Many, if not most, residential properties sell subject to an inspection contingency. When using the Minnesota REALTORS® forms during the inspection period, the parties can negotiate any items the buyers want repaired after inspection. Any repairs agreed upon should be written into the purchase agreement via an amendment. The Minnesota REALTORS® provides a blank Amendment to Purchase Agreement form for facilitating the agreement related to the inspection repairs, among other purposes. But what do you write on the blank amendment to protect your buyer or seller? Each case is unique and requires the agent drafting it to think critically and thoroughly about the situation. However, there are a few tips that can guide this process:
1. Be precise about the nature of the repair.
Phrases like “fix the leaky sink” might be interpreted in various ways, with various levels of expectations for each of the parties.
2. Agree who will do the work.
If a contractor is doing the work, you may want to state that a licensed contractor (if applicable) will do the work. Better yet, you may want to select the contractor in advance. If you have a contractor selected and bids completed already, you may even want to attach the bid to define the scope of work. If you don’t know who will do the work, you may want to come up with an agreed upon process for picking that person or company, or defer to one party or the other to make the decision.
3. Ask for a receipt.
Many times, the closer will want the receipts for the work to ensure a mechanic’s lien cannot be filed. Make sure the buyer is entitled to view the receipt.
4. What if the repairs are made, but the problem isn’t fixed?
If you write in that the specific work is to be done, and it gets done, the seller has fulfilled the obligation. You may want to provide for a retest, or some kind of inspection to evaluate whether the repair solved the underlying issue.
5. If the repair doesn’t resolve the issue, what will happen?
You may want to think about whether the buyer will have the right to cancel the purchase, or whether the seller will be required to keep making repairs until the issue is resolved, although the latter could be risky for a seller.
6. Define when the work must be done.
Does it need to be accomplished in order to pass the appraisal or a re-inspection? What if the agreed upon contractor cannot complete the repair prior to closing? Will there be an escrow agreement? Will the lender allow an escrow? These are all questions you should research and answer in the amendment.
A well-drafted inspection amendment takes time and effort. However, it can save many headaches down the road that could blow up a transaction at the final walk through or at closing.
Contributed by:
Anne V. Kealing, JD
Associate Legal Counsel
akealing@mnrealtor.com