Purchase Contracts & Termites
In our last post, we wrote about the types of termites commonly found in California. As Realtors, we review termite reports with our clients as we
counsel them in preparing their homes for the real estate market or in purchasing a home. We also review the pest control provisions of the fundamental document underlying a real estate transaction, the purchase contract, so that our clients can make informed decisions about how to handle pest control deficiencies in a home.
While there are many different types of purchase contracts, the one most commonly in use in our area is known as the PRDS Real Estate Purchase Contract. This legal document has specific language dealing with Structural Pest Control Reports, commonly called termite reports.
First the Buyer and Seller must agree on who is paying for and providing the report and, if there are several reports, which report will be used for contract purposes. It should be noted that termite reports are not required to buy or sell a home, and contrary to popular belief, in our area they are not routinely required by lenders.
Section I & Section II Categories
Termite inspectors classify their findings into categories, mostly Section I defined as active conditions, and Section II, conditions which left uncorrected can lead to Section I deficiencies. A common Section I finding would be the discovery of active termite activity, or dry rot; a Section II finding would be an instance of leaky plumbing which could in the course of time be conducive to dry rot development. There are other types of findings such as Further Inspection and Inaccessible Area which we will discuss in future posts.
The PRDS purchase contract states that the Seller is responsible for correcting Section I deficiencies prior to close of escrow. Section II findings are the responsibility of the Buyer, unless agreed otherwise in the purchase contract.
A well-counseled Seller will order a termite inspection report prior to placing the home on the market to determine the home’s termite “health”.
Having this information in advance will allow the Seller to decide whether or not to correct deficiencies and eliminate potential Buyer objections. Given current market conditions characterized by a shortage of available homes relative to the number of buyers, often the seller chooses not to correct the problem. Many buyers are offering an “as is” term thus taking responsibility for all of the recommended termite work.
In the event either party engages the termite company to address the recommendations in the report, a document called a Notice of Work Completed and Not Completed, sometimes called a “certification”, will be issued and will describe the work that was performed. There is no requirement that a homeowner hire a termite company to do the recommended work but, if certification is desired, the termite company will need to perform the recommended repairs, or re-inspect the problem area to determine that the condition was eliminated.
In our next post, we will discuss other sorts of termite report findings and how these relate to purchase contracts.
Pictures and technical editing courtesy of Mike Judas, Franz Termite Control