Termites Are the Seller's Problem, or Does the Buyer Pay for Termite Repairs
Out here in California, the standard contract provides that the seller is to pay for a termite (technically, "wood-destroying pest") inspection. The termite inspection form that the termite inspector fills out has two sections on the form:
1. Section 1 is for the termite inspector to note "active infestation," while
2. Section 2 is for the termite inspector to note repairs or preventive measures that someone would want to do in order to avoid termite damage in the future.
Usually, the buyer's agent writes up the offer to say that the seller will fix Section 1 repairs, and preventive measures listed in section 2 will be at the Buyer's option to fix if they choose to do so. Still, at times the contract is written vaguely, saying something like, "seller will not pay for termite." Why is that vague? Because if the termite damage is costly enough, and the buyer does not have money for it, then it is a reason for the buyer to get out of the contract based on his inspections, assuming the buyer is still in the contingency period and has not removed contingencies. This is yet another strong reason to have a good real estate agent representing the buyer, so that the buyer's earnest money deposit is not put at risk without the buyer clearly deciding to do so.
(Photo courtesy of Brett Rockwell, of Rockwell Pest. Brett is hardworking, personable and honest; we're friends on Facebook.)
As with many issues that arise during a transaction, if the termite repair cost is significant enough, then who will pay for the termite repair is actually open to negotiation. Here are many of the factors that the buyer and seller should consider in deciding whether to dig in their heels and refuse to pay for termite repair:
1. If the appraiser doing the appraisal for the buyer's loan notes on his report that it is subject to a termite or wood-destroying pest inspection, and there is section 1 work then noted by the termite inspector, then the buyer's lender is going to insist that the section 1 termite repairs be completed before the lender will fund the loan. So the parties can't agree that the buyer will buy the home and do the section 1 termite repair later.
2. The buyer wants to buy the home, and the seller wants to get it sold.
3. The buyer does/does not have cash to bring to the table; the seller does/doesn't have proceeds from the sale and to cover the cost.
a. If the seller is having to get Short Sale approval from his lender, a good way to put leverage on that Short Sale bank to agree to pay the termite repairs is to get an appraisal done that calls out the termite repair as a condition to funding the buyer's loan.
b. More Pros/Cons of this strategy: The upside of this is that it puts pressure on the Short Sale bank to approve money from the seller's proceeds to pay for the termite repair. The downside is that the buyer pays for that appraisal up front, whether the home gets purchased ultimately or not.
4. In a sense, the seller is "stuck" with the home, while the buyer can move on. If this buyer moves on because the seller won't cover the section 1 termite cost, then the seller will have to have the same negotiation about termite with the next buyer. Is it a slow market to find buyers for this kind of property? The seller needs to have an experienced real estate agent to consult on this.