Who Pays for What?
There are two times during the lifecycle of a transaction that I am routinely informed about a “repair” that the seller needs to make. The first is when a buyer uses an inspector as part of due diligence before the contract is signed. The other time is at the walk through, or the final inspection before closing. Here are some guidelines for sorting out who is responsible to make repairs.
The pre-contract inspection: Single family home buyers routinely engage a home inspector or engineer to carefully probe a house and provide a written report on its condition. Professional inspections in coops and condos are less common, but buyers still do them from time to time. Inevitably the buyer forwards me the written report and instructs me to “get” the seller to make all the repairs noted by the inspector. “Don’t the sellers have to fix these things?” is a question that gets asked on almost every deal. My answer is simple, no, not unless they agree to fix these things.
A resale of an existing property is just that, a resale. Like a used car sale between private individuals, the seller rarely plans to restore the condition of the house to new, and is usually not enthralled when given a “list” of repairs that a third party (e.g. the inspector) deems necessary.
To sort this out, it helps to analyze the purpose of having a professional inspection. Suppose you’re considering buying an 80 year old home in Brooklyn that the seller’s family has owned for the last 40. Do you expect it will have a new roof? New appliances? A recently installed furnace? Probably not. The inspector’s report will disclose everything they find that represents a condition that you might need to correct later, usually to deter litigation from buyers who claim after the fact that the inspector “missed something.” But just because it’s in the report, doesn’t mean that a seller will – or should – repair the condition. That the roof is aging and will likely need to be replaced in the next 5-10 years should be no surprise when buying an 80 year old home, and the price negotiations to that point should have reflected this reality. Nor should the fact that the furnace is 15 years old and its useful life is not predictable merit a seller credit.
On the other hand, if the report reveals a condition that is unexpected and was not part of your pricing analysis, it might be appropriate for the seller to participate in the repair, or give a credit. For example, if the inspector discovers that there is flaking asbestos pipe insulation present in the basement, or old lead fittings in the plumbing that need replacement, these conditions might be a surprise even to the seller, and raising them after the inspection will likely be met with more understanding. But if the seller has made it clear that the house is offered with these conditions and they are known, then it won’t be productive to try to renegotiate when your inspector simply confirms that in fact the condition exists. Sometimes a seller will say, “the roof is leaking, and a new one must be installed.” In that case, the valuation should reflect this, and an inspector’s report disclosing the condition should not trigger a new round of price talks.
The walk through: Walk-throughs of resale transactions generate lots of questions. I inevitably get a call that goes something like this: “We just finished the walk through and are on the way to the closing. We are emailing you a punch list of items we will need the seller to give us a credit for that were discovered at the walk through. Please speak to their lawyer and resolve.” If only it were that easy.
It’s important to remember something here: you’re buying a used apartment.
Let’s go back again to the purpose of the walk through. The contract typically provides for the seller to deliver the apartment “vacant, broom clean, in the same condition it was at contract signing subject to ordinary wear and tear between contract signing and closing.” In addition, there are often terms that require the appliances and the systems (e.g. plumbing, heating) to be in working order at closing regardless of their condition at contract signing.
Suppose the buyer reports after the final inspection that “the window is not opening correctly in the master bedroom, seller needs to repair it or give a credit.” My next question is, “was it working when the contract was signed?” Usually the answer is it was broken then, or the buyer doesn’t know for sure. In either case, there is no basis to demand the seller to make a repair. The apartment is sold “as is” at the time of contract signing (other than as indicated above), so the buyer “bought” the windows in that condition. Broken glass pane? Same issue, was it broken when the contract was signed? If yes, then you bought an apartment with a cracked window. If no, then there is a basis for the seller to repair, since “ordinary wear and tear” does not include breaking window panes.
New construction, or course, is a different story. There the purpose of the walk through is to ensure that the unit is being delivered in “substantial accordance” with the offering plan. Suppose the cover on the dishwasher is dented. It doesn’t matter whether it was dented when the contract was signed. What matters is what the offering plan says. It’s unlikely the plan provides for the sponsor to deliver “dented” appliances and, as such, the sponsor would have an obligation to replace it, repair it, or give a monetary credit to compensate.