Removing Contingency... question regarding repairs

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s2000dude_IHB

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Hi all,



I'm looking at a property that has some dry rot on the balcony support beams (ie, the beams that support the walking surface and go in a good 5-10 feet into the home)



The inspector said that these two beams will need to be removed and replaced. Now I'm thinking removing these 4" x 6" beams and replacing them will involve quite a bit of work. I imagine they will need to pull the carpet and plywood floor boards to remove the bolts/nails and somehow gingerly pull them out and replace them with new wood. Now, the agent said she will not perform the work until all contingencies are removed. To me this doesn?t sound right because it would mean that the buyer will be stuck with the home or lose the deposit if the repairs were not done correctly. Is it fair to request that a contingency that the repairs are performed adequatley be kept after 17days or am I just worrying too much?
 
[quote author="s2000dude" date=1218520337]Hi all,



I'm looking at a property that has some dry rot on the balcony support beams (ie, the beams that support the walking surface and go in a good 5-10 feet into the home)



The inspector said that these two beams will need to be removed and replaced. Now I'm thinking removing these 4" x 6" beams and replacing them will involve quite a bit of work. I imagine they will need to pull the carpet and plywood floor boards to remove the bolts/nails and somehow gingerly pull them out and replace them with new wood. Now, the agent said she will not perform the work until all contingencies are removed. To me this doesn?t sound right because it would mean that the buyer will be stuck with the home or lose the deposit if the repairs were not done correctly. Is it fair to request that a contingency that the repairs are performed adequatley be kept after 17days or am I just worrying too much?</blockquote>
Well, I can understand the seller's point of view. When we sold our house in Massachusetts, the buyer requested that we replace the oil tank (they are common in the Northeast). The day after we replaced the oil tank, the buyer backed out. So, if I were to do it all over again, (as a seller) I would wait until the contingencies were removed first.



Good luck with everything. Keep us updated.
 
[quote author="s2000dude" date=1218520337]Hi all,



I'm looking at a property that has some dry rot on the balcony support beams (ie, the beams that support the walking surface and go in a good 5-10 feet into the home)



The inspector said that these two beams will need to be removed and replaced. Now I'm thinking removing these 4" x 6" beams and replacing them will involve quite a bit of work. I imagine they will need to pull the carpet and plywood floor boards to remove the bolts/nails and somehow gingerly pull them out and replace them with new wood. Now, the agent said she will not perform the work until all contingencies are removed. To me this doesn?t sound right because it would mean that the buyer will be stuck with the home or lose the deposit if the repairs were not done correctly. Is it fair to request that a contingency that the repairs are performed adequatley be kept after 17days or am I just worrying too much?</blockquote>


I think the seller's request is fair. As a buyer in the same situation, I would make sure the nature and scope of the repair was very explicit in the repairs form. You should know exactly what the repair will entail to make sure there aren't any unanticipated effects.



They are asking you to remove a buyer's investigation contingency, not really a repairs contigency. You have opportunity to re-inspect the repairs before closing to confirm they were completed as per agreement. If the sellers failed to do as they promised via an agreed request for repairs, they shouldn't be able to keep your deposit... Just make sure the scope of the repair is detailed and explicit to minimize room for interpretation in the event of a legal action.
 
I believe the key phrase here is being "detailed and explicit".



Additionally, would it make more sense to get a contractor to provide an estimate of repairs as well as getting a detailed inspection done on the property. Once you know what you are facing with a faulty structure and other maladies, you can make some adjustments to your offer? For example, if the estimate comes in at $30000 to repair the beams to either have your offer reflect the $30k difference. If I am incorrect on this, I welcome any corrections to my comments. :)
 
My only suggestion is to avoid closing escrow until all repairs are complete, and make that part of an removal of contigencies. The seller wants to make sure you will complete the transaction prior to beginning the process of completing the repairs. You want to make sure the repairs are complete before you move in. Unfortunately, this is a zero-sum-game between you and the seller. By removing contigencies you are (according to my understanding) putting your deposit at risk should you back out of the deal. Conversely, if you come for final inspection, and find that the repairs are incomplete you may still risk you deposit, then I believe your only recourse is a lawsuit.



On a related note, this is a buyers market (to say the least). The seller should be bending over backwards to keep you engaged in the deal, and is in a remarkbly weak negotiating position. As per your suggestion you could stipulate that the final close price will be contigent upon completion of repairs, with the price adjusted downward by estimated price of repair times to multiplier...
 
