved by the buyer.
Vik Vilkhu, a partner here at RGC shared these observations: “I sometimes see issues with the language used in these proposed repair forms. For example, ‘The door needs to be fixed.’ Well, what does that mean? What’s the scope of the repair? Or, we see clients signing off without inspecting the repair. I suggest that the language for these transactions be drafted or reviewed by an attorney before the client signs off.”
Take Vik’s example of “The door needs to be fixed.” We would suggest avoiding such a vague statement by including more information. A better condition might read: “The basement door located in the kitchen is not level and does not close properly. The repair should be made in a workmanlike manner, at the seller’s expense, within 7 days; repair is subject to buyer’s inspection and acceptance in writing within 2 days of completion.” Assuming the seller accepts the terms, the repair will be completed quickly, and well before closing. This gives the buyer’s attorney time to communicate with seller’s counsel and resolve outstanding issues. Once your buyer accepts the repair in writing, the contingency is removed.
Language that addresses needed repairs or additional inspections can be tricky. Pass proposed language by the attorney handling the file. That way, you’re sure the language protects your client, preserves their rights under the contract, and cannot be interpreted as practicing law without a license.
If you have a topic you’d like to see discussed in a future Newsletter, please send your ideas to us at: RelinQuarterly@rgcattys.com
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