What does this mean?

Every word and punctuation in a contract may be insignificant until it’s necessary to determine what it is the parties agreed to. The Offer to Purchase has nine pages of words which may have been scrutinized to the extent that they are commonly understood to mean this or that. To help decide what is or isn’t a defect, this word has it’s own definition in the contract. Unfortunately the definition is sufficiently subjective to leave buyers and sellers at odds and locked in disagreement. The definition is so uncertain that sellers are suspicious of the inspection contingency fearing they will be entangled in a commitment to a buyer who insists a maintenance item is a defect.

Smart licensees have come up with a way to better assure sellers that their buyer client won’t come up with a list of nickle and dime conditions they want compensation for. The solution begins with assuring the seller that the buyer will not consider a condition a defect as long as the cost to cure does not exceed X dollars. Because the buyer won’t consider a condition at or below X as a defect, the seller can rest easy knowing the vague definition of a defect in the Offer has been tightened up in their favor.

A version of limiting a defect to an item in excess of X is making the rounds and its intent is not clear. Have you seen this:

With regards to the Inspection Contingency, Buyer will not amend the Offer to purchase contract with credits, price reductions or require repairs for defects summarized in buyer provided inspection report so long as the collective total of defects does not have a repair estimate greater than $1,000.

What does that mean? When placed in context with the inspection contingency it seems to mean the buyer will not request the seller to amend the offer to reduce the price, pay a credit, or require repairs for any item estimated to be $1,000 or less in cost. That’s fine but the contingency is not about amending the Offer. It’s about delivering Notice of Defects to which the buyer objects. Doesn’t it seem that the only thing accomplished by promising to not amend for conditions below a dollar amount is to promise not to amend the Offer? The buyer’s right to deliver Notice of Defects is not restricted by the buyer promising to not amend the Offer.

If we interpret the statement as meaning the buyer will not deliver Notice for such items under $1,000.00 we may be surprised when the buyer’s attorney reads the provision as it’s written and takes the position that the right to deliver notice of objection to defects is unaltered and that $900 item is a defect. Unless the parties agree a dollar amount was part of the definition of a defect, they only agreed to not amend the Offer, and any defect as defined is fair game.

Any real estate lawyers who have an opinion on this are invited to weigh in. And by “weigh in” I mean write a comment.


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