The buyers may be happy with the condition of a property, but their lender could require repairs before committing to a mortgage loan. That’s when Paragraph 7E of the One to Four Family Residential Contract (Resale) (TXR 1601, TREC 20-14) comes into play.
Just because the lender asks for repairs doesn’t mean the repairs will be made. According to Paragraph 7E, absent another written agreement, neither party is obligated to pay for lender-required repairs. The parties can negotiate who will pay for those repairs. If the parties don’t reach an agreement, the contract will terminate, and the buyer will be refunded his earnest money. Also, if the cost of the lender-required repairs exceeds 5% of the sales price, the buyer can terminate the contract and receive his earnest money back.
I’ve never had a significant problem with this, but I have long wondered about a couple of issues. First, who decides if the repair is complete? Second, what if a Buyer submits a bid that equates to 6% of the sale price, but Seller responds with his own bid at 4%? I guess we can’t “lawyer-proof” the contract against all scenarios.
Stephen, I can’t speak for conventional or FHA deals, but my experience as a (now retired) VA appraiser was that the lender would request that the appraiser do a “final inspection” to make sure the required repair was properly completed. The appraiser charges a final inspection fee to do the final. If the repairs were significant, such as roof cover replacement or foundation repair, I required the Realtors to provide me with paperwork such as “paid” receipts, copies of bids, and, occasionally, an engineer’s separate assessment that the structural work was completed in accordance with his written recommendation to the… Read more »