Craig Franklin Chambers, Attorney at Law

April 13, 2014

How Does The Inspection Clause in a Residential Real Estate Contract Work?

Denver Real Estate Law and Family Law Blog. (Vol 1.33) April 14, 2014

By Craig Franklin Chambers Esq. 7851 S. Elati Street #204, Littleton,  CO 80120

The Littleton Lawyer.

As a Colorado attorney focusing on divorce, custody, real estate and property law in Littleton, Highlands Ranch, and the Denver Metro area, including  Jefferson County, Douglas County,  and Arapahoe County,  I am often asked: How Does The Inspection Clause in a Residential Real Estate Contract work?

The Colorado Real Estate Commission approved residential real estate contract allows for the Buyer to deposit earnest money to show good faith as he enters the real estate transaction. The earnest money -- usually between 1-5% of the purchase price -- is at risk if the Buyer changes his mind about closing the transaction once all of the contingencies of  the contract are fulfilled.

The standard real estate contract contains many contingencies, including contingencies for appraisal, survey, title, hazard insurance, HOA documents, and loan satisfaction. The biggest hurdle in a residential real estate contact is often the home inspection provision of the contract.

Under the inspection provision, the Buyer is entitled to inspect the home and to object to any unsatisfactory condition before the Inspection Objection deadline in the contract. The object must be resolved by a subsequent date in the contract, the Inspection Resolution Deadline.

The inspection objection provision allows the Buyer to terminate the contract for any reason if his objection is timely filed. Even if the defects in the home are disputed, or if the Seller is willing to make the repairs, the Buyer can terminate the contract for any reason providing he does so by the Inspection Objection deadline.

For this reason, the Inspection Objection Deadline and the Inspection Resolution Deadline are usually required to be completed within the first 10-14 days after the home goes under contract.

If upon inspection, the Buyer is dissatisfied with the condition of the property and if the Buyer objects in writing by the Inspection Objection Deadline of the contract, he can either negotiate repairs on the property or terminate the transaction. If the Buyer misses a defect on inspection and lets the Inspection Objection Deadline pass, the Buyer has waived his right to object to the condition of the home.

The Buyer can ask for any repairs that will induce him to proceed with the transaction including small repair items. From my experience,  most Buyers are primarily concerned with the major components or big ticket items such as the condition of the roof or furnace or structural problems. However, a Seller's willingness  to make the repairs depends on the motivation of the Seller, the overall condition of the home, the current real estate market, and the pricing of the home.

Also from my experience, the Seller is more likely to repair health and safety issues because even if he refuses to repair them for the transaction,  he will have to disclose them and likely repair them for the next buyer.

The Seller can agree, disagree or negotiate the repairs. The Seller can also offer the Buyer some other incentive in lieu of the repairs such as paying some of the buyer's closing costs or reducing the purchase price.

These inspection issues must be resolved in writing by the Inspection Resolution Deadline which is usually 2 to 3 days after the Inspection Objection Deadline.  If no agreement is made by the Inspection Resolution Deadline , the contract terminates, and the earnest money deposit is returned to the Buyer.

However, if the Buyer is still interested in purchasing the home, he is allowed to withdraw the inspection objection in writing providing  he withdraws it before the Inspection Resolution Deadline.

If the Buyer withdraws the objection, the Buyer is agreeing to accept the condition of the property without the repairs being completed and he waives his objection to any defects in the condition of the property.

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    Denver Real Estate and Family Law Attorney

    Licensed to practice law in Colorado since 1997, I have a B.A. from Vanderbilt University and a law degree from the University of Denver.

    7851 S. Elati St. #101 Littleton, CO. 80120

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