Negotiating The Contract With The Buyer Inspection Notice (BINSR)
Our friends, Jason Wells, Esq. & Chris Niederhauser, Esq., partners at the Wells Realty & Law Groups, have written this informative legal article in the Keller Williams East Valley newsletter and with their permission, we're delighted to repost it here in ActiveRain.
Congratulations! You just got you buyer’s contract accepted after looking for weeks and AT dozens of houses. Inspections are complete and you sit down with your buyers to go over the inspection report. During the inspection there were several “honey do” items such as tightening the hinges on a door, patching a crack in the drywall, a minor leak of the bathroom faucet, etc., all items that shouldn’t be a problem for the buyer to handle. However, the inspector also noted some concerns with the AC, that although functional, it is old and will likely need maintenance soon.
Your buyers want to know their options as they certainly don’t want to replace the AC right after they move into their new home. They ask you if they can:
1. Ask the seller to fix the AC
2. Have the AC inspected
3. Ask for a reduction in the purchase price to cover the cost of the impending replacement of the AC. What do you tell them? How do you respond?
Ultimately what I am getting at in the scenario above is to ask the questions, “Can you negotiate the Purchase Contract through the BINSR?” The answer is, “No, you cannot.” So, how do you handle this situation, or one similar, say that involves the water heater or pool pump?
The BINSR is broken into two parts: Non-Warranted and Warranted Items. So, what is a warranted item? In the Purchase Contract under Section 5. Warranties it lists in lines 166-171 the warranted items by the seller. These items are the contractual obligation of the seller to keep and maintain in working order.
In the BINSR the Buyer is acknowledging that “items disapproved shall not include warranted items,” and that “Buyer’s election is limited to the options specified below,” and “Buyer is not entitled to change or modify Buyer’s election after this notice is delivered to Seller.” Which basically means if the Buyer is electing to have anything addressed/repaired/replaced it cannot include a warranted item, and this is the Buyers only chance to ask for anything to be completed as it pertains to the physical property.
Many times agents and/or buyers or even the seller may think to address an issue through the BINSR. This is not the place. The BINSR is only for the buyer to accept the premises, reject the premises, or request nonwarranted items to be addressed. Part two of the BINSR gives the Buyer a place to provide the seller with “Notice Of Non-Working Warranted Items.” It is the seller’s contractual obligation to address these non-working warranted items, only if they are not in working condition.
Please recognize that none of this means you cannot ask for the adjustment in price to compensate for the impending demise of the AC. What it means is the BINSR is NOT the place to amend the Purchase Contract. The BINSR is ONLY for completing the contract when the buyer completes his inspections and gives notice of the findings (see 6j of the Purchase Contract) as well as giving notice of non-working warranted items as discussed above.
Should you have a need to amend the Purchase Contract that can be done through an addendum to the contract, and the other party, be it the seller or the buyer does not have an obligation to accept the terms. The negotiation period for the terms of the contract took place prior to offer acceptance.
In short, the answer to the buyer is to advise them the AC is working, review the Purchase Contract and BINSR with them to show there is no obligation for the seller to replace it, and should they insist on their proposed option C it will need to be done through an addendum.
Jason Wells, Esq. & Chris Niederhauser, Esq., partners at the Wells Realty & Law Groups, will be writing a legal article each month in the newsletter and would welcome agent questions concerning any real estate legal issue agents at Keller Williams East Valley may come across.
Please submit question requests to firstname.lastname@example.org and they will be considered for the monthly newsletter. If the issue is pressing, by all means please just call them or speak to your broker.