Question: I heard there were changes in how treatments, repairs, replacements and inspections are done with the new Oklahoma Real Estate Contracts that just came out in November 2015. Can you explain?
Answer: Yes, the standard Oklahoma Real Estate Contract has been changed recently. Gone are the old “repair caps” that were included in an offer to purchase a home. These were always confusing to both buyers and sellers. Let me explain.
In the old contracts, a buyer would make an offer and include a “repair cap” in the offer. This repair cap was a predetermined amount that the seller would agree to in repairs after the inspections. In other words. a $1,000 repair cap meant that the seller agreed in advance to perform up to $1,000 in repairs on the home after the inspections.
What often happened is that estimated repairs would often exceed the pre-negotiated repair cap. Buyers and sellers would then negotiate these additional repairs above the cap. If both the buyer and seller were not able to come to an agreement on additional repairs, either party could cancel the contract and the buyer would get their earnest money back.
This pre-determined repair cap was very confusing to all parties and was often the starting point for negotiations. A good inspector can find problems with just about every home ever made, and some buyers would end up nit-picking the seller into fixing very minor items such as paint scratches or chipped brick – anything to make sure they at least hit the repair cap.
The new contracts remove this “repair cap” as part of the initial offer. Now buyers make an offer on a home contingent upon inspections. Once inspections are completed, the buyer and seller then negotiate any repairs that may be required. Again, either party can walk away from the negotiations at any time and the buyer can still get their earnest money back.
So the process hasn’t changed all that much, but the order of negotiations has changed. Both parties are still protected in the transaction but instead of starting the negotiations with a pre-determined repair cap expectation, negotiations begin at zero repairs and work from there. Both parties are still incentivized into continuing with the transition – the buyer has spent money on an inspection so they have “skin in the game” and the seller wants to keep the buyer they already have rather than put their home back on the market. Yet either party can back out at this stage if they cannot agree to repairs.
The new contract is much cleaner and easier to understand while still providing protections to all parties involved. If you have questions about these new contracts, just give me a call.