Why A Seller Should Not Counter-Out A Physical Inspection Contingency In An Offer

When reviewing an offer or offers on a home, the price may be the most important factor in a seller’s decision, but it is also important to review the contingencies that may be part of the offer being considered.

The contingencies could include a physical inspection, an appraisal and buyer financing. In a multiple offer scenario, buyers may eliminate one or more of the contingencies to make their offer more appealing to the seller.
If the highest offer also has a physical inspection contingency, it is important to understand the implications if the seller requests the buyer removes this contingency before accepting the offer.

Let’s play out this scenario over time.

The seller requested the buyer remove the physical inspection contingency before accepting the offer and the buyer agreed to do so. Escrow closes and the buyer takes possession of the property. Within the following few
months, the buyer finds something wrong with the property that wasn’t disclosed by the seller and/or becomes disenchanted with the purchase of the property.

This disenchantment becomes a series of correspondence between the buyer’s agent and the seller’s agent in which, minimally, the buyer requests a certain amount of money to fix the undisclosed problem. However, if the
problem pertains to the buyer’s unhappiness with the property, the buyer may ask for his money back from the seller.

This is about the time that both buyer and seller seek the advice of real estate attorneys to try to come to a settlement. Real estate attorneys aren’t cheap and the meter can continue running until an agreement can be
reached. If an agreement is not forthcoming, the buyer may decide to go to court to settle his dispute.

In a court of law, the buyer may argue that the seller would not allow him/her to have a physical inspection contingency and asked the buyer to remove it from his offer. If the judge agrees with the buyer, the seller could
be faced with giving the buyer his/her purchase money back and possibly owe damages as well.

This could have been avoided if the seller allowed the buyer to have the physical inspection contingency as part of the accepted offer. Sure, something could come up in the buyer’s inspections that might need to be repaired or replaced, but the transaction would close with the buyer being satisfied that he/she has done his due diligence in his purchase.

In this situation, once the home is sold, the seller is less likely to receive threatening correspondence from an attorney requesting money for property damages.

Published by Michael Thompson

I am a seasoned residential real estate professional with over 36 years of expertise in the Oakland Hills real estate market. Over the past three-plus decades, Michael has helped hundreds of buyers and sellers successfully buy and sell their homes. Many of these same clients (and now their kids!) have come back to Michael to help them with additional home purchases. With his extensive real estate background, Michael offers his clients a level of knowledge, experience and insight that gives them a competitive advantage in buying their next home or selling their present one. With a passion for sailing on San Francisco Bay, Michael and his wife Julie Ann Poppi currently are in the process of finishing the restoration of their 1981 Islander 36 sailboat.

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