Dear Monty column: The pros and cons of the right-to-cure clause
Reader Question: We are making an offer on a home. The inspection contingency has a right-to-cure clause where we give the seller the right-to-cure any defects found or deny the seller the right-to-cure. We asked the agent for advice and were told, “It’s up to you.” How would you answer?
Monty’s Answer: If your state law provides the seller the right-to-cure, the seller should consider a presale inspection to eliminate or minimize the events described below. The buyer should control the repairs or replacements because there is often dissatisfaction when the seller does the work.
A typical right-to-cure clause
RIGHT TO CURE: Seller (shall)(shall not) STRIKE ONE(“shall” if neither is stricken) have the right to cure the Defects. If Seller has the right to cure, Seller may satisfy this contingency by: (1) delivering written notice to Buyer within (“10″ if left blank) days after Buyer’s delivery of the Notice of Defects stating Seller’s election to cure Defects; (2) curing the Defects in a good and workmanlike manner; and (3) delivering to Buyer a written report detailing the work done no later than three days prior to closing. This Offer shall be null and void if Buyer makes timely delivery of the Notice of Defects and written inspection report(s) and: (1) Seller does not have the right to cure; or (2) Seller has the right to cure, but: (a) Seller delivers written notice that Seller will not cure, or (b) Seller does not timely deliver the written notice of election to cure.
The buyer’s pros and cons
If the buyer chooses “shall not,” it means that the Offer is void if the inspector finds a defect. Buyer advantages are:
- Learn of any visible issues.
- Determine the repair cost.
- Open further negotiations.
- Gain control of the repair process.
The disadvantages are:
- Home back on the market.
- The seller has no obligation. Here is a helpful link (http://bit.ly/2Zz3O0m) to a pre-offer inspection article.
If buyer chooses “shall,” the seller has the right to cure. Buyer advantages:
- The transaction does not die.
- Gives seller time to decide.
- It opens the option to negotiate a new agreement.
- The seller has two ways to void.
- The seller makes the repairs, and buyer risks unsatisfactory work.
The seller’s pros and cons
If the buyer chose “shall not,” and the inspection reveals defects - the contract is void. The Seller has no choice here, but has advantages:
- No longer locked into making repairs or replacing components after the sale price was set.
- Free to renegotiate the contract.
- No longer on a time clock. The disadvantage is no contract-of-sale in place.
If the buyers chose “shall,” seller has two choices. If defects are found, the seller can choose to agree to the repairs and replacements. The advantage of this choice is that your home is sold. The disadvantages are:
- Erosion of the sale price.
- A new responsibility in making and guaranteeing the repairs.
- A limited time to arrange for and supervise the work. The second choice is to void the contract.
Richard Montgomery is the author of “House Money - An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home.” He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty, or at DearMonty.com.