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By: Brougher, Desiree on in

Inspection Contingency Review

The inspection contingency in the Standard Agreement for the Sale of Real Estate (PAR Form ASR) is one of the most frequent topics for the PAR legal hotline.

The election, performance and ensuing negotiations make up a procedure that – it seems – has become so commonplace that many licensees don’t know what to do when something out-of-the-ordinary occurs. Here’s a list of answers to common misunderstandings about Paragraph 13.

The contingency period itself is the number of days inserted in Paragraph 13(A), or 10 days if left blank. During this timeframe, the buyer must do two things: 1) conduct the elected inspections and 2) decide whether and how to proceed with the purchase of the property based on the results of those inspections. Not only must the inspections be completed, but the buyer’s decision is due to the seller by the last day of the contingency period, along with a copy of the inspection reports. An early response by the buyer does not end the contingency period; the seller isn’t “on the clock” for a response until after the last day of the contingency period.

The negotiation period only applies if the buyer submits a written corrective proposal. If the buyer chooses to negotiate, the parties are “locked in” to negotiations based on that request for the number of days provided (5 if not specified). The buyer cannot withdraw or amend their proposal, nor terminate the agreement, until after the end of the negotiation period. For example, assume the buyer has asked for five things in a written corrective proposal, but two days into the negotiation period, the seller’s initial response is to offer a price reduction instead. The buyer can not immediately terminate the contract upon receiving that response. The text of section 13(B)(3)(a) explicitly states that the parties are to use that time to negotiate but does not give the buyer any additional right to terminate.

Termination only comes back into play in the next section, which states that if the negotiation period ends with no written agreement in place, the buyer then has a choice to accept the property or to terminate the agreement.

It’s worth noting that the functioning of the inspection contingency has changed over the years. We hear from a fair number of members who explain an understanding of this clause that may have been right under prior versions of the form but is not correct today. Given the importance to the transaction, and the apparent confusion in the marketplace, it’s probably a good idea to take some time to do a careful read of this paragraph as a refresher, and to take a look through the Guidelines for Preparation and Use as well.

24 Responses
  • October 18, 2019 at 8:13 am Anne M Matyjasik says

    Thank you Desiree for that most enlightening article!

    Reply
  • October 18, 2019 at 8:23 am William Smulick says

    Today Inspections seem to be used more as a price reduction tool, than to find latent or major defects. Many times obvious minor defects are brought out by the inspector such as an older roof, or a cracked sidewalk, and then comes the big price reduction request. I think we should explain the main purpose of a home inspection to our buyers and agents.

    Reply
    • October 21, 2019 at 11:24 am Don Warner says

      Absolutely agreed!

      Reply
  • October 18, 2019 at 8:27 am Heather Rickert says

    This is a great refresher for us all. Thank you and I will share with my office.

    Reply
  • October 18, 2019 at 8:53 am Ron goldberg says

    Thank you Desiree for your interpretation of the Inspection contingency Review. The actual written part does not say the when the buyer has to give the report and does not give a remedy either way if the buyer doesn’t do the report in the timeframe. You might want to consider re writing it to be more specific. Why would the buyer and seller want to wait to the very end of the timeframe to end the sale if it is not going to happen?

    Ron

    Reply
    • October 18, 2019 at 11:43 am Whitney Torok says

      Ron,

      If you look on Page 8, Section 13 (B) Sub Sections 1, 2, and 3 states that the Buyer WILL present all Report(s) within the Inspection Contingency

      Reply
    • October 18, 2019 at 1:05 pm Desiree Brougher, Esq. says

      The Agreement provides that the buyer must provide the inspection reports when they make their decision to accept, terminate or negotiate the contract. They go hand-in-hand and it must be done before the end of the Contingency Period. If the buyer fails to perform as required, it’s potentially a breach of the contract. While it’s true that the terms of the Agreement do not give the seller the explicit right to terminate the contract in that instance, it’s not entirely true that there is no remedy.

      Reply
  • October 18, 2019 at 11:37 am Sue Lease says

    Thanks Desiree – this is always helpful because a lot of agents don’t understand those time frames.
    Question – if a buyer submits a request and the seller makes a counter proposal, which the buyer rejects, I believe it’s binding if the seller signs that original request with the 5 days, correct?

    Reply
    • October 18, 2019 at 1:46 pm Desiree Brougher, Esq. says

      Yes, if the seller indicates in writing that they will satisfy all of the terms of the buyer’s written corrective proposal then the buyer will have accepted the property and the Negotiation Period ends.

      Reply
  • October 18, 2019 at 1:10 pm Dian says

    To be clear, does the five day negotiation period begin at the end of the selected inspection reply period( 10 days) OR when a buyers reply is received by the seller , for the sake of this question let’s say the reply is received on the 6 th day of the 10 day period, does the five day negotiation period begin at the 6 th day or after the 10th day?
    Thank you

    Reply
    • October 18, 2019 at 1:44 pm Desiree Brougher, Esq. says

      Nothing in the standard language of Paragraph 13(B) starts the subsequent time period based on delivery or receipt. The Negotiation Period begins after the 10th day, no matter when the seller receives the buyer’s reply to inspections.

