What the Changes Mean for You and Your Clients 

Q. Why did NVAR change the home inspection process?
A. The former Home Inspection Contingency had three unfortunate shortcomings: (1) every three days, agents were asked to deliver offers/counteroffers on their clients' behalf, leading to potential liability if agents failed to properly deliver; (2) Sellers were using the Contingency as means to void the contract ?  luring Purchasers into a negotiation, and then simply sitting on a counteroffer for three days and allowing the contract to become void; and (3) countless contracts were unintentionally (and often unknowingly) voided by a failure to properly or timely respond to a counteroffer. The new Home Inspection Contingency eliminates each of these hazards.

Rather than the rigid back-and-forth requirement that previously existed, the parties now contractually define a "Negotiation Period." This window of time begins when the Purchaser delivers the Home Inspection Contingency Removal Addendum (and the entire inspection report(s)). It is designed to give the Purchaser and Seller (and more importantly, the agents) one clear time horizon in which to resolve all home inspection issues, come up with a resolution, and draft an addendum amending the contract. 

Q.  What happens if at the end of the Negotiation Period, the parties have not been able to reach an agreement?
A.  If the parties are unable to reach an agreement by the end of the Negotiation Period, the Purchaser (and only the Purchaser) has an additional period of time to simply void the contract or choose to take the property in its current condition without negotiating any remedies

Q.  What happens if the Seller does not respond at all during the Negotiation Period, effectively forcing the Purchaser to either void the contract or take the property in its current condition?
A. Under the old Home Inspection Contingency, a Seller who wanted to void the contract would simply fail to respond to a counter-offer and the contract would automatically become void.  Under the new Home Inspection Contingency, there is no automatic voiding of the contract by the inaction of the Seller.  Rather, if the Seller fails to respond to the Purchaser’s Home Inspection Contingency Removal Addendum with proposed repairs, then the Purchaser chooses to either take the house without any repairs or void the contract.  The Seller can no longer automatically force cancellation of the contract. 

Q.  What happens if the Seller responds to the Buyer’s Home Inspection Removal Addendum very close to the end of the Negotiation Period, thus effectively forcing the Buyer to either accept the Seller’s terms or to void the contract?
A.  To avoid replicating this troubling scenario, we recommend a Negotiation Period of no less than seven days.  Under the old Home Inspection Contingency, the commonly accepted practice and industry standard was “3, 3 & 3” (three days for Seller to respond to Purchaser’s addendum, three days for Purchaser to respond to Seller’s counter or lack of response, and three days to respond to any ensuing counteroffer). These three-day time periods became widely accepted because they allowed the parties and their agents to process and understand the other side’s requests.  It is often a multi-day process to receive the other party’s offer/counteroffer, digest the scope of the request, cool off a bit and look at the situation rationally, quantify and memorialize a response, and then deliver said response to the other party. Shortening these response times often led to untimely responses, rash decisions, and/or acrimonious settlements.  In a typical scenario under the old Home Inspection Contingency, the timeframe to achieve a resolution might stretch out over the course of multiple counteroffers and easily require a week to achieve commonality. For the same reasons, though there is no mandate of delivering counteroffers back-and-forth, the psychology of the process remains the same and we would recommend no less than seven days for the Negotiation Period.

Under the new Home Inspection Contingency, if the contract is ratified with a short Negotiation Period, the parties are at a considerable disadvantage. The Home Inspection Contingency Removal Addenda are often lengthy, with considerable requests from the Purchaser. If saddled with a short Negotiation Period, the Seller will have to come up with a tactical response almost immediately. That response will need to be conveyed (practically speaking from listing agent to selling agent) and relayed to the Purchaser equally quickly. Armed with very little time to consider the Seller’s response, the Purchaser will need to determine a course of action rashly, without ample time to consider the repercussions (losing the house vs. costs of repairs, time constraints, unexpected loss, etc.)  Assuming the Purchaser still wants the home, the parties must now reach a bilateral signed agreement memorialized in the form of a contract addendum. All of this must take place within a short time frame. While it may not take a week, pushing the parties into a truncated timeframe will only lead to more voided contracts (based on member anecdotes), as the parties won’t have the time to rationally process the information.

Typical Scenario Under the new Home Inspection Contingency

• Purchaser’s delivery of the Home Inspection Addendum
• A day or two for the Seller to consider a response
• Communication between the listing agent and the selling agent
• A little back and forth for posturing
• An addendum is drafted. 

Ryan Stuart is an attorney and branch manager with MBH Settlement Group in Old Town, Alexandria.