Q: We just closed escrow on one of our listings. I have asked the Buyer’s Agent to send me the Buyer’s Verification of Property Condition (“VP”) form multiple times so that I can close our file, but she is not responding to my requests. I do not even know if the Buyer actually performed the final verification. Hasn’t the Buyer breached the contract? What do I need to do? How can I close my file without knowing what happened at the final verification?
In another transaction where we represent the Buyer, the Buyer discovered that there was a broken window at the Property during the final walk-through; this was not disclosed, and it is not clear how this happened. What are the Buyer’s options in that scenario? How should the Buyer notify the Seller about this discovery?
A. There is considerable confusion as to what is and what is not required of a Buyer at the Final Verification of Condition (aka the Walk-Through). This Tip will focus on clarifying the various misconceptions which have developed regarding the Final Verification.
I. WHAT IS THE PURPOSE OF THE FINAL VERIFICATION?
The Final Verification of Condition provision in the CAR Residential Purchase Agreement (“RPA”) is in paragraph 15; it states that the Buyer has “the right,” but not the obligation, to “make a final verification of the Property” prior to the Close of Escrow. That paragraph clearly states that it is “NOT” a contingency, meaning that it does not give the Buyer a right of cancellation or the ability to renegotiate the contract terms. As is clearly stated in the contract, the sole purpose of the final verification is for the Buyer to confirm that the Seller has complied with three specific contractual obligations:
(1) “the Property is maintained pursuant to paragraph 11” (“Condition of the Property”);
(2) “Repairs have been completed as agreed; and”
(3) “Seller has complied with Seller’s other obligations under the Agreement).”
The other standard residential purchase agreement forms (PRDS and SFAR) have comparable provisions.
II. IS THE BUYER REQUIRED TO CONDUCT A WALK-THROUGH?
Simply because the Buyer has a right to confirm that the Seller has complied with the Seller’s obligations does not mean that the Buyer must perform a walk-through. Buyers can choose to waive their right to conduct a final verification; but Buyer’s Agents should strongly recommend, in writing, that their clients take advantage of this contractual right. If the Buyer chooses to disregard that advice, the Agent should document the client’s choice.
See Weekly Practice Tip, How to Handle Clients Who Will Not Follow Advice (11-16-2018).
III. WHAT IF THE SELLER REFUSES TO ALLOW A WALK-THROUGH?
After difficult negotiations, some Sellers do not want Buyers to enter the premises, let alone conduct a “walk-through.” Listing Agents should send the Seller another copy of the Purchase Agreement and circle or highlight the “walk-through” paragraph; the email transmitting the Contract should strongly recommend that the Seller comply with the Purchase Agreement. If the Seller continues to refuse to allow a “walk-through” (for any reason), then advise the Seller in an email to immediately consult with a qualified California real estate attorney to discuss their potential legal and financial risks.
If a Seller refuses to allow a “walk-through,” the Buyer’s Agent should send the Buyer another copy of the Purchase Agreement and circle or highlight the “walk-through” paragraph; the email transmitting the Contract should strongly recommend that the Buyer exercise the contractual rights and verify the final condition of the Property. That email should also advise the Buyer to consult with a qualified California real estate attorney to discuss how to best protect their rights if the Seller continues to prevent a “walk-through.”
The Buyer should be encouraged to try to enforce their contractual rights by sending the Seller a Notice to Seller to Perform. If the CAR RPA was used, check one of the “Other” boxes under Section 1 Contractual Action and state in the blank line: “Allow Buyer access to perform Final Verification of Condition pursuant to Paragraph 15.”
IV. WHAT PAPERWORK IS REQUIRED?
Although the RPA references the CAR Verification of Property (“VP”) form, none of the contract forms require the Buyer to use any specific walk-through form. Thus, whether or not the Buyer conducts a final verification, neither the Seller nor the Listing Agent can force the Buyer to use the VP form.
The best practice for Buyer’s Agents is to encourage their clients to use a walk-through form that is designed for use with the Purchase Contract that is being used: the VP for the CAR and SFAR contracts or the PRDS® Walk- Through Inspection (“BWT”).
Both the VP and the BWT explain the contractual scope of the walk-through and both forms are designed for the Buyer to indicate that the Buyer has confirmed that the Seller has complied with the Seller’s contractual obligations and for the Buyer to list any noted exceptions.
Both the VP and BWT also enable the Buyer to waive the right to conduct a final inspection. The fact that a Buyer chooses not to conduct a final inspection or is not able to do so does not mean that the Buyer’s Agent should assume the responsibility of confirming that the Sellers have met their contractual obligations. Anything that is missed by the Agent could become the responsibility of the Agent to remedy.
If the Buyer has signed a walk-through form, the Buyer’s Agent should provide it to the Seller’s Agent, especially if the Buyer has found anything that indicates that the Seller has not complied with the Seller’s contractual obligations.
V. WHAT ARE THE BUYER’S OPTIONS IF THE BUYER DISCOVERS SOMETHING DURING THE WALK-THROUGH?
If the Buyer discovers that: (1) the Property was not maintained as agreed; (2) the repairs have not been completed as agreed; and/or the Seller has not complied with the Seller’s obligations, then the best practice is to have the Buyer list the noted deficiencies on the walk-through form and send that document to the Seller’s Agent for the Seller to take care of the deficiencies.
If the Buyer discovers new issues or conditions during the walk-through that were not previously disclosed and/or if the Seller is unable or unwilling to correct the deficiencies so as to comply with the Seller’s contractual obligations, then the Buyer needs to immediately consult with a qualified California real estate attorney.
The Buyer may have claims or remedies against the Seller but any effort by the Buyer to cancel or to not close the escrow could jeopardize the Buyer’s legal rights and interests. Only the Buyer’s qualified California real estate attorney should determine what action(s) the Buyers should and should not take.
BEST PRACTICE TIPS:
- Buyer’s Agents should encourage their clients to conduct the final verification within the time frame specified in the Purchase Agreement and to use either the VP or BWT form to document the results of the walk-through and then provide that completed form to the Seller’s Agent.
- Buyer’s Agents should not conduct the walk-through for the Buyer regardless of why the Buyer cannot do it.
- Seller’s Agents can request written confirmation that the Buyer conducted the final verification or waived the right to do so; however, if the Buyer’s Agent does not provide that documentation, the Seller’s Agent merely needs to document the file that it was not received and then close the file.
- Seller’s Agents should make sure that the Seller understands that the Buyer has a right to conduct a “walk-through” and that it is potentially dangerous for the Seller to prevent the Buyer from accessing the Property.
- Both Agents: Any disputes that arise between the Parties regarding the results of the walk-through should be handled by the clients’ qualified California real estate attorneys or, if the amount is less than the jurisdictional limit of the Small Claims Court, the Parties can resolve their dispute in that forum.
ATTORNEY-CLIENT PRIVILEGED COMMUNICATION: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2021 08/06/21