Post-inspection negotiation – Is “good faith” required?

What is a seller’s “obligation” to negotiate repairs or improvements during the negotiation period of the inspection contingency in PAR’s Standard Agreement (Form ASR)?

A buyer agent was frustrated over a seller’s unwillingness to offer even a penny’s worth of repair and/or improvement. The buyer agent took the position that if the buyer submitted a corrective proposal, then the seller was obligated to: 1) satisfy all of its terms or 2) negotiate an acceptable agreement that provided for some repairs or improvements. She cited, in support, language from the agreement stating:

During the negotiation period, Seller will either agree to satisfy all terms of Buyer’s proposal or negotiate, by written or verbal communication, another mutually-acceptable written agreement, providing for any repairs or improvements to the Property and/or any credit to Buyer at settlement as acceptable to the mortgage lender, if any.

The buyer agent correctly observed that the language does not expressly state that the seller need not budge from an arm-crossed I-will-do-nothing stance. Therefore, the buyer agent reasoned, the seller has an obligation to negotiate in good faith, and his refusal to do nothing is not good faith.

The language in the ASR doesn’t create a good-faith obligation of seller to negotiate repairs. The ASR contemplates that a seller may fail to respond to a buyer’s corrective proposal and for that reason, it expressly states that if the seller fails to respond during the negotiation period, the buyer has a number of days to accept the property as is or terminate the agreement. This language would not have been included if it was not contemplated that one of the options of seller was to refuse to negotiate.

Pennsylvania courts have weighed in on whether there exists a good faith duty to negotiate. While the facts were different, in GMH Associates, Inc. v. The Prudential Realty Group, a real estate case decided by the Pennsylvania Superior Court in 2000, the court indicated that Pennsylvania would not recognize a cause of action (basis for law suit) based on a failure to negotiate where it was not clearly required by the agreement.

Stay tuned for tomorrow in which I will discuss a buyer who wants to change her corrective proposal.

Editor’s note: This is the first of a two-part series. Read the first article in the series: “Can a buyer’s corrective proposal be rescinded?”