Importance of negotiating repairs before Due Diligence Period ends

QUESTION: I’m representing a buyer who is under contract to purchase a property using the Offer to Purchase and Contract (form 2-T).  The Due Diligence Period expires today.  For reasons beyond our control, I’ve just received the home inspector’s report, discussed it with my client, and prepared a Due Diligence Request and Agreement (form 310-T) to submit to the listing agent for several repairs items identified by the home inspector.  So long as I get the buyer’s repair request to the listing agent before the 5 PM deadline, the buyer will be able to get her earnest money deposit back if the seller won’t agree to the requested repairs, right?

ANSWER: Wrong!   This is addressed very dearly in the contract.  In paragraph 4, the buyer is advised “…to make any repair/improvement requests in sufficient time to allow repair/improvement negotiations to be concluded prior to the expiration of the Due Diligence Period.”   The WARNING in paragraph 4 explains why this is so: “Buyer’s failure to deliver a Termination Notice to Seller prior to the expiration of the Due Diligence Period will constitute a waiver by Buyer of any right to terminate this Contract based on any matter relating to Buyer’s Due Diligence.”  In other words, a buyer doesn’t have the right to terminate the contract after the Due Diligence Period ends if the buyer is unable to negotiate repairs with the seller.  If the buyer does terminate for that reason, it would be considered a breach of contract, resulting in the earnest money deposit being paid to the seller according to paragraph 23(a).

What should a buyer do if the Due Diligence Period is about to end and repair negotiations haven’t been concluded?  The WARNING in paragraph 4 provides the following advice, which is the same advise we would give you in your situation: “If Buyer is not satisfied with the results or progress of Buyer’s Due Diligence, Buyer should terminate this Contract, PRIOR TO THE EXPIRATION OF THE DUE DILIGENCE PERIOD, unless Buyer can obtain a written extension from Seller. SELLER IS NOT OBLIGATED TO GRANT AN EXTENSION.”

NOTE: There are a few circumstances where a buyer can terminate after the Due Diligence Period ends and still be entitled to a refund of any earnest money deposit, but those circumstances are limited.  The seller’s fails to materially comply with any of the seller’s obligations under Paragraph 8 of the contract is one such circumstance.  Others would include non-satisfaction of the contingency set forth in paragraph 11 of the contract, or if the sale is subject to FHA or VA financing and the contract price exceeds the appraised value.

Release Date: 06/04/2013

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