What is a Request for Repair in a Real Estate Purchase?
You are in escrow to buy a home, have done all your inspections, read all the disclosures, researched everything about the property, and checked that you can get insurance. Your agent tells you either that you should submit a Request for Repair or remove the inspection contingency. What does that all mean? What happens next?
The Request for Repair also known as an RR is one of the main causes of failed escrows and canceled purchase contracts. It is also one of the least understood steps of the process. by both buyers and agents as well. We’re going to do a deep dive here on why that is but first let’s back up a bit and look at the structure of the standard purchase contract which is the predicate for the RR. Please note, this is an overview for educational purposes only and not legal advice.
One of the default contingencies in the standard purchase form used in California allows the buyer to investigate all aspects of the property to be purchased. That includes a physical inspection. After the buyer does their investigation they have a number of options including canceling the contract, renegotiating the price, or asking the seller to make certain repairs or compensate the buyer for the cost of those repairs.
In the current version of the RPA (revised 12/22) look at paragraph 8 C Investigation of Property and paragraph 12 Buyer’s Investigation of Property and Matters Affecting Property. Paragraph 8 C references the contingency period and paragraph 12 more specifically discusses what the investigation may encompass as well as the rights of the buyer and seller relative to the inspections.
The time period to complete inspections and remove the contingency is found in paragraph 3 L (3). The default in the form is 17 days but realistically expect to have 7-10 days to complete the investigation in most markets. The reason why will be discussed later in this article.
For right now to set the background for the Request for Repair form and negotiation, let’s first look at…..
PARAGRAPH 12 of the California Residential Purchase Agreement
It is very important for buyers to be familiar with this paragraph in the RPA. Read it carefully and ask your agent to explain anything you have questions about. You don’t want to buy a home that will turn out to be a money pit and unfortunately that can happen if you are not careful.
12 A
Be aware that you have the right to do the investigations “within” the time period defined in 3 L (3) and that whatever inspections you may do are at your expense. The latter point is sometimes complicated by:
You may receive reports the seller had done prior to listing the property. This is more common in Northern CA than in Southern CA.
You may receive reports the seller had done when they purchased the property. These are supposed to be disclosed if they are in the seller’s possession.
You may receive reports from a prior escrow that was canceled. These are supposed to be provided.
As a best practice you most likely will want to have your own reports done but the prior reports should also be reviewed with your agent as well an inspector covering the same subject matter. The one exception to this is if the prior report was done by an inspector that you would have hired anyway. In that case the inspector will usually review the report with you for a small fee.
12 B
This paragraph and its subsections discuss some of the inspections you may have done including certain limitations for condominiums. It further delineates what may or may not be performed as part of a “wood destroying pest inspection” aka the termite inspection.
12 B (D) is easy to miss but very important as it mentions other undefined “specific inspections”. As to those inspections, that’s where an experienced agent can best advise you as to whether you should be checking for radon, mold, asbestos, soils, sewer, etc.
12 B (2) mentions insurability which has become more of an issue in California due to fires and floods. With many insurance companies not writing new policies in CA, you want to lock down your insurance as early in the escrow process as possible.
12 C
Your inspections can’t damage the seller’s property. If a mold inspector thinks there’s mold behind a wall, you can’t open the wall up to check unless the seller authorizes you to do so. And in that instance expect to pay to put it back.
Termite inspectors are allowed to be minimally invasive, however. Also, often missed in 12 C is that other than required government inspections, you can’t have those done either.
12 D
This paragraph in the RPA is key to understanding the Request for Repair. Specifically, this paragraph states buyer shall, “by the time specified in 3 L (3), complete buyer investigations ……. and either remove the contingency or cancel this Agreement”. The most important part of the phrase is “by the time specified”. In the event that the seller has not provided certain disclosures, the buyer would get 3 days after receipt to review those documents and of course the seller has to allow access to the property and have all the utilities working.
12 E
It is important that as a buyer you are using inspectors that have applicable insurance and Worker’s Compensation coverage because in the event they do not, you are indemnifying the seller.
We can now move on to the…..
REQUEST FOR REPAIR
The following comments are based on the RR form revised 6/22. As previously stated, this information is for educational purposes and not legal advice.
You’ve done all your inspections, read all the disclosures, researched everything about the property and your agent tells you either that you should submit a Request for Repair or remove the contingency. What does that all mean?
Per the definition of “as-is” in paragraph 25 of the RPA, the buyer has the right to that the seller make repairs or take other corrective action prior to the close of escrow. However the seller is only required to make repairs that have been specified in the agreement or otherwise agreed to. The vehicle for the “otherwise agreed to” is the Request for Repair form.
Per the language of the Request for Repair form, the seller not only has no obligation to make the repairs, the seller need not even even respond? Here’s what you need to know.