[quote author="CapitalismWorks" date=1218582993]My only suggestion is to avoid closing escrow until all repairs are complete, and make that part of an removal of contigencies. The seller wants to make sure you will complete the transaction prior to beginning the process of completing the repairs. You want to make sure the repairs are complete before you move in. Unfortunately, this is a zero-sum-game between you and the seller. By removing contigencies you are (according to my understanding) putting your deposit at risk should you back out of the deal. Conversely, if you come for final inspection, and find that the repairs are incomplete you may still risk you deposit, then I believe your only recourse is a lawsuit.



On a related note, this is a buyers market (to say the least). The seller should be bending over backwards to keep you engaged in the deal, and is in a remarkbly weak negotiating position. As per your suggestion you could stipulate that the final close price will be contigent upon completion of repairs, with the price adjusted downward by estimated price of repair times to multiplier...</blockquote>


On a CAR standard purchase agreement, mediation is first required, then binding arbitration. If particular repairs were promised and agreed in writing and they were not done, the buyer has no obligation to close escrow and could compel the seller to either perform or terminate the agreement. Either way, it would be a default on the seller's side and the deposit would likely be returned in the event of arbitration.
 
[quote author="s2000dude" date=1218520337]Hi all,



I'm looking at a property that has some dry rot on the balcony support beams (ie, the beams that support the walking surface and go in a good 5-10 feet into the home)



The inspector said that these two beams will need to be removed and replaced. Now I'm thinking removing these 4" x 6" beams and replacing them will involve quite a bit of work. I imagine they will need to pull the carpet and plywood floor boards to remove the bolts/nails and somehow gingerly pull them out and replace them with new wood. Now, the agent said she will not perform the work until all contingencies are removed. To me this doesn?t sound right because it would mean that the buyer will be stuck with the home or lose the deposit if the repairs were not done correctly. Is it fair to request that a contingency that the repairs are performed adequatley be kept after 17days or am I just worrying too much?</blockquote>


When in doubt, refer to the contract...





<img src="http://irvinerealtorsite.com/Allocationofcosts.JPG" alt="" />



Paragraph 2C(2) on the first page of the CA Residential Purchase Agreement makes this clear.

If this is an FHA or VA loan:

If you have an agreement, make the seller re-read what they've agreed to. The paragraph that I've highlighted in yellow is very clear that the seller will pay for repairs that a lender would require. Lenders won't put a loan on a home without termite clearance.



If you are buying this home, <strong>the sellers must cover that expense</strong>.

Independently, if you fail to remove contingencies within your 17 days (or other agreed to term) <strong>the sellers can find you in breach of contract and cancel</strong>.

These are two separate issues. If you don't live up to your part of the agreement, you are letting them off of the hook.



Issues like this have been the cause of several listing brokerages having been sued (successfully) by their sellers for "surprise" costs.



If not a VA or FHA loan, there is a WPA agreement probably included that discusses your same allocation of costs. I'll post that later.
 
Here is the WPA that is probably a part of your agreement.



This is the typical allocation of costs currently in our section of Orange County. It is also typical in Riverside, LA, and San Diego Counties, but beyond that I don't know. Sellers pay for the inspection and the repairs.



For clarification, "Section 1 repairs" are those where there is specifically <u>existing</u> damage (i.e. dryrot, subterraneans, swarmers, etc.). "Section 2 repairs" refers to <u>potential</u> damage that may be caused (a pile of firewood in the yard, for example)



Once again, this is not a "request for repairs" issue. The sellers need to follow through with their agreement that has already taken place.



<img src="http://irvinerealtorsite.com/wpa.JPG" alt="" />
 
May I ask if we consider walking away from the property if the negotiation didn't work out to our satisfaction, when is the deadline that I can back out without losing my deposit?



We are in the same shoes that the balcony support beams has dry rot. The inspector gave us the same suggestion as s2000dude's inspector did. That sounds like a major defect to me. Do you think we would be better off by walking away?
 
Yes, run! The deadline would be in your form Real Estate Purchase Agreement and/or Joint escrow instructions.

Dry rot on the beams means one thing to me-termites. And as long as you got them in one part of the house, there is no telling where else they might be. Just like myself, many new buyers make exactly the same mistake of not seeing the forest behind the trees, hanging up on minor repairs and not seeing the major defects and problems with the house.
 
[quote author="Meatball" date=1222249300]May I ask if we consider walking away from the property if the negotiation didn't work out to our satisfaction, when is the deadline that I can back out without losing my deposit?



We are in the same shoes that the balcony support beams has dry rot. The inspector gave us the same suggestion as s2000dude's inspector did. That sounds like a major defect to me. Do you think we would be better off by walking away?</blockquote>


You may "walk away" at any time before you have actively removed your contingencies (signed and presented form CR) and keep your deposit, less actual expenses such as inspections, HOA doc prep fees, etc., even after your typical 17 day period stated in the purchase agreement.



FWIW, <strong>most homes</strong> have some amount of dryrot and/or termite damage here due to our climate.



