With the "As Is" FR/BAR contract being used predominantly in Florida, I receive a lot of calls from Realtors when confronted with the General Inspection items under the so-called "Standard" FR/BAR contract. For that reason, I'd like to provide a brief overview of detailed steps to preserve inspection rights under the "Standard" FR/BAR contract.
First and foremost, the Seller is required to make sure the home is free of leaks, water damage, and structural damage. Also, the pool, major appliances, heating, cooling, mechanical, electrical, security, sprinkler, septic, plumbing, seawalls, dockage, watercraft lifts and related equipment must be maintained in “Working Condition” until the Closing Date.
“Working Condition” means “operating in the manner in which the item was designed to operate” per the contract. However, the Seller has no obligation to fix “Cosmetic Conditions,” which means Seller is not required to repair “aesthetic imperfections that do not affect the Working Condition of the item.” Among many other examples of cosmetic conditions listed in the contract, cracked roof tiles, curling or worn shingles, or limited roof life are not considered defects so long as there is no evidence of actual leaks or structural damage.
Within 10 days after receipt of the Buyer’s written notice of defective items or the General Inspection report, the Seller has the following options:
- Have all the repairs completed at Seller's expense.
- Have repairs estimated by an appropriately licensed person and deliver a copy to Buyer.
- Have a second inspection made and provide a copy of the report and estimates to Buyer.
If the Seller obtains their own estimate or inspection, and the inspection reports differ, the parties must work together to resolve the differences. If the parties cannot resolve their differences, then Buyer and Seller together shall choose and split the cost of a third Professional Inspector whose report shall be binding.
If the cost to repair the General Repair Items equals or is less than the General Repair Limit (default if left blank is 1.5% of the purchase price in Section 9), Seller shall have the repairs made. However, if the cost to repair the General Repair Items exceeds the General Repair Limit, then within 5 days after receipt of the last cost estimate to complete the repairs, one of the following must occur:
Seller may elect to pay the excess costs by providing written notice to the Buyer; or
The Buyer may deliver written notice to the Seller designating which repairs they want completed (at a total cost to Seller up to the General Repair Limit) and accepting the remainder of the items in their "as is" condition.
This is often called the "who blinks first" scenario between Buyer and Seller. However, if neither party blinks by providing notice of their respective option within the 5-day time period, then either party may elect to terminate the contract, and Buyer shall be refunded the Deposit, thereby releasing Buyer and Seller from all further obligations under the Contract.
Based on the above, the Seller can keep the contract together if he/she agrees to pay for all the repairs including those that exceed the General Repair Limit. This will eliminate Buyer's right to terminate the contract. Alternatively, the Buyer can keep the contract together and eliminate a potential Seller termination by designating which repairs should be made under the General Repair Limit and accepting the other defects above the limit in "as is" condition. If neither party takes such action within the 5 days, then either party can terminate the contract.
As you can see, there is a great deal of detail and potential pitfalls when dealing with the inspection notice requirements and deadlines in the "Standard" FR/BAR contract as opposed to the frequently used AS IS FR/BAR contract.
If you or your customers would ever like to consult on hurricane-related contract questions (or any contract questions whatsoever), please feel free to reach out to me.