“In the history of Real Estate, there has yet to be a Request for Repair that a Seller thinks is reasonable.”
A little bit of sarcasm but not far from the truth. I’ve been involved in hundreds of RR negotiations and no matter which side of the transaction I’ve been on, I’ve yet to hear a seller’s response to a Request for Repair to be “sure that seems reasonable, let me get that done.” More likely the response is closer to “we selected them over 10 other bidders, let’s go with one of the other offers”, or “ we already accepted a lower price, blah, blah, blah.” And it doesn’t seem to matter what the market conditions are, what the price is, seller response is usually pushback.
HOW TO ASK FOR REPAIRS
PARAGRAPH 1 of the Request for Repair Form
1 A
This is where you can ask for specific repairs to be made. If you have more items than can fit in the allocated space, you can attach a list. The best practice is to ask for what you want. For example, don’t just state “the water heater is at end or life” or “the water heater is leaking”. Instead, state the action to be taken such as “new water heater shall be installed by a licensed plumber “. Or be more specific and state “new 35 gallon water heater….licensed plumber”.
1 B
This paragraph specifically deals with repairs related to the termite report and separates the Section 1 work from the Section 2 work. The seller should have the work done 5 days prior to close of escrow (or any other specified number of dates) and provide proof the work was done. Please note - what usually happens is the termite work gets completed even closer to the close of escrow.
1 C
Here’s where you can ask for money - in the form of a credit, instead of having the work done. There’s pros and cons to asking for credits. To start with, whatever credit you get may not be enough to do the repairs. The credits also need to be disclosed to the lender and can only be applied to closing costs not down payment (unless you are paying cash). However, if your credits exceed the amount of the closing costs, the closing agent will not be giving you a check for the difference. That money goes back to the seller. That’s why….
1 D
You can also ask for the price to be lowered (in lieu of credits). Lowering the price is usually only requested when the repairs are so costly that they will certainly be greater than the closing costs or if there are other credits already coming to the buyer. AN example would be a lender credit or a pre-negotiated credit from the seller.
YES, you can combine closing costs and price reduction.
Although rare, in some situations, there may be a combination of closing credits and price reduction.
PARAGRAPH 2 of the Request for Repair Form
This is where the supporting documentation is defined. Other than you appraisal - which is considered an opinion, all other reports that you receive pursuant to the inspections should be provided here.
PARAGRAPH 3 of the Request for Repair Form
This paragraph addresses some of the special requirements of FHA and VA loans wherein the appraiser can ask for certain repairs to be made.
PARAGRAPH 4 of the Request for Repair Form
If the buyer and seller agree on the ask, the buyer agrees to remove the investigation (inspection) contingency.
PARAGRAPH 5 of the Request for Repair Form
The RR expires 3 days after it is signed or on a specified date and time. Earlier versions of this form did not have an expiration.
Important Timing Concern
Many agents mistakenly believe that submitting the RR on the last day of the investigation contingency period is acceptable. That is not the way the contract reads. The contingency removal (CR) is supposed to come within the time period. Truthfully though, most agents will submit the RR on the last possible day.
PARAGRAPH 6 of the Request for Repair Form
This is where you sign and date.
BUYER HACK
Only ask for repairs of things that are really broken and that any buyer would ask to be repaired.
That means that if there is central heat or A/C and it is not working, ask for a repair. If the sewer line is backed up, ask for it to be cleaned, if the roof is leaking, ask for a new roof.
Where these negotiations go off the rails is when inspectors, as a CYA, state that something is at its “end of life”. Meaning that maybe the roof is rated for 30 years and you are at 35 years. End of life. But just remember the form is called “Request for Repairs” not “Request for Improvements”. And presumably the condition of the house is already priced in. In other words, a property with a new roof, new plumbing, new electrical, new appliances etc would presumably be priced higher than a similar property in the same neighborhood in all original condition.
Remember that you are not buying a new house and there will be improvements you have to make after the close of escrow. And if you are buying a new house you will most likely have some issues the builder will be addressing during the warranty period.
DO’s AND DON’Ts
Do provide the inspection reports your ask is based on.
Don’t ask for everything on the report to be fixed. Stick to health and safety issues plus actual broken systems.
Do your research as to what repairs may cost. Many inspectors have estimate tools.
Don’t inflate the costs. If a water heater correctly sized for the home costs $1500, that’s what you ask for.
Don’t try to upgrade at the seller’s expense. If the water heater is broken, you are entitled to a new water heater not a tankless system.
WHAT ABOUT “AS-IS” SALES?
As many listing agents like to point out, the standard RPA already states that the homes are sold “as-is”. So from one perspective, ALL SALES ARE AS-IS. That doesn’t mean that you can’t ask for certain repairs or concessions but it does mean that the seller does not have to fix anything with the caveat that isn’t required by law such as strapping the water heater or having smoke detectors.