It's your call.

Good luck,

- IR2
 
I had "dry rot" on my balcony and it was determined that it was caused by termites, had to shed $2500 to fix the damage and fumigate (not sure if that is the right term).

Also, check out the garage on the inside, look at the beams, if you see dark spots there on the wooden beams, it means termite damage. Let me know if you find anything...
 
Termite damage is caused by bugs that eat wood. Usually they leave behind a dust of wood, or termite sh*t, on the floor.



Dry rot is caused by wet wood. The wood homes are built with in the last 50 years are with wood that is not completely dry. I dare you, I double dare you to find actual dry wood, and when you do please let me know the cost and measurements so we can compare it with the everyday wet wood. As the wood drys and the fungus/bacteria/whatever it is eats away at the wood. Due to the climate here in socal wood will never ever dry, but it will rot. There will be no dust/termite sh*t below where there is damage.



Any inspector who confuses dry rot with termite damage should be fired, kicked in the nuts, and run over by a 70s Monte Carlo, just like the Realturd who tells someone now is the time to buy because prices aren't going any lower. Both are worthless and have no clue as to what they are doing.
 
There are some homes in Northpark that are steel-frame construction. On Irvine Blvd. across from the Albertson's. I used to live there when they were being built and saw them go up. It seems like a great idea. To me that would be a huge selling point. I wonder if there are any downsides to it, though. Can't think of any.
 
Thank you everyone for kindly provide your knowledge and information. That?s truly very helpful as we are now getting nervous about this property.



Yesterday I also received the termite report, which shows the attic, front and back balcony have termites. The estimation is around $4,500 for clearing the termite. This is an old house therefore I don?t expect it to be termite free. But for me it?s still a concern to see a report like this. For those who have purchased/sold an older house please let me know your opinions.



IR2, I intended to pm you but for each one who has similar concern to get information I think it is better to ask this publicly.

So do you mean that as long as we haven?t signed all the form and complete the mortgage process, we can actually walk away any time before the escrow close? Should I inform our lender that we have such concern and ask them to hold on to the process? And I am assuming that the seller is going to agree to fix the termite and the supporting beam. Now if we agree that we?ll let him do the fixing, how can we protect ourselves if the fixing turns out not to our satisfaction? Do we still have a chance to walk away if we determine that they didn?t do a good job?
 
[quote author="Meatball" date=1222299605]Thank you everyone for kindly provide your knowledge and information. That?s truly very helpful as we are now getting nervous about this property.



Yesterday I also received the termite report, which shows the attic, front and back balcony have termites. The estimation is around $4,500 for clearing the termite. This is an old house therefore I don?t expect it to be termite free. But for me it?s still a concern to see a report like this. For those who have purchased/sold an older house please let me know your opinions.



IR2, I intended to pm you but for each one who has similar concern to get information I think it is better to ask this publicly.

So do you mean that as long as we haven?t signed all the form and complete the mortgage process, we can actually walk away any time before the escrow close? Should I inform our lender that we have such concern and ask them to hold on to the process? And I am assuming that the seller is going to agree to fix the termite and the supporting beam. Now if we agree that we?ll let him do the fixing, how can we protect ourselves if the fixing turns out not to our satisfaction? Do we still have a chance to walk away if we determine that they didn?t do a good job?</blockquote>


Meatball,

I'm not trying to be rude, but don't you already have a realtor that should be answering these questions for you?

Too many cooks in the kitchen spoils the soup.



What I can give everyone is background info:

The reason the termite report is required is to protect the lender's interests, as they are the primary purchaser of the home in most cases. The lender <strong>will not lend</strong> on a home that does not have termite clearance. "Clearance" is given by the pest control/remediation company, and indicates that the pest control company, in their professional opinion, believes the home to be structurally sound in regards to the wood-destroying pests.



Until repairs are made, clearance is not given. If something goes awry after the fact, the company that made the repairs could/would be held liable for damages.



I hope this helps.



If, in the future, you know of anyone else looking for professional assistance, referrals are appreciated. ;-)



-IR2
 
Thank you IR2. Please understand I am nervous now as a first time home buyer and also with the current market like that, I have been tempted to walk away from the property and keep my hard earn money for hopefully the next better opportunity. Yes I have a realtor who helps me but I don?t have 100% of trust in her as she will be tempted to talk me into accepting the deal. Actually she is already doing so by saying that we need to close escrow in 30 days. Therefore I need some independent opinions. My question is that supposing I accept the seller to fix the property, but what if I don?t like the job that they do? What are the options that we as a buyer have at that point? Can I still walk away and get my deposit back? Or I am stuck with the house?



Also, you never know maybe I?ll be your next customer if the deal breaks. :)
 
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