Red-tagged Furnace Multiple Choice

“Do Not Pass Go. Do Not Collect $200”

[Editor’s Note:  The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced.  If you need legal advice, please consult an attorney.]

Consider this not-so-hypothetical inspection scenario, and try to guess the outcome:

“The licensed HVAC contractor hired by the Buyer red-tagged the Seller’s furnace (translation:  the furnace is defective and may no longer be used).

The deal can move forward and the home can close with only a reduction in the sales price if:

A. The Buyer and Seller mutually agree to handle it that way.
B. The lender doesn’t flag the issue before closing.
C. The appraiser doesn’t flag the issue before closing.
D. All of the above.

Correct answer:  “D.” (all of the above).

Lender’s Call

For a host of reasons, it’s generally desirable for a Buyer to get a credit for an inspection issue, then do the repair themselves, rather than have the Seller do the repair prior to closing.

That way, the Buyer can opt for the “deluxe” rather than basic model; choose and vet their own contractor; won’t have to make sure the warranty is assignable (from the Seller); can avoid having to inspect the work done by the Seller’s contractor afterwards; and won’t have to have their title company confirm that the contractor in fact got paid (if they didn’t, they can attach a mechanic’s lien to the new owner’s home).

However, the “close first, repair second” order has to be blessed by both the lender and the appraiser.

If not — that is, replacing the furnace instead is called as a condition for closing — the Buyer and Seller’s hand is forced.



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