How To Avoid Settlement Conflict

"Don't Let The Closing Be A Deal-Breaker"

Each year thousands of real estate transactions unfortunately result in buyers and sellers having disagreements and arguments at final settlement — the closing of escrow — regarding the overall condition of the seller’s property.

These conflicts develop because buyers unexpectedly discover during their pre-settlement inspections conditions they were unaware of and therefore have not been agreed to by them.

Examples of conditions that can cause conflicts at final settlement, as a result of a pre-settlement inspection, are:

1.) A functional deficiency is discovered.
Example: the dishwasher is not working;

2.) A cosmetic deficiency is discovered.
Example: there is a burn mark on the kitchen counter top;

3.) A permanent fixture has been removed.
Example: upgraded towel bar holders and light switch and receptacle plates have been removed;

4.) A permanent fixture has been replaced.
Example: the dining room chandelier has been replaced; and

5.) A permanent fixture thought to be owned by the sellers was actually leased.
Example: water conditioner.

Are sellers responsible to correct these conditions? Unless buyers have full knowledge of these types of conditions during the offer negotiation process and have negotiated and agreed to accept them as part of the terms and conditions of the agreement of sale (contract), sellers are responsible to correct them.

To prevent the types of pre-settlement inspection problems mentioned here, I highly recommend the implementation of the following eight steps:

Step 1 - Make very thorough interior and exterior inspections of sellers’ home during your listing presentations to determine functional or cosmetic deficiencies, any permanent fixtures the sellers want to remove or replace, and any "permanent" fixtures that are actually being leased.

Step 2 - Accurately record any of these existing conditions on your listing agreements or any addenda to them.

Step 3 - Make sure any of these existing conditions are disclosed. I did so in my special marketing kits which were on display at my sellers’ homes and in my office for the benefit and convenience of prospective buyers and selling agents.

Step 4 - I suggest you order appraisals and home inspections on your sellers’ home, with their consent. I did in order to determine if functional or cosmetic deficiencies were overlooked.

Step 5 - Make sure that buyers, sellers, listing and selling agents and attorneys, if at all humanly possible, attend any home inspections.

Step 6 - You should make sure that any of these existing conditions are thoroughly discussed and negotiated during any offer or negotiation process.

Step 7 - Likewise, be sure agreements of sale are prepared containing:

a.) the exact terms and conditions that buyers and sellers had negotiated and agreed to; and

b.) a seller’s warranty clause stipulating the exact condition the property will be in at final settlement and what the sellers’ obligation will be if it is not.

Step 8 - Lastly, I recommend that you make sure that buyers, their home inspectors and contractors, the sellers, listing and selling agents and attorneys, again if humanly possible, attend the pre-settlement inspection.

Implementing these eight steps will enable you to prevent some common pre-settlement inspection problems from developing. As a result, your pre-settlement inspections and final settlements will go much smoother and far more successfully.

-- Phil Mitsch