Buying A House with Termites Fuels Battles

In 2015, the California Association of Realtors forms used on a majority of every real estate transaction changed causing more arguments between buyers and sellers.

Previously, in the California Residential Purchase agreement, there was a check box that specified who would pay for the inspection and that the allocation of cost would be addressed in a separate document called a Wood Destroying Pest Inspection and Allocation of Cost Addendum to prevent buying a house with termites.

On the Old Purchase Agreement, Item 4.A.1. indicates who pays for a Wood Pest Report and by what company. This kind of forces the next question of who’s paying for the repairs needed?

This document (WPA) made it crystal clear whether or not an inspection was to be completed, who was to pay for the inspection (buyer or seller) and who was to pay for repairs (buyer or seller).

In 2015, CAR forms eliminated the previously required wood pest inspection reports from the residential purchase agreement.

In the New Purchase Agreement, they removed the reference to the Wood Pest Report and even the box regarding the supplemental WPA form that identifies who pays for repairs.

Now the buyer and seller potentially have one more issue to argue about right up to the close of escrow if you don’t have a great agent who knows how to address these issues up front.

As with anything in the purchase agreement, a termite inspection and cost to repair has always been (and will remain) negotiable between buyer and seller.

If repairs need to be made and inspection required….It’s just a matter of who pays for it!

“I know they kind of hoped they would skate by without paying for those repairs”

In a fairly recent transaction, we had a seller who received an offer on their home.  It was a fair offer.  I noticed immediately that the buyer’s agent did not address anywhere the requirement for a Wood Pest Report or allocation of cost for repairs.  If this was a cash buyer / investor, I might have let it slide.  However they were getting a loan.  Not having pest repairs addressed up front only leads to problems later.

I had the agent re-submit the offer and yes it did cost my client the $3290 in repairs.  I know they kind of hoped they would skate by without paying for those repairs but it would have actually probably ended up in a cancelled escrow down the road.  That would have cost them more money and hassle in the end.

Here’s the reality: No buyer in their right mind is going to put money into repairs for a property they don’t own yet.

So if the seller isn’t going to make repairs…. the deal dies and everyone is back at square one.

Here Are The Rules For Each Type Of Loan

VA

All properties must have a termite inspection and all repairs must be completed before close of escrow!

FHA and Conventional Financing are a little different:

a) If an appraiser notes “termite issues” OR if the appraiser just doesn’t comment about termite issues (which is likely since appraisers are neither licensed, bonded, or indemnified against any future legal action) then an inspection will be required by the lender before close of escrow.

b) If by chance the appraiser does inspect the property and decides to go out on a limb, and state that there is “no termite damage” you’re in luck and can close your escrow.

So what do you do?

We sadly live in a litigious society.

To limit your liability (either as a buyer or seller) somebody needs to pay for the termite inspection and determine who is going to pay for the repairs.

“Make sure your agent is addressing this issue at the time of the initial offer or subsequent counter offers”

If termites are found after close of escrow, its just too easy for the new homeowner to sue the seller for not disclosing (via a Wood Pest Report) that there were in fact pests.  The presence of these pests may have affected their opinion of the value of the home and they might not have offered the price they did or to buy it at all.  Oh, and don’t be fooled to thinking that just because “THEY” (the buyers) and their agent didn’t specify anything with regard to pest repair that it won’t cost you possibly tens of thousands of dollars defending yourself (which is probably much more than the cost of the repairs).

If neither buyer or seller agree pay for the repairs it probably becomes a deal killer and everyone is back to square one.  Make sure your agent is addressing this issue at the time of the offer.

If you have questions on the matter, comment below.