RE: Seller Pitfall: Government Inspections and Repairs

SELLER PITFALL: GOVERNMENT INSPECTIONS AND REPAIRS

Nearly half of the cities in Los Angeles County have adopted ordinances that require a “pre-sale” property inspection conducted by the city. This means that seller is required to pay for a report from the city as to the status of permits, violations and building code compliance.

Many of the ordinances require an “on-site” inspection of the property by a Code Enforcement Officer prior to close of escrow. For example, cities of Azusa, Bell, El Monte, Inglewood and Carson each require an “on site” inspection prior to close of escrow.

Other cities, such as Beverly Hills, Burbank and the City of Los Angeles have adopted ordinances requiring sellers and buyers to sign water conservation certificates of compliance prior to close of escrow for any residential transaction.

These ordinances generally do not require seller to complete any repairs, but requires seller to obtain the report and deliver it to the buyer prior to closing escrow.

The costs to repair items in the report are always negotiable between buyer and seller unless paragraph 7B2 of the RPA has been checked to make seller liable for those costs.

Listing Agents Beware (RPA paragraph 7B2).

Paragraph 7B2 of the RPA is a trap for Listing Agents and sellers. If you represent a seller, you must CAREFULLY review paragraph 7B2. Paragraph 7B2 consists of three sub-parts that allocate pre-sale inspection and repair costs as follows:

Paragraph 7B2(i) states:

“❑Buyer ❑ Seller shall pay the cost of compliance with any other minimum mandatory government inspections and reports if required as a condition of closing escrow under any law.”

MEANING: Seller should never agree to this paragraph. If the box is checked, then seller is responsible for the cost of any and all government inspections and

reports. This includes all city pre-sale inspections as well as any other possible inspection imposed by any other governmental agency (i.e county, fire department, et cetera). This provision is simply too broad and requires seller to pay the cost to comply with “unknown” reports.

Paragraph 7B2(ii) states:

“OBuyer111 Seller shall pay the cost of compliance with any other minimum mandatory government retrofit standards required as a condition of closing escrow under any law, whether work is required to be completed before or after COE.”

MEANING: Seller should never agree to this paragraph. This paragraph makes the seller responsible to pay all costs required to make a property “code” compliant, correct all violations and correct “unpermitted” improvements. Seller should never sign an offer that required him/her to pay these costs.

I have had two cases in Azusa where the pre-sale inspection report required in excess of $100,000 in repairs. Both of these disputes resulted in both agents becoming parties to the litigation.

Paragraph 7B2(iii) states:

“Buyer shall be provided, within the time specified in paragraph 14A, a copy of any required government conducted or point of sale inspection report prepared pursuant to this Agreement or in anticipation of this sale of the Property.”

MEANING: This paragraph only requires seller to deliver a copy of all city pre-sale inspection reports and all other required reports, if any.

Listing Agents and Sellers review paragraph 7B2 prior to signing any RPA. A seller

should never agree to paragraphs 7B2(i) or 7B2(ii).

It is important to note that seller is still required to complete any city pre-sale inspections,

but will not be liable for the cost of repairs, only the cost of the inspection.

If a buyer insists on seller making repairs under 7B2(ii), the at the very least prepare a

Counter Offer to limit seller’s contribution to $1,000, $2,000 or $3,000.

DO NOT LET YOUR SELLER AGREE TO UNLIMITED REPAIR COSTS.

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