Though the revised Standard Agreement (“ASR”) has been available for the better part of a year, there is still great confusion regarding the timeline established in the Inspection Contingency. There are those who insist that when a buyer submits a corrective proposal, the timeline is stretched to 17 days, with no exceptions. This is not accurate.
The common misconception is that process of working through the Inspection Contingency invariably takes 17 days, assuming default times have been elected. What many fail to correctly observe is that buyer’s response time to seller’s rejection of the corrective proposal is always two days from the date the buyer receives seller’s written notification that seller will not satisfy all terms of buyer’s corrective proposal. Stated another way, the span between the seller’s rejection of buyer’s corrective proposal and buyer’s election to terminate the Agreement is always two days and is never extended by virtue of an early response from seller. Hence, we can never say that, the process invariably takes 17 days to complete.
The sequence of events and the time periods to observe regarding home inspections are found in Paragraph 12, Inspection Contingency. Unless otherwise specified, the buyer has 10 days to complete any of the inspections elected in Paragraph 11. It is possible to create timelines of different lengths for different inspection contingencies and four blank lines are available on which to identify a contingency and the number of days for completing the inspection.
The buyer’s right to terminate the agreement or submit a corrective proposal is subject only on the buyer observing a reported condition that is “unsatisfactory to Buyer.” If the buyer fails to have the inspections performed — or fails to seek a written report — then the buyer’s right to terminate or to submit a corrective proposal are lost under the Inspection Contingency. Assuming that the buyer had an inspection, received a report and can cite a condition that is unsatisfactory to him, he may submit a corrective proposal along with a copy of the inspection report. This corrective proposal must be submitted within the period for completing the inspection (10 days unless amended).
How much time may the seller take in responding to the buyer’s corrective proposal?
The Agreement gives the seller five days from the end of the contingency period to respond in writing. Like all contractual time limits, this period may be altered by agreement of the parties; there is a blank line on which the number of days may be noted. The reply will indicate that the seller will or will not agree to adopt and satisfy the terms of the corrective proposal. What typically happens is that the seller agrees to satisfy part of the corrective proposal — but not all — or the seller proposes a counter-offer. Anything short of agreeing, in writing, to the full corrective proposal is considered a rejection which serves to put the ball in the buyer’s court. buyer may then terminate the Agreement in writing.
How many days does the buyer have to exercise the buyer’s option of terminating the Agreement? This time period is also established in Paragraph 12 and gives the buyer two days (if not otherwise specified) from receipt of the seller’s written notification “that Seller will not satisfy all terms of Buyer’s Proposal.” If the seller does not reply in writing to buyer’s corrective proposal, then what? The Agreement provides that the buyer will have two days from the last day (five if not specified) that the seller had to respond in writing to the buyer’s corrective proposal.
Now that we have formula, let’s see how it works. For purposes of this example, we will assume that the default time periods were elected: buyer has 10 days to complete the inspection(s) and submit in writing a corrective proposal; seller has five days from the end of the Inspection Contingency to reply in writing to buyer’s corrective proposal; and buyer has two days from receipt of seller’s written notification that seller will not satisfy all terms of buyer’s corrective proposal. Let us further assume that each party took their time and waited until the last day to exercise their options.
Under this scenario, the buyer may elect to terminate on day 17: the corrective proposal was submitted on day 10; on day 15 seller replies in writing that seller will perform some but not all of the corrections; and two days later, on day 17, buyer terminates in writing.
Next, let us assume that the buyer completed the inspections on day six and on that same day submitted a corrective proposal and that the seller took only two days from receipt of buyer’s corrective proposal to respond in writing that seller would not agree. On what day must buyer respond in writing that she is electing her right to terminate the Agreement? No later than day 10. The buyer submitted a written corrective proposal on day six and even though seller could have waited until day 15 (five days from the expiration of the contingency period), the seller responded on day eight. According to the Agreement, the buyer has two days from receipt of seller’s written notification that seller will not satisfy all terms of the corrective proposal. Buyer received that notification on day eight and two days later brings us to day 10.
Thursday, November 4, 2010
By James L. Goldsmith, Esq.
PA Association of Realtors