That property was beautiful when you first viewed it – clean, undamaged, move-in ready. Then, on closing date, you find scratches on the floor, holes in the walls, and water marks on the ceiling. But because the Offer you signed did not specifically include clauses to address property damage, you are now looking at time and money spent on suing the sellers, or you just suck it up and take the damaged property as it is.
Unfortunately, this is what happened to our client Jimmy. In the end, he took the property as it is and is now going to spend a lot of money fixing up the place.
So how should the Offer be written to account for the possibility of property damages?
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ALWAYS include a property inspection clause
There is a lot more than meets the eyes. Especially since most buyers do not have the eyes of professional property inspectors. What may be hidden behind that beautiful, staged home viewing could be water damage, scratches and holes, and even broken windows.
A property inspection clause should always be included in the Offer. A few hundred bucks spent for the inspection can easily save thousands or even tens of thousands of dollars in repairs later.
Any damages noted during the inspection can be written into the Offer to be fixed. Or the buyer can simply back out of the Offer after the inspection and get their full deposit back.
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ALWAYS include the specific solution to any property damages
When there is property damage, both sides will likely begin long and costly negotiations between their lawyers. To avoid this pain, it’s best to pre-emptively write the solution into the Offer. There are typical 3 solutions available when there is property damage:
- The seller must fix the damage before the closing date. This is my least favourite option because depending on the type of damage, there may not be enough time for the seller to fix it. And the buyer and the seller can get into a long argument about what is considered “fixed”.
- The seller needs to lower the purchase price in consideration of the amount of money needed to fix the damage. This is a much easier solution and likely what your real estate lawyer will recommend. The debate then becomes how much money would it take to fix the damage? Both sides usually try to get their own renovations company to do a quote, and then argue about it. It’s much easier if a pre-set amount can be put into the Offer after the property inspection is done and before The property inspector will provide an estimate of how much it cost to fix their noted damages if you ask them.
- The buyer can back out of the deal – this option is unnecessary if you have the property inspection clause in the Offer, which already allows you to back out of the deal.
The Prevention vs. the Solution
When it comes to property damage of your newly purchased home, prevention is always better than solution.
Ensure there is a property inspection clause in your Offer. After you conduct the inspection, an amendment to the Offer should be made by your realtor, which would contain the price reduction on account of the property damage.
For example, when I bought my current home, the inspector estimated it would cost $5000 to fix all the broken windows in the house. The seller lowered the purchase price by $5k in the updated Offer we signed. The deal closed smoothly without any further arguments.
In contrast, if the Offer did not anticipate nor address any property damage issues, then it’s very difficult to resolve. On closing date, our client Jimmy found several holes in the ceiling, scratch marks on the floor, and damaged walls due to the TV being removed. But because there was no clause in the Offer that addressed this, and sellers insisted that those damages existed during the 1st viewing of the property, Jimmy do not have many options.
Since those damages did not result in a substantial or major breach of the Offer, Jimmy must complete the purchase (click HERE to learn more about substantial breach). Perhaps he could hire lawyers to file a Small Claims Court against the seller, but the additional time and money required to do so is not worth it. He might as well just use those funds to repair the damages himself.
Conclusion
Property damage can easily cost thousands or tens of thousands of dollars to fix. To protect yourself as a buyer, always include a property inspection clause in the Offer. If the inspection reveals damage, specify a solution in the updated Offer.
If possible, always choose price reduction rather than seller repairs as a solution. Because buyers and sellers often have different expectations on what is considered “fully repaired”.
If you have any questions regarding your real estate purchase or sale, please click HERE for a 1st free consultation.
