How to help a buyer who won’t accept the property in its present condition

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11/24/2015 | Author: Editorial Staff

My buyer client doesn’t want to accept the property “as is” in his offer on the One to Four Family Residential Contract (Resale). He would rather wait until after the inspection to list specific repairs he wants the seller to fix. Can I just leave both boxes in Paragraph 7D blank, or can I check Paragraph 7D(2) and write in Repairs to be listed following inspections?

Neither. Leaving both boxes blank in Paragraph 7D or altering the contract terms by adding language in Paragraph 7D(2) that doesn’t list specific repairs could violate Texas Real Estate Commission rules.

The buyer should only choose Paragraph 7D(2) if he knows of specific repairs that he wants the seller to complete at the seller’s expenses. Otherwise, the buyer should check Paragraph 7D(1).

Most buyers in this situation will also choose to pay a termination-option fee as provided by Paragraph 23 in exchange for the right to terminate the contract for any reason within a negotiated number of days. During this termination-option period, an inspection can be performed, and if specific repairs are identified, either the parties can negotiate to amend the contract to address these items or the buyer can terminate the contract.

Read more legal FAQs on texasrealestate.com.

Categories: Legal
Tags: repairs, as is, paragraph 7


Comments

Gayle Rosenthal on 11/27/2015

Our broker lawyer committee is charged with creating evenly balanced contracts.
My opinion is that the “as is” clause tips the advantage in any transaction toward the seller and by including paragraph 7, the broker lawyer committee has made an error that shows bias towards sellers. Seller’s attorneys will always advise an “as is” clause.

Sellers have a duty to disclose known problems with the home.  Realistically, agents, buyers, and even inspectors have a hard time discovering latent defects in any home.  Sellers, on the other hand,  have ample opportunity to learn about defects and even conceal the telltale signs of a home’s defects. 

Without an “as is” clause, a buyer has at least some chance of proving negligent misrepresentation or fraud on the part of a seller.  With an “as is” clause, this burden becomes pretty near impossible. 

Recently I sold a 10 year old home that one would expect to be built to a strong building code and not need a building drain line test.  The home appeared in excellent condition and received a glowing inspection report.  However, the very day the buyers moved into the home, there was a sewage backup. Upon removal of the flooring, it was clear the leaking had been going on for some time.  My clients, first time homebuyers, were understandably horrified and angry. 

Fortunately there was insurance to cover most of the damage.  And the “as is” clause in the contract put the nail in the coffin of any litigation.  So even though I feel that the current contracts deprive a buyer of any legal recourse, I would also say that this change in the way business disputes are managed by our society follows a pattern of spreading the losses due to incompetence and outright fraud.  It is inflationary, but to be expected in the current business climate, especially in Texas.

Theresa Akin on 11/27/2015

No way would I allow a buyer to alter a contract. I would advise him to seek his attorney first and foremost.  The only reason I would hand a pen over to a buyer is to initial or signature.  Look at the complete listing and go to financing to see which financing the seller prefers.  If any government financing/ VA, FHA, etc. is not mentioned and only cash or conventional then repairs would be negotiated.
When any of my sellers would do no repairs it was usually because of no funds for repairs or even estate sales.

Rick DeVoss on 11/26/2015

Keith—-> Good suggestion!
This issue of whether it is “as is” or “not as is” has always been confusing to buyers.  And then our promulgated form comes along and confuses sellers.

Let’s look at reality.  Some houses are purchased “as is” with everyone’s knowledge of that fact up front.  (Such as a bank foreclosure.)  So let’s have a box to check for that scenario.  ....And some contracts don’t even use the Option in P.  23.
And then some houses are purchased with the idea that the buyer is going to conduct inspections.  ~And when have you ever seen a case when the buyer didn’t think the seller should pay for something that needs repairs…?
And we might also have a case where the buyer knew up front that an item would need to be repaired by the seller, even before he inspected the house.

