Real Estate Term of the Day: Inspection Addendum or Clause

Real Estate Term of the Day: Inspection Addendum or Clause

INSPECTION ADDENDUM OR CLAUSE – in a contract to buy or sell real estate, a clause or attachment that allows the buyer (or a qualified party) to inspect the property. If repairs are needed, the buyer may require the seller to make the repairs, negotiate a lower price, or back out (Barron’s Dictionary of Real Estate Terms) 

An inspection clause (contingency) can be found in Section 10.2 and Section 10.3 of the Colorado Contract to Buy and Sell Real Estate (Residential):

10.2.   Inspection Objection. Unless otherwise provided in this Contract, Buyer acknowledges that Seller is conveying the Property to Buyer in an “as is” condition, “where is” and “with all faults.” Colorado law requires that Seller disclosure to Buyer any latent defects actually known by Seller. Disclosure of latent defects must be in writing. Buyer, acting in good faith, has the right to have inspections (by one or more third parties, personally or both) of the Property and Inclusions (Inspection), at Buyer’s expense. If (1) the physical condition of the Property, including, but not limited to, the roof, walls, structural integrity of the Property, the electrical, plumbing, HVAC and other mechanical systems of the Property, (2) the physical condition of the Inclusions, (3) service to the Property (including utilities and communication services), systems and components of the Property (e.g. heating and plumbing), (4) any proposed or existing transportation project, road, street or highway, or (5) any other activity, odor or noise (whether on or off the Property) and its effect or expected effect on the Property or its occupants is unsatisfactory, in Buyer’s sole subjective discretion, Buyer may, on or before Inspection Objection Deadline (§ 3):
                 10.2.1.   Notice to Terminate. Notify Seller in writing that this Contract is terminated; or
                 10.2.2.   Inspection Objection. Deliver to Seller a written description of any unsatisfactory physical condition that Buyer requires Seller to correct.
            10.3.   Inspection Resolution. If an Inspection Objection is received by Seller, on or before Inspection Objection Deadline (§ 3), and if Buyer and Seller have not agreed in writing to a settlement thereof on or before Inspection Resolution Deadline (§ 3), this Contract will terminate on Inspection Resolution Deadline (§ 3) unless Seller receives Buyer’s written withdrawal of the Inspection Objection before such termination, i.e., on or before expiration of Inspection Resolution Deadline (§ 3).

Home InspectorWarning!! Buyer and Seller Trap. I have had several clients make these two statements: “once the home passes inspection” and “this won’t get signed off on the home inspection.” These two statements infer that an inspector will give a pass/fail rating at the conclusion of the property inspection. This is not so. An inspector will point out issues with the home that should be addressed/corrected while commenting on things that do not need to be addressed/corrected. During the inspection period, it is up to the buyer to decide what items, if any, they would like the seller to address/correct and what items they are willing to address/correct after the sale.  A buyer may also decide to not proceed with the contract based on their inspections prior to requesting repairs by the seller.