Do you know your “Alternatives”?
May 19th, 2008 categories: Buyers
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Part 1 of 2
In the North Carolina Purchase and Sales agreement there are two sections of the contract on pages 5-7 named Alternative 1 (Sec 16.) and Alternative 2. What are they and what significance they hold is what I will be explaining in todays and Wednesdays postings.
Basically, Alternative 1 & Alternative 2 are primarily different ways on handling the necessary inspections and time frames associated with them.Â
Let’s talk about Alternative 1 first: Alternative 1 is mostly the way inspections have been handled for years. There is a “Repair Notice Date” that the Seller has the option of completing inspections and supply written notice to the Seller. Typically 10-14 days, but this isn’t written in stone. It “depends” on the circumstances surrounding the deal. Most Buyers opt to get this done as quickly as possible, and Sellers want it to be done as soon as possible to avoid keeping their house off the market any longer than they have to if the deal doesn’t work out.Â
Once the inspections have been done and notice given to the Seller for repairs (if there are any, and I don’t know of one house that has none!), the Seller must give a written response within a stated amount of days, usually 3-5 days - TIME BEING OF THE ESSENCE! These words are extremely important! If the Seller fails to respond within the stated time frame, it constitutes that the Seller has elected NOT to complete the necessary repairs. The Seller doesn’t always repair everything on the list the Buyer asks for, but the Seller still needs to respond on exactly what he’ll repair by the notice date, or it will be taken as he is refusing to make any repairs.
So, what happens if the Seller doesn’t respond, or states he’ll only repair a portion of the repairs? The Buyer has a few options:Â
a) The Buyer can elect to accept the property in its present condition.
b) Accepting the Seller’s offer to make repairs per Seller’s response.
c) Terminating the contract, in which case all earnest monies shall be refunded to the Buyer.
At this point, the Buyer must respond to the Seller - within 5 days of Seller’s response- in writing- their decision on how they want to proceed - TIME BEING OF THE ESSENCE! If the Buyer fails to provide this written decision within the 5 days, it constitutes the acceptance of the Sellers agreement to make repairs, or lack of agreement to make any repairs.
So, what does “Time being of the essence” mean? It means all parties must operate within the agreed upon dates, or there are potential repercussions.Â
Now, let’s go over the Cost of Repair Contingency. This section of Alternative 1 deals with the total cost of necessary repairs provided by estimates the buyer has obtained. This particular section has held some confusion on what the intent actually is. An amount is determined and filled in by the Buyer, and if a certain amount of repairs reaches or exceeds this amount, the Buyer can choose whether to accept the house and move forward, or terminate the contract and receive a refund of all their earnest money. Buyer must supply the Seller a written notice no later than 7 days following the Repair Notice Date - Time being of the essence. It does not mean that the Seller is obligated to make repairs up to that stated amount. If the Buyer chooses to decline the purchase of the house based on this amount, they are still responsible for the cost of all inspections done on that property.Â
So, in layman terms, if the Buyer has filled in an amount of $5,000 for the cost of repairs and the cost of repairs come to $5,001, he can terminate the contract if he is not comfortable with amount of repairs that need to be done to that house. It’s also the Buyers choice to go forward and purchase the property regardless of the repair amount. It all “depends” on the unique circumstances of each deal as to what direction the Buyer will take.
Check back this Wednesday for Part 2 - Alternative 2.
