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Tuesday, February 24, 2015

New Purchase Contract Removes Termite Clause

A Termite Walks Into a Bar

The termite asks, "Is the bar tender here?"  Sorry, termites are no joke.  The California Association of Realtors (CAR) rolled out a new Residential Purchase Agreement (RPA) for 2015.  The primary change to the old contract is the deletion of the wood destroying pest inspection clause.  The old contract guided negotiations between a buyer and seller as to who provided the inspection report, and who was responsible for the cost of repairs.  

Realtors asked, "What's so special about termites and dry rot, the most common wood destroying organisms?  Why not include a provision in the purchase contract to handle roof defects, electrical problems, or problems with toilets?"  The point of taking out the termite clause was that termite repairs should be negotiated between buyers and sellers no differently than other home repairs. 

Years ago, the CAR purchase contract included language that the seller warrants everything from soup to nuts.  That language is still present in some contracts and used in other states.  The CAR found the risk to a seller signing such an agreement unacceptable.  Now, the standard agreement states that the property is sold AS-IS. This latest change to the RPA goes further and removes that last boilerplate vestige of Realtors' influence over repair negotiations.

Common convention surrounding termite and dry-rot may not be so easy to change. Even with the contract change, consumers will still be vigilant when it comes to sniffing out termites.  The Veteran's Administration and many other lenders still require a clear termite report before they will make 

loans. Termites are prevalent in Southern California, and because the cost to treat an infested home can be great, many buyers will still ask the seller to pick up the tab. Because reports from one pest control inspector to another can vary significantly, it makes sense for a seller to obtain an inspection report prior to dealing with a buyer. This way, a seller has control over which pest control operator performs the inspection, and he or she can handle repairs in the most economical manner.

Pest control operators are obligated to file their reports with the State Pest Control Board, and sellers need to provide any reports in their possession to a prospective buyer. The Catch-22 for a seller who suspects that their home has major termite damage is that having a report becomes a disclosure requirement, even if the buyer may not have bothered to order an inspection.  Every home and every situation are different, yet as a rule, it makes sense for a seller to be one step ahead of a buyer.

Because the RPA omits the termite clause, there is even more responsibility for a Realtor to insist a buyer obtain a termite report.  Just as a Realtor advises a buyer to have a professional home inspection, they will want to advise a buyer to have a termite report.  Good advice for a seller: 1) Have a termite report and optionally a completion notice handy.  2) State the limits of the seller's responsibility up front as part of the response to an offer.

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Posted at 11:49:23 AM
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