Fact Pattern: I am the buyer’s agent. After the buyer’s inspections, we used C.A.R.’s Request for Repair #1 (RR#1) to ask the seller to do certain repairs. The seller agreed by checking the box in the second section of the RR#1 form that required that the buyer to: (1) Remove all contingencies as provided on a separate Contingency Removal (CR) form (which the seller’s side prepared and attached); and (2) Release the seller from all claims concerning the disclosed condition of the property.

After we received the seller’s response to our RR#1, the buyer’s accountant advised the buyer that, in his professional opinion, the HOA was underfunded by $24,000 per condo unit. We then submitted RR#2 to the seller asking for a $24,000 credit. The seller responded using a Seller Response and Buyer Reply to Request for Repair (RRRR). The RRRR stated that the seller no longer agreed to any repairs or credit, and that his RRRR superseded his previous response to the buyer’s RR#1. Unfazed, the buyer then signed the third section of the RR#1 agreeing to what the seller had said in section 2 of the RR#1. The buyer also signed the separate CR that the seller previously provided to remove all contingencies.

Multiple Choice Question: Which one of the following statements is true? Pick the best answer:

A. The seller cannot withdraw his