So why can’t we write Paragraph 7 to cover all of these scenarios without being confusing??  Let’s put the “option” right there in the same paragraph.  There is almost never a reason for a buyer to terminate the contract that doesn’t have something to do with inspections & repairs.  So why are we making this concept so confusing for the average buyer??

When we talk to the first time home buyer about the issues in Paragraph 7, we haven’t begun to explain the convoluted legal implications of Paragraph 23.  ~Let’s make this whole process simpler for everyone, seller included!    (Most sellers will understand the process as soon as they go looking at a house to buy.)

As it stands currently, you have to check one box in 7, and then use 23 to the buyer’s advantage.  But it COULD be much easier if the whole concept were presented in ONE paragraph for all to read.  ~When do these issues come before the Committee…?

Bruce Owens on 11/26/2015

Seriously, this much commentary on Real Estate 101?  This is not a difficult question for any competent agent.  Go back to school if this is really a problem for you.  Better yet, ask your Broker how to handle this.  He/She will likely want to know how you are handling your business.

Gayle Rosenthal on 11/25/2015

GOVERNMENT CODE - SUBCHAPTER G. UNAUTHORIZED PRACTICE OF LAW

Sec. 81.101.“the giving of advice or the rendering of any service requiring the use of legal skill or knowledge, such as preparing a will, contract, or other instrument, the legal effect of which under the facts and conclusions involved must be carefully determined.”

While it’s true that using the promulgated forms keeps non-lawyers from practicing law without a license, the omission of paragraph 7 does not prevent the formation of an otherwise valid contract.

Joe on 11/25/2015

@John,

Yeah I see a lot of amazing stuff going on and wonder how much the other agent really tried to educate their clients.

I had one recent deal and the Buyer decided to wait until the Option Period to send an Amendment asking for the $2000 worth of kitchen appliances..

I had another deal where the Buyer asked for about $200 worth of repairs, even though he had $400 invested in an Inspection and $100 for an Option Period, not to mentioned all the time he invested in looking at the property, making the offer and opening escrow at the title company.

The answer was a resounding NO to both of those requests! Both deals moved forward and both of my clients appreciated that I explained to them how/why both of those requests were pretty weak..  If a Buyer really wants to buy a home, it’s really pretty silly to ask for a leaking faucet and a broken fence board to be fixed before going forward with a $200K transaction.. And asking for Non-Realty Items during the Option Period can feel like a slap in the face to Sellers. Again, not illegal, but doesn’t have to be agreed to by Sellers either! Let’s get the deal done and move past asking for stupid things during the Option Period!!

John Cahill on 11/25/2015

There is a twist to the wording however I hear agents explain it simply. The contract is an “as is offer” however that can be tempered by an “option period” that both parties agree to. The option period usually includes a (for any reason) termination clause.

The current sellers market has brought about some very tricky buyers.  I have seen offers way over list used to take a home off market then use the option period as an emotional battering ram.  As a result I have seen option fees increasing.

On one the seller accepted an offer over list price with a 5 day option and $4,000 option fee.  The inspector found a few noteworthy items (not nickle and dime) that “should have” been (?) on the disclosure. That ended up in an argument I suspect a lawyer had to solve. It made me think “if your going to require a short option period and a high non-refundable fee the disclosure needs to be spot on”.

On another deal the buyer offered 10% over list. The seller raised the option fee and the buyer bailed. In that case the seller flushed out a fake.

Practicing law? TAR and many other reputable organizations explain each section of the contract form. Maybe you would not be practicing law if you were providing those explanations . . I need to run that by a lawyer :>.

I read the contract end to end the other day and found it astonishingly simple compared to the closing documents. P.T. Barnum and borrowed money explains it well.

Lawyers are always practicing law practice hoping that practice makes perfect.

This sellers market is very interesting.

