Few car buyers want to purchase an automobile without first taking it for a spin, having their mechanic check it out, and getting a chance to “kick the tires”. Like car buyers, most residential home buyers in Cook, Lake, and DuPage counties want the opportunity to have an expert take a look at a home to make sure that there are no obvious mechanical or safety problems with the property about to be purchased. To that end, most form real estate contracts in the Chicagoland market include a special provision that allows a buyer an opportunity to do just that.
One of the most common real estate contract forms in our market, the Multi-Board Residential Real Estate Contract 6.1 contains an inspection provision. The contract provides as follows:
First, the contract simply provides for the Buyer’s right to inspect. The buyer can hire, at the Buyer’s own cost, a professional home inspector or inspectors to take a look at the home or to make specific investigations regarding radon (especially common in the south and west suburbs), lead-paint, wood-destroying insects, or other environmental (ie. hazardous waste) conditions. This is a broad right and that’s how it is intended. Many home purchasers will routinely obtain a traditional inspection of the home. Some will conduct a radon test or termite inspection. In my own experience, very few perform a lead-based paint inspection or other environmental inspection (although when they forego those inspections, Buyers generally do so at their own risk).
Next, the contract seeks to limit the inspection contingency. It expressly provides that “minor repairs and routine maintenance items” are not to be considered defects and are not part of the contingency. This provision is intended to limit what a Buyer can ask a Seller to fix as a result of the inspection. It recognizes that home Buyers should expect that a home will have some minor defects and that no home being purchased will be in “perfect” condition. Examples of minor repairs or routine maintenance items might be a loose door knob on a closet door, debris in gutters, nail holes from a few picture frames, or the need to change out a dirty furnace filter. These sorts of items need to be evaluated on a case-by-case basis. Suffice it to say that the contract presupposes that a Seller should not be obligated to fix “every little thing” in the house for the new owner.
To drive that point home, the contract goes a step further. It defines the major systems of the home that are subject to review by the inspector: heat and air conditioning, plumbing and water, electrical, roof and foundation, walls, windows, doors, ceilings, floors, and appliances. Basically, the big stuff. Then, the contract sets the standard for what does or does not constitute a defect as it provides that a major component is deemed to be in “operating condition” if it performs its intended function regardless of its age and is not a health or safety threat. (Remember, “operating condition” is not the same thing as “good operating condition”, but that is a topic for another day). It goes on to say – in bold type – that “The fact that a functioning major component may be at the end of its useful life shall not render such component defective for purposes of this paragraph.” That means that if the 30 year old furnace heats the house even though some furnaces poop out after 30 years, the furnace is not defective. As a result, not every condition raised by a home inspector is intended to be raised as a defect with the Seller. For example, a home buyer purchasing a 100 year old house in Lincoln Park should, with the help of their real estate agent, be factoring mechanical replacements into their purchase offer price. Many home buyers mistakenly believe that it is the Seller’s obligation to provide them a house in perfect condition. It is not always realistic to believe a seller will be replacing a roof for their new buyers when they have lived without a problem (and without a new roof!) for the last fifteen years.
After the inspection is complete, a home inspector will deliver an inspection report to the buyer. The report contains the inspector’s observations about the real estate. The report is by no means the final authority as to what a buyer should ask for nor what a seller must repair. The report is an information tool and it is up to the Buyer, along with the counsel and assistance of the buyer’s attorney, to make a determination as to how to use the inspection report.
Once the report is reviewed, a Buyer has a number of contractual options (provided they are exercised within the contractual time limits for the inspection contingency). The buyer can (1) accept the real estate in the condition in it in [Para 12(d)]; (2) disapprove of the condition of the real estate, thereby terminating the contract and obtaining a refund of any earnest money paid [Para 12(c)]; or (3) serve a notice of unacceptable defects upon the Seller (or Seller’s attorney) suggesting how the Buyer would like to resolve the defects [Para 12(b)]. Some Buyers will request repairs. Some Buyers will request closing cost credits in lieu of repairs. In the event that the Buyer and Seller can not come to agreement as to the resolution of those unacceptable defects, then the Buyer will have the opportunity to terminate the Contract and receive a refund of any Earnest Money paid.
Remember, neither party is automatically right or wrong during the inspection period negotiations. If a Buyer wants repairs made or credits given in lieu of repairs, the Seller is not obligated to agree. The parties may negotiate over the items. If they can reach an agreement, the Contract will continue on in force. If no agreement can be reached, then the parties can terminate the Contract.
With the help of experienced real estate counsel from a real estate attorney, Buyers can navigate the strictures of the home inspection contingency. Having an adviser who understands the contours of the “form contracts” used throughout northern Illinois will help a prospective home buyer navigate the uncertainties of the inspection contingency. Our attorneys have a strong working knowledge of the inspection contingency (and the rest of the buying process) and years of experience helping home buyers make their way through the sometimes confusing process of buying a home. Feel free to contact us and give us a call to see how we can assist you with your next home purchase.