Q. I understand that the revised Residential Purchase Agreement no longer includes pre-printed reference to a Wood Pest Inspection and Report in paragraph 7 A. In addition, the Wood Destroying Pest Inspection and Allocation of Cost Addendum (WPA) has been retired. My question is – why? If you explained the reason it would be easier to communicate the new approach to Buyers and Sellers!
A. Great question! I agree that when we are made aware of the reason for change, it makes it much easier to understand and explain to others. This is the very reason I recently wrote a comprehensive article addressing the background, rationale for making the changes and “talking points” to assist with client communication. I call it “Perspective” and have posted it below. In addition, CLICK HERE to review the C.A.R. Question and Answer titled: Wood Destroying Pest & Organisms Inspections, Reports & Repairs.
Revised Residential Purchase Agreement (RPA) – “Perspective”
Kathy Mehringer – Coldwell Banker Residential Brokerage
RPA Study Group Chairperson
In October 2012 the California Association of Realtors® leadership team appointed a Study Group to assess the current Residential Purchase Agreement and submit recommendations for revisions.
The Study Group was comprised of practitioners, attorneys, brokers and managers with representation from both Southern and Northern California. Over a two year period nearly one thousand comments and suggestions were reviewed and analyzed, dozens of meetings and conference calls were held and then, in 2014, the California Association of Realtors® Standard Forms Advisory Committee approved the implementation of a newly revised Residential Purchase Agreement which was released in November 2014.
In many ways the language in this revised purchase agreement is intended to alter the way real estate sales are negotiated in California, establishing greater consistency throughout the state. For example, all of the Buyer investigations and due diligence are facilitated in the same manner; the appropriate professional is usually selected, hired and paid by the Buyer.
To accommodate this change, the Allocation of Cost provision no longer includes pre-printed reference to: sewage disposal systems, domestic wells, or wood pest inspections. In addition, the Wood Pest Allocation of Cost Addendum was retired; the intent of these changes is to eliminate the practice of pre-allocating costs for Section 1 and 2 corrective work. The Purchase Agreement now intends that these items are to be negotiated after all inspections are ordered by the Buyer (or Seller) and received by all Parties.
A Buyer may certainly request correction of Section 1 or Section 2 items; the recommended vehicle to make such requests is the C.A.R. Form Request for Repairs which allows both Buyer and Seller to make educated decisions after all inspections and reports are available for review.
Some companies and/or their agents have opted to create their own “homemade” versions of a Wood Pest Allocation of Cost Addendum; that decision may prove to be risky and should be carefully evaluated by management and brokerage counsel.
When representing Sellers it is important that they be advised of the risks associated with agreeing to any repair costs prior to understanding the true financial impact. The Sales Associate has a duty to counsel and advise clients as to the pros and cons of their decisions. Whether a Seller is asked to correct wood pest defects or other property conditions, they should first be aware of the full scope of work and the financial impact of such decisions. This is one of most significant reasons the “pre-allocation” concept was eliminated. Sellers ought to understand that they have the right to “counter out” any terms or addenda that pre-allocate unknown costs. Sellers who are considering accepting responsibility for pre-allocated and unknown expenditures are well served by consulting with legal counsel prior to forming such an agreement.
The talking points below may be useful when discussing any repair requests with Buyers and Sellers:
A pre-allocation of any cost, when an amount has not been specifically determined, amounts to a blank check and could result in an expense far greater than anticipated.
A Seller who commits in advance to correcting Section 1 and/or Section 2 defects may not fully understand the scope of work required including but not limited to fumigation which can entail a double move. For that reason it may better serve the Seller’s interest to wait until the Wood Pest Inspection and Report is received and reviewed PRIOR to making a decision
A Buyer who commits in advance to accepting responsibility for correcting Section 1 and/or Section 2 defects may not fully understand the scope of work required. For that reason, it may better serve the Buyer’s interest to wait until the Wood Pest Inspection and Report is received and reviewed PRIOR to making a decision
A Seller may wish to authorize the Listing Broker to arrange for a Wood Pest Inspection and Report prior to receiving an Offer because they may wish to anticipate what costs would be associated with any subsequent repair request from the Buyer. In that case, the Seller needs to understand that the Inspection Report, regardless of findings, must be provided to the Buyer.
The delivery of any reports, investigations, or other inspections is best documented by using the C.A.R. Receipt for Reports. This form includes language whereby the Buyer acknowledges receipt of report(s), documents(s) or disclosure(s) (“Reports”) while making it clear that the broker has not verified the Reports with respect to their adequacy, completeness, or the performance of the person preparing such inspections or Reports. In addition, paragraph L. states: “These Reports should not be considered as a substitute for obtaining your own inspections and Reports covering the same items and any other matter affecting the value and desirability of the property.” CLICK HERE for SAMPLE FORM
When Buyers select and hire their own qualified inspectors they not only have the benefit of choice but they can act in reliance on those choices.
C.A.R. Form Request for Repairs has been revised and now affords Buyers the opportunity to request correction of Section 1 and/or Section 2 recommendations along with any other corrective action relating to the property.
C.A.R. Form Seller Response and Buyer Reply to Request for Repair provides Seller the options of performing the requested repairs, issuing credits or agreeing to price concessions; remembering that financial credits are to be disclosed to and approved by Buyer’s lender.
When a Buyer is securing FHA or VA financing the contract includes language in paragraph 3 D. (3) that sets forth the process for negotiating Lender required repairs including Wood Destroying Organisms. Briefly, the Buyer has 17 (or___) Days After Acceptance to Deliver to Seller notice (C.A.R. Form FVA – CLICK HERE for SAMPLE FORM) repairs or costs……”
C.A.R. just published a Question and Answer addressing some of the most frequently asked Wood Pest questions; please review and save for reference along with this article! CLICK HERE to DOWNLOAD.