Cyndia Moore on 11/25/2015

Carmen, as agents we have to educate our buyers and our sellers about whatever the market is like at any given time.  And as agents, we have to change our strategies according to whatever market we are in at any given time.  If we are working with buyers in a sellers market, our offers will have to be very competitive.  If we are in a buyers market, our strategies will change.  I have had a few buyers, and sometimes their agents, that don’t seem to understand how competitive the offers are, and that the buyers can’t call the shots when sellers are looking at multiple offers.  To not help our buyers understand what it will take for them to have a real shot at being the winning offer, is to do a buyer a disservice. 

The buyers are protected with their option period.  A small dollar amount to give the buyer the chance to have the home inspected and negotiate any repairs, or decide if they want to move forward without repairs, or to simply change their mind for ANY reason.  It’s a pretty darn good deal, and many states don’t have that language where a buyer can simply change their mind.  We are fortunate here in Texas.  That small option amount also works as a small compensation to the sellers, if they lose a week to 10 days of marketing time if the buyer terminates.  As agents, we have to change with the times, and then yes - change again with new times, and then - change again.  The real estate market continually changes - buyers market - then sellers market - it ebbs and flows.  As agents, it is our job to educate our buyers and sellers about those changes, and what their position and strategies need to be to come out the winner.

Carmen Arif on 11/25/2015

Cyndia I agree on your last paragraph.

However,  I’ve been in they business for over 20 years.  Basing wording on a sellers market is wrong.  Buyers market is right around the corner.

Cyndia Moore on 11/25/2015

Carmen, commercial or residential - yes, it is up to the buyer to do due diligence, have the home inspected, and then negotiate for any repairs.  And if you write something odd in that area, good luck with having your buyer be the accepted offer in a multiple offer situation, which is the case with almost every house out there in this market.  We have had 2-15 offers on every house we have listed the last 2 years, and the details of the offer matter.  If you are truly looking out for the best interests of your buyer, then you would explain that to your buyers.  If your buyer is “giving option money to 10 sellers”, that means your buyers are terminating 10 contracts?  Every house needs some repairs, and many buyers are willing to have the home inspected, and pay for a few hundred worth of repairs, because buyers are lined up behind them waiting to do so, if they are not.

I do agree that this could be better stated in a different way.  It is very convoluted for buyers and sellers to understand on their own, that’s for sure.  They wouldn’t understand at all without an agent explaining it to them, and in my book, if a buyer or seller couldn’t read thru it on their own, and understand what it means for them - changes are needed.

Marybeth Tiemeyer on 11/25/2015

If you truly understand the purpose of 7D1 you will be able to explain it to your
buyers.  We have never had a buyer unwilling to buy it As Is after a thorough
explanation.  7D2 is useful if there is something that is obviously wrong with
the property such as Roof or Foundation.

Dinty Moore on 11/25/2015

Mike, I agree that a survey of actual practitioners in the field should be done.  For instance, if a seller and buyer come to terms on the contract based on how some systems of the home work at the time but the seller moves and takes his wi-fi with them which controls these systems then how will an inspector inspect the systems?  Some new systems such as sprinkler system,  security system, etc work off of smart phones which go thru wi fi.  If the wi fi is gone, that is part of the system.
With new technologies emerging, the contracts have to anticipate changes instead of reacting to changes since agents can’t change promulgated forms.

Carmen Arif on 11/25/2015

Randy Smith,  it is not practicing law to represent the best interests and uphold your fiduciary duty to your “BUYER”.

Paragraph 7 is so seller slanted!  Why should I be out money in a small option period.  This is not commercial real estate for my BUYER to do due diligence.  These are unsophisticated home buyers.  And my fiduciary duty is to protect them.

If we had to go around giving option money to 10 houses that decided the market is too hot to negotiate for repairs i then hurt my BUYER.

In my opinion as a BUYER’S agent no seller should get away with selling a “in need of hidden repairs home”  In my world every seller should NOT be able to sell without a current, full professional home and mechanical inspection to present to potential buyers.  And price should reflect the repairs needed. 

