The New Home Inspection & Radon Testing Contingency – What Agents Need to Know

Although the Home Inspection & Radon Testing Contingency has undergone some tweaks and changes over the years, its basic mechanics have been the same for more than a decade. Effective January 1, 2014, the first substantial re-write of the addendum will be released.

Home Inspection Contingency
WASHINGTON, D.C. – November 18, 2013 – (RealEstateRama) — Beginning in January 2012, NVAR and the Greater Capital Area Association of Realtors® adopted a revised Regional Sales Contract that began with the basic premise that every home was being sold AS-IS, subject to any repairs or remedies requested as the result of a home inspection to be conducted after ratification by the purchaser. The seller no longer warrants that basic systems and appliances are in normal working order. As a result, it’s important that a home inspection take place, and it is critical that deficiencies that are material to the purchaser be addressed before the Home Inspection Contingency is released.

The chief goals of the revised Home Inspection & Radon Testing Contingency Addendum are to: 1) eliminate confusion about what remedies a purchaser may ask of the seller following the home inspection; 2) simplify the back-and-forth exchange of marked-up drafts required to negotiate removal of the contingency; and 3) reduce the number of contracts that become void as result of inaction by one party.

Under the new framework, the purchaser arranges for a home inspection within the timeframe stated in the contingency. The first step after the purchaser receives the home inspection report is to provide the seller with a complete copy of the entire report, and the results of other inspections conducted pursuant to the Home Inspection Contingency. At this point, the purchaser has two options: (1) void the contract, or (2) negotiate repairs or credits.

If the purchaser wants to begin negotiations, then the purchaser provides an addendum that includes any term requested as a remedy for deficiencies noted in the reports, along with a copy of the entire report. For instance, a purchaser may wish to ask for a credit in lieu of repairs. Although this sort of remedy was often requested under the old contingency form, technically the purchaser was restricted to asking for repairs or replacements, and the seller would have to offer a credit as a counter-offer. The new language makes it clear that either party can initiate the credit/price reduction in lieu of repairs discussion.

The second change is in what happens if the seller does not immediately accept all terms in the purchaser’s addendum. Under the old form there was a complicated and strict series of deadlines governing who could respond and when. In some instances, negotiations could occur for weeks.

Using the new form, if the seller rejects the purchaser’s initial request for remedies, the parties enter a negotiation period during which they are free to exchange as many offers and counteroffers as necessary to ratify an addendum removing the Home Inspection Contingency. At any time during this period, either party is free to accept the other party’s last offer and end discussions. This means that when a party makes a counteroffer to the other side, that party can do one of two things: (1) either wait for a response to that counteroffer or (2) accept the last offer made by the other side. The length of the negotiation period is established by the parties in advance.

This brings us to the third significant change. At the end of the negotiation period, if the parties still cannot agree to the terms of an addendum removing the Home Inspection Contingency, the purchaser has a fixed number of days to elect to either provide notice that the contract is void or to proceed as if there were no Home Inspection Contingency and take the property AS-IS. Under no scenario does the contract automatically become void as the result of a missed deadline or refusal of one party to participate in negotiations. The purchaser must be careful, however, to make an election to void prior to the end of all deadlines; otherwise the contract remains in full force and effect as if the home inspection deadline itself were missed.

Finally, one of the other changes is a line that addresses what happens in those cases where the purchaser arrives to inspect the property, and finds that the utilities are no longer in service. In those cases, the contingency period will be extended until some number of days after the utilities are turned back on (the number of days is negotiable and must be agreed to by both parties prior to ratification of the contract).

Radon Testing Contingency
Not only does the seller agree to have all utilities in service, as with the Home Inspection Contingency, the seller also agrees to abide by certain guidelines established by the EPA to ensure accurate results. If the radon professional performing the test indicates that these guidelines have not been followed, the Radon Contingency is automatically extended and the Seller must pay for a new test that follows the guidelines.

The Radon Testing Contingency also follows the new Negotiation Period, where the parties will have a set number of days to reach an agreement about what to do if the test reveals radon that is at or above the EPA established action level. This allows the parties the opportunity to freely negotiate a solution – either the seller installing a radon remediation device or some form of credit or price reduction.

Finally, as with the Home Inspection Contingency, the Radon Testing Contingency allows the purchaser the right to make the final decision. In the event that the parties do not reach an agreement by the end of the Negotiation Period, purchasers will have a set number of days to either deliver notice voiding the contract, or if they fail to act by the deadline, the contract will continue without the Radon Inspection Contingency in place.

Marcus Simon is an attorney and co-founder of Ekko Title. He has served as chairman of NVAR’s Standard Forms Committee and Attorney Roundtable.