      Reply
  • October 18, 2019 at 2:12 pm Dian says

    Thank you ! Many agents I encounter think the 10 day period ends when they send the reply!

    Reply
  • October 19, 2019 at 1:23 pm Jen says

    Desiree, just to clarify based on the aforementioned example with the corrective proposal being submitted on day 6 of the inspection contingency, does that mean negotiations should not begin until after the 10th day?

    Reply
    • October 21, 2019 at 8:40 am Desiree Brougher, Esq. says

      The parties can begin negotiating as soon as they would like; what doesn’t begin until after the 10th day is the “Negotiation Period” itself, which is the time the parties have to reach a written agreement. So even if the parties start negotiating on day 7, the Negotiation Period does not begin until day 11 and then only if the buyer submits a written corrective proposal.

      Reply
  • October 19, 2019 at 4:53 pm Karina says

    Hi Desiree, Thank you for the explanation of inspection contingency. If you please clarify another part. So basically buyer can only terminate the agreement after the negotiation period ends if there was no written agreement on repairs/price reduction or ect. And is that mean that termination notice has to be given next day after the negotiation period ends or at the end of the last day of negotiation period?
    Thank you!

    Reply
    • October 21, 2019 at 8:43 am Desiree Brougher, Esq. says

      The buyer is only given the right to terminate during the Contingency Period or after the Negotiation Period, if the seller has not agreed to satisfy all the terms of the buyer’s written corrective proposal. If the buyer did not terminate within the Contingency Period and chose to submit a written corrective proposal, then the buyer must wait until the end of the Negotiation Period to terminate if the parties are unable to come to terms.

      Reply
  • October 21, 2019 at 8:48 am Andrea Balkiewicz says

    Here is one problem I have with most of the AOS – we shouldn’t need a lawyer to comprehend the AOS. It should be written in terms that don’t need to be interpreted. This would help realtors have a better understanding and give realtors the ability to confidently explain the AOS to our clients. It seems it is a problem also that some realtors don ‘t interpret it the same as others. Just my opinion.

    Reply
    • October 21, 2019 at 4:38 pm Jennifer Butns says

      It’s definitely not up for interpretation. It’s how our brokerages, mentors teach it, imho, that makes it confusing and oftentimes incorrect. The dates need to remain static, to avoid confusion. I guess my point is also that most agents don’t read the ASR regularly enough to be As familiar as they should be.

      Reply
  • October 21, 2019 at 4:32 pm Chris Detweiler says

    While “13.(B)3.a.” does not give the buyer the right to terminate, I’ve found that most sellers would prefer to sign a release and get their home back on the market if the two sides are far apart. If the seller is unwilling to satisfy the buyer’s written corrective proposal, what prevents the two parties from mutually agreeing to a termination and release during this negotiation period? Furthermore, could there be repercussions to the buyer for submitting a termination during the negotiation period? For example, if a buyer sends a termination and release during the negotiation period, and the seller waits out the full 17 days (10+5+2), is the termination enforceable?

    Reply
  • October 21, 2019 at 4:35 pm Jennifer Burns says

    Thank you! The CE class I attended recommended that if you elect an inspection (like radon, for example) and you choose NOT to do it, you better do a CTA to change that term. Otherwise, you will not have its corresponding report within the timeline and you’ll technically be out of compliance.

    Reply
  • October 22, 2019 at 11:38 am Chris Detweiler says

    Following up on my previous comment, Desiree. My understanding is that the termination would become enforceable following the end of the 5 day negotiation period. But what if the seller has a change of heart and signs the original proposal within the 5 day negotiation period, but after receiving the buyer’s termination? Has the buyer now accepted the property and agreed to the release in paragraph 28?

    Reply
    • October 22, 2019 at 3:39 pm Desiree Brougher, Esq. says

      A buyer’s attempt to terminate during the Negotiation Period can be challenged as invalid because the contract does not give the right to terminate during that time. So if a seller receives a notice of termination during the Negotiation Period, the seller can absolutely agree to the original proposal and in that case the transaction will continue; the seller could also decide to just let the buyer go and sign a release. As stated in your previous comment, nothing prevents the parties from agreeing to just stop and walk away.

      Reply
  • December 13, 2019 at 8:37 am Lori Tommaselli says

    I have run into the issue of the seller taking more than the allotted 5days to reply to the correction proposal. The seller’s agent repeatedly said they are working on a repair quote and have not said exactly what they are doing, or not doing. I wrote an addendum to extend the contingency period. Neither party is terminating at this point. The seller’s needed more time to respond. Is this the proper way to handle this situation?

    Reply
    • December 13, 2019 at 9:12 am Kelly Leighton says

      Hi Lori,
      I suggest you speak with your broker and then call the legal hotline if you still have questions.

      Reply

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