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DC-Area Home Sellers: Beware Paragraph 7

by Craig Davitian

DC-Area Home Sellers: Beware Paragraph 7: Figure 1

One of the most common contingencies as a home buyer is the "home inspection contingency", which is essentially a period of time agreed upon between the buyer and seller to have the property inspected by a certified home inspector. Buyers who request a home inspection do so in the hopes that it will provide them with not just detailed information about the propertyʼs condition, but whether the property fits within their expectations. Also, the majority of DC-area homes and condos are more than twenty years old, so it is important for buyers to have current information about a propertyʼs condition.

The most-used sales contract form in DC is the Greater Capital Association of Realtors' “Regional Sales Contract.” While all of the terms of the regional contract are important to varying degrees, Paragraph 7 (“Equipment, Maintenance and Condition”) is a section that sellers should heed before signing the contract and/or including it in their counter-offer to the buyer.

Paragraph 7 states (in part) that the “Seller warrants that, except as otherwise provided, the existing appliances, heating, cooling, plumbing, electrical systems and equipment, and smoke and heat detectors, will be in normal working order as of the Possession Date.” This list of appliances and mechanical systems covers “virtually everything” in a property that will require repair and replacement at some point.

If the seller signs or counters with this paragraph in play, he/she is required to repair or replace the items that the home inspector deemed to not be in normal working order before settlement. It also effectively removes any opportunity for the seller to negotiate the condition of these systems during the home inspection contingency.

Sophisticated buyers will, upon receiving the inspection report, try to fit most defects of the property into one of the subject areas outlined in this section of the contract. Be it a light switch, garage door opener or an ice maker that doesnʼt work as it should, it can be considered an item covered under Paragraph 7 that must be fixed. Property items which are not included in the "equipment, maintenance and condition" section are deemed as “optional” items whose repair or replacement is negotiated between the buyer and seller.

There is an alternative for sellers to accepting an offer or counter with Paragraph 7: sell the property in “as-is” condition, possibly combining it with a home warranty policy. Policies like this cost anywhere from $300 to $600 depending upon the add-ons and while they are often less expensive for the seller (when compared to Paragraph 7 repair costs), the warranty is effective at getting close to the buyerʼs ultimate concern, which is making sure the property defects will be repaired or replaced when necessary.

Craig Davitian is an attorney with the Davitian Law Firm and is licensed in the District of Columbia and Maryland. This information is not legal advice and is offered for educational purposes only. Feel free to Craig at .(JavaScript must be enabled to view this email address).

See other articles related to: home inspection, home buying, gcaar

This article originally published at http://dc.urbanturf.com/articles/blog/dc-area_home_sellers_beware_paragraph_7/3246

4 Comments

  1. eric said at 7:43 pm on Wednesday March 30, 2011:
    A buyer who falls for an "as is" condition is looking for trouble. What seems to make far more sense is the "as is as of the inspection date" clause, which allows for the home inspection and a back-out by the prospective buyer but doesn't leave the seller liable for everything under the sun (or roof, as the case may be).
  1. anonymous said at 9:45 pm on Wednesday March 30, 2011:
    Correction: While it highly recommended that the buyer use a "certified" (and competent) home inspector, there is no such requirement in the Regional Sales Contract. Au contraire, the inspector may be the buyer him/herself, a home inspection firm or the buyer's cousin Clem, all at the buyer's sole discretion. An inspection report by a certified inspector may (or may not) carry more weight to a seller, assuming that the seller or listing agent takes steps to confirm the certification (rarely done), but the buyer is not required to use a certified inspector.
  1. anon said at 4:37 am on Thursday March 31, 2011:
    Be careful telling people that a home warranty will repair and/or replace items when necessary- home warranties are limited! There are usually service call fees and may not replace items that have broken. The buyer/seller needs to review the policy (as a home warranty is an insurance policy) to understand what limitations and exclusions exist in the policy.
  1. Rocket said at 2:07 pm on Thursday March 31, 2011:
    The GCAAR sales contract is an atrocity. It says in 30 pages what any comeptent lawyer could cover in one page. I have submitted offers/contracts that I drafted, one page, and realtors have rejected the (full price) offer unless I used the contract. I think it was either written by someone who is truly incompetent or that it is designed to create so much uncertainty that no one knows who would be in breach, thus providing incentives to close. Unfortunately, the buyer and seller have to rely on agents to interpret the contract, and let's face it, the world of real estate agents is populated in large part (not in total, just large part) by people who failed at real jobs, didn't go to college, and in general lack education and critical thinking skills.

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