Previous contract forms have followed the California Structural Pest Control
Board in distinguishing two different types of conditions that might call
for repair. Section I conditions are those where there is actual infestation
and/or damage caused by wood destroying pests or organisms. Section II
conditions are conditions that are liable to cause such damage or infestation.
For example, improper grading that allows water to drain toward a structure
might be a Section II condition. Rotting of wood may not yet have occurred,
but the condition might lead to it.
In recent generations of the contract forms buyers and sellers have been given
options via checkboxes as to who would pay for the correction of Section I and/or
Section II conditions. Traditionally, sellers have agreed to pay for any work
needed to correct Section I conditions (such as fumigation) and buyers agreed
to pay for any repairs both needed and desired to correct for Section II conditions.
The rationale behind the tradition has been that Section I problems most likely
occurred on the seller's watch, and that the buyer shouldn't have to take a
property with such existing problems; whereas, inasmuch as Section II conditions
hadn't yet led to any damage, if the buyer was bothered by them, he should pay
for the correction. Part of the tradition was also based on the myth that a
home couldn't be sold and that no new loan could be obtained unless it were
free of Section I problems.
It is hard to overemphasize the role that tradition has played in these matters
that, if you think about it, were always completely negotiable. Now the new
contract form seeks to undo that tradition. Why?
The main problem has been that sellers - generally under the influence of their
agents and tradition - have sometimes found that in agreeing to correct Section
I conditions they were, usually unknowingly, committing themselves to thousands
of dollars of expenses that they really hadn't figured on. Most sellers have
not yet seen a pest control inspection report prior to the time that the purchase
contract is negotiated, and thus they really don't know the financial implications
of agreeing to make certain kinds of repairs or corrections.
One obvious way of correcting that problem is to institute the practice of
obtaining a pest control inspection before or at the very outset of listing
a property for sale. That is an excellent practice. Unfortunately, like backing
up one's computer, it seldom is done. Moreover, in a 'hot' market, when offers
are coming in before the ink is dry on the listing agreement, it may not be possible.
The new contract form seeks to correct the fairly common problem of sellers
committing to termite repairs of an unknown cost. The form does this by removing
the check-box options as to who is going to pay for what. (It still leaves
options as to who will pay for the inspection.)
In the new contract form termite repairs are treated like any other repairs.
Just as with roof repairs and the like, the buyer is given a period of time
within which he can obtain inspections and review reports. Then he may request
that the seller make certain repairs, or none at all. The seller may agree or
not. Usually there is negotiation over the issue(s). Agents refer to this as
the 'second negotiation', the first one being over the purchase price.
If no agreement can be reached as to what the seller will pay for in the way of
repairs and corrections (termite, roof, plumbing, etc.), then the contract may
be terminated. Most agents hate the second negotiation stage, and they may be
unhappy with the fact that termite is now going to be added to it. It's probably
a lot better for sellers, though; and the agent who is looking out for the seller
should welcome the change.
Bob Hunt is a CAR director, and a former chairman of its Standard Forms Committee. He
is manager at the San Clemente office of RE/MAX Real Estate Services. His email address
is scbhunt@aol.com.
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