So, if I have a buyer that doesn’t want to sign “i accept in it’s present condition” i will hand him/her the pen and say change it the way you want to.  AND THAT’S NOT PRACTICING LAW AND FULLY WITHIN THE BUYERS LEGAL RIGHTS”

Joe on 11/25/2015

I for one am amazed that active Realtors don’t know the ins and outs of these sections of the contract. For God’s sake, help your clients know that As-Is doesn’t mean they can’t later ask for repairs during the Option Period.  Additionally, help your clients plan their negotiation strategy when deciding how to write the offer. There might be situations when you want to ask for known repairs up front, rather than checking As-Is. As a Listing Agent, I know clients can become a little irritated if they openly disclosed a big defect and the Buyer intentionally waited until the Option Period to request the repair. Again, there’s no rule that says it has to be done one way or the other, but if you strategize the right way a Seller may appreciate the known repair to be requested from the beginning. Either way, if an agent is doing his/her job, the client shouldn’t be surprised at what happens down the road. Don’t you guys spend time preparing clients for what may or may not happen during the Option Period? It sounds like some of you guys just want to let the client check what they check without taking the time to guide them and help them understand the possible implications or outcome of their choice. Are you a professional Realtor looking out for your client’s best interest, or just a paper shuffler?

mike Schmitt on 11/25/2015

I have noticed over the years that the broker lawyer committee however well intentioned many times does more harm than good in their revisions of the contracts.  I think it would be a good idea if they took a survey of the actual practitioners in the field and learn what their problems are before they make changes to the promulgated forms.

James DeBerry on 11/25/2015

The thing I see most often in 7D(2) is “WDI treatment if buyer paid report shows active infestation.” If you represent a seller, and allow them to sign an agreement that says this, you are binding your seller to the “unknown” when it comes to the cost of treatment. Go get one quote for the cost of a dry-wood tenting and you’ll never make that mistake again. Two things come to mind when I see this in a contract. 1) Hey fool, read the sentence right under where you wrote that in that says (Do not insert general phrases, such as “subject to inspections”.... and 2) The 5% rule in paragraph 7E would not apply to such because it was agreed to in writing - no matter how much the cost. In the 1980’s and early 90’s, when the contract meat was on two pages, we had such silliness as “Seller shall pay up to $_____________ for termite treatment and repairs, and up to $_________________ for other repairs…..” Anyone remember those? There is a reason we don’t do it that way anymore - it’s called binding your seller to the unknown and then having to make the call as to what repairs qualified and what didn’t (remember that cosmetic repairs weren’t allowed). This is what the “option period” is designed for. All of subjectivity and speculation is removed whenever the negotiation of these items is separate from the initial price and terms.
The main culprit here, I truly believe, is the electronic form filling software. It apparently prevents agents from actually reading the contract and knowing what’s in there binding the people they are supposed to represent in a transaction. Honestly people, read the contracts and you’ll do the business a favor by being competent in your field.

Keith Laursen on 11/25/2015

While I don’t have a problem explaining this to buyers it seems that it could be better.  Unless blatantly obvious, most buyers don’t know what repairs are required and won’t ask for repairs on the initial offer because it puts them in a poor position vs. a buyer not asking for repairs up front.  They don’t like checking a box that says they accept the property before its even been inspected.  7D already explains what, As Is means, why even have a check box for it?  It is either As Is or not.

Paragraph 23 synergy is lost because it’s 16 paragraphs away from 7!  In my opinion, it would be better if the termination option was placed within paragraph 7.  You are already talking about lender required repairs and treatments, environmental matters, disclosures, inspections and service contracts, so why not have termination verbiage there?

Just do away with the accept as is check box and say all contracts are as is unless   specific repairs are requested. State that the buyer has the right to inspect, request repairs and renegotiate contract terms during the option period and has the unrestricted right to terminate.

JANICE CRUZ on 11/25/2015

I think this whole argument is nonsense we as Texas Realtors should be able to have the knowledge of explaining to buyer what the contract is saying, in my opinion the buyer should not be advised to not check anyone since it is our job to make sure that they are aware that there is no reason why they could not ask for repairs during inspection. the as is basically stated that the buyer had no knowledge of any known repairs needed.

Stephen Williams on 11/25/2015

In the majority of cases, a buyer is buying the property “as is”, subject to subsequent inspections.  While that may seem contradictory, in my opinion it’s the most practical way to approach the majority of deals.  A prospective buyer typically doesn’t want to pay for inspections pre-contract, nor are they typically able to identify potential significant problems (extensive termite damage, for instance) pre-inspection. 

On a related note, I am still fuzzy about the term “practicing law” as it relates to agents and contracts.  Has TREC or TAR ever offered a definition of what that means?  I understand the concern, but the prohibition seems somewhat overly broad and sweeping to me.  Am I in the minority about that?

Sheri Menegaz on 11/25/2015

I’m not sure why this is so confusing!  It is up to us as professionals to explain the paragraph to both buyers and sellers so that they understand the process.  Checking “as is” does not compromise the buyers ability to negotiate with the sellers within the designated agreed upon time frame for the option period.  It’s a simple amendment to clarify any repairs the buyer would like to have and that is negotiated as well.

Gayle Rosenthal on 11/25/2015

I disagree with the TAR answer.  And for the longest I refused to advise clients to check either box.  However there are so many megabroker automatons selling real estate that it became hard to do business.  So now I grudgingly check the box and basically ignore it.  My problem with 7D1 is that it gives the seller the incorrect impression that no repairs will be requested, despite the language of the form regarding the option period,  especially if his agent advises him this way. A buyer puts option money on the line with the understanding that inspections may change the status quo, only to meet intransigence from the seller.  Contrary to the assertion that 7D1 works with 23, my experience shows that it undermines the option period.  The contract forms were better without paragraph 7.

Leaving both boxes unchecked does NOT invalidate the contract or violate TREC rules in any way.  Nor does it constitute the practice of law. 

The only time I would typically WANT to use this paragraph is when I know I have a major remodel and want termite treatment,  I have a teardown and am waiving option,
or, I am waiving option to strengthen the offer. 

David Marne on 11/25/2015

Perhaps I’m missing something, but why not do both?  List specific repairs in 7 and pay for an option period.  Then during the option period if other needed repairs are discovered during the option period submit an amendment for those repairs.

Randy Smith on 11/25/2015

The answer from the TAR is correct,  as it captures the intended spirit of paragraphs 7 and 23 combined. The spirit is intended to promote an option period, and yes,  it is correct that the client can alter the contract, however that is rarely recommended.
For the life of me I cannot understand why Realtors are so hell-bent on altering promulgated forms and venturing down tgat road of practicing law without a law license, when in fact very rarely are such adjustments required.
Yes, a contract has an essence about, it is simply an exchange of promises, and when the essence is tampered with, or altered, the essence evaporates, and there is no contract. TREC promulgated forms as they exist and often modified are more than sufficient for Realtor’s and our clients use.
My opinion.

Tracy Stanley on 11/25/2015

Well Glenn, finally an idea with merit. Why don’t you call me and we work an outline fir a MCE class with usefull helps based an actual events. Submit it to TREC for an approved MCE course and let Randy teach it at ARBOR.

Carmen Arif on 11/24/2015

I think this answer is incorrect.  Although the legal team would like only lawyers to write a contract; it is perfectly within the buyers rights you alter the contract if s/he wants to.  I would tell my buyer, I cannot alter the contract but you can. So write whatever you want in it and hand him/her the pen.

Marty Walker on 11/24/2015

If the buyer checks 7D on a new construction, they better have an option period or they are stuck if they find something wrong.

Glenn Still on 11/24/2015

I think that rather than our current stilted continuing education that really seems to help very little- more useful education (such as this) would help a lot. What are the chances that continuing education can start actually helping agents learn how to help their buyer’s and sellers understand the forms being used?


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The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

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