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AS IS inspections: Can buyers cancel for any-old reason?

Dated: 05/15/2019

Views: 172

By Meredith Caruso
 

May 6, 2019 – Calls to Florida Realtors Legal Hotline indicate confusion – sometimes flat-out outrage – over buyers’ ability to cancel within the inspection section of the Florida Realtors/Florida Bar AS IS Residential Contract for Sale and Purchase (“FR/Bar AS IS Contract”).

What triggers the buyers’ ability to cancel under this provision? Can it be for any reason? Does it have to be based on the inspection results? Does the buyer even have to get an inspection to allow cancellation?

This article will cover these questions, as well as provide options for those who think this section of the FR/Bar AS IS Contract is too “buyer-friendly.”

To have/not have an inspection

Paragraph 12 of the FR/Bar AS IS Contract states that the “buyer shall have X (if left blank, then 15) days after Effective Date ‘Inspection Period’ within which to have such inspections of the Property performed as buyer shall desire during the Inspection Period.

Let’s break this down a bit to see what this sentence is saying. It’s clear that the buyer has a certain number of days to have any inspections done, and those inspections must be done during the Inspection Period. What might not be clear: It’s entirely up to the buyer whether or not he even has an inspection. (What?!) Per the language, the buyer can have any inspections “buyer shall desire.” So, if buyer doesn’t “desire” to have any inspections, that’s the buyer’s call.

Termination: Whose call?

The second line in paragraph 12 states, “if buyer determines, in buyer’s sole discretion, that the Property is not acceptable to buyer, buyer may terminate this contract by delivering written notice of such election to seller prior to expiration of the Inspection Period.

Hopefully, it’s clear here that the buyer can terminate the contract as long as he gives written notice to the seller of the intention to cancel before the Inspection Period ends. What may not be so clear – the cancellation is based on buyers’ “sole discretion” – not necessarily on the results of any inspection report.

What does this mean? The buyer’s ability to cancel is based on that buyer’s personal opinion of the property. That opinion may take into account things the buyer finds out via the inspection report – but it does not have to be based on something within the inspection report.

Language similar to the above was put into the Pennsylvania Association of Realtors’ contract, and members were immediately dissatisfied, according to James L. Goldsmith, an attorney with Mette, Evans & Woodside who represents the association. Pennsylvania Realtors felt that buyers were able to walk away “for pretty much any or no reason.”

Goldsmith makes a valid point about the inspection clause, however: “What we have works well, assuming we have reasonable buyers who want to buy and reasonable sellers who want to sell.”

What becomes more complicated is understanding that a termination under the FR/Bar AS IS Contract is subjective. And, as Mr. Goldsmith points out, “there is no telling what an idiosyncratic buyer may or may not find to be satisfactory.”

In short, sure there are going to be picky buyers who may cancel for a personal reason that a seller just does not understand or agree with.

Sellers must recognize that buyers’ right to cancel under the FR/Bar AS IS Contract inspection provision has nothing to do with whether or not sellers agree with buyers or if it “makes sense” to sellers. It’s entirely up to buyers.

But what about the seller?

Now, to address those comments and thoughts that I know are running through your head right now, which may be “But this is so unfair to a seller!” or “This contract is way too buyer-friendly,” I make this note: Sellers have the ability to choose which contract is used in a transaction.

Florida Realtors has three residential contracts, only one of which contains this subjective “out” for buyers during the inspection period. The other two contracts contain repair limits for sellers with regards to any contractually-required repairs that may need to be made based on an inspection report. So if your sellers don’t like the fact that buyers could cancel for their own unpredictable reasons during the FR/Bar AS IS inspection period, the seller may want to consider using a different contract.

When I suggest this other-contract option to callers on Florida Realtors Legal Hotline, the response I tend to get is: “Well, the sellers don’t want to have to spend any money on repairs!”

To that I simply say: “Well, that is a choice of and benefit to your sellers in choosing the FR/Bar AS IS Contract. The contrast is that the choice of and benefit to the buyers is a right to terminate based solely on the buyers’ discretion.”

A related confusion

As mentioned in previous articles, a seller should not use any of the Florida Realtors’ non-AS IS contracts and think that writing in $0 as a repair limit somehow “locks the buyer into the contract.”

Quite the opposite, in fact. If there are any contractually-required repairs found based on inspection, the sellers’ refusal to pay for them could result in the buyers’ ability to terminate the contract and receive their deposit back, leaving the sellers, in effect, back to square one and trying to find buyers again.

Additionally, many buyers may ask the sellers to complete repairs even if the parties are using the FR/Bar AS IS Contract. Sellers who “want to sell” may benefit from considering those repairs, even if initially they didn’t want to make any or pay for them. Is it worth the deal blowing up over what could be a relatively minor repair item? I’m not saying this works for every seller, but to those sellers who automatically say no, I only point out that they may want to be more flexible.

For more information on inspections referenced in our contracts, refer back to articles we published last fall:

As a good-practice tip, I encourage listing agents to sit down with sellers and discuss what they are willing to do regarding any repairs and what they’re looking for in respect to the transaction over all. An agent shouldn’t automatically assume any one contract should be used in every single transaction.

Remember, each transaction is different. Sellers may be willing to put some money towards repairs if they feel confident their property is in “good shape” in order to avoid buyers walking away during the inspection period. But you won’t know, unless you ask. Good luck!

Meredith Caruso is Associate General Counsel for Florida Realtors

© 2019 Florida Realtors®

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