By Sheryl B. Graham, Consumer Protection Officer
What are the consequences of a vaguely written DDRA?
One of the most important issues addressed during the due diligence period of a real estate transaction is the condition of the property. Brokers should address their client’s concerns and expectations when it comes to the requested repairs and adjustments.
Several recent cases reviewed by the Commission’s Regulatory Division staff have involved complaints filed against brokers by buyer clients after closing. These cases have centered on poorly prepared Due Diligence Request and Agreement documents, Form 310-T, which often result in the expectations of the clients not being met. While this specific form is provided by NCREALTORS® for use by its membership, the same issues can arise in repair negotiations in due diligence contracts which do not use this form.
The details of the following case study are based on an actual complaint. A real estate broker assisted a buyer client with the purchase of a home. During the due diligence period, the buyer had a home inspection performed by a certified home inspector as suggested by the broker. The inspection revealed several items of concern with the property and the report noted, among other things, the following issues:
Item 2.4 Rotted wood at the base of the left porch column should be evaluated and repaired as necessary. Item 5.5 The crawl space shows widespread high moisture and fungal growth. Consult a professional foundation moisture control contractor to determine solution. Item 5.6 Moisture damaged sub-floor under master bath, evidence of water intrusion. Item 5.7 Vapor barrier should be installed in crawl space. Item 6.2 Kitchen sink spray option not working. Have repaired or replaced. Item 6.7 Hall bath shower head leaking. Have repaired or replaced.
The buyer’s agent prepared the Due Diligence Request & Agreement (DDRA) for the buyer client and it read as follows: “The buyers are requesting that the sellers repair the following items from the Home Inspection Summary, Items 2.4, 5.5, 5.6, 5.7, 6.2, and 6.7.” The buyer agent emailed the DDRA to the listing agent with the home inspection summary attached and the sellers agreed to the DDRA as written.
The buyers were comfortable to proceed with the sale and expected a professional moisture control contractor would evaluate and correct the crawl space issues. The sellers agreed to the repairs but it was their intention to hire a plumber for some of the items and do some of the work themselves.
As in many cases, the vaguely written DDRA led to a misunderstanding that was revealed right before closing! The day of the walk-through, the buyer agent asked for repair receipts and discovered that the crawl space repairs were not done by a professional moisture control contractor, but by the seller’s brother, a plumber. To repair the crawl space issues, the plumber had checked for leaks and finding none, installed a new vapor barrier and sprayed the visible fungus with a household cleaner. The remedy in no way met the expectations of the buyer. Not being able to delay closing because their household goods were outside on a moving van, the buyers felt they had no choice but to proceed with settlement. Ultimately, the buyer’s fears were realized when they found the moisture issues in the crawl space were not effectively repaired .
The language in the DDRA was vague and did not clearly define what exactly was being requested, how the requested repairs were to be completed, or who was to complete the repairs. The home inspection report outlined the issues but did not address how to specifically remedy them. Neither the buyer’s expectations nor the sellers were clearly defined, explained or fulfilled. In this case, like many others, the agreed upon repairs were left open to interpretation by the buyers and the sellers.
A poorly written DDRA that does not specifically address the issues, the remedies, the methods of repair and other important details, has the potential to adversely affect more than just the buyer of the property. The sellers and the brokers can also be adversely affected. Brokers should take great care to discuss and discern the expectations of the client, advise the client to seek additional professional opinions when necessary, and clearly articulate the client’s requests.
Possible violation of the Real Estate License Law in this case study include violations of N.C.G.S. § 93A-6 (a)(8) for being unworthy or incompetent to act in a manner which protects the public.
Things to keep in mind when preparing and negotiating the Due Diligence Request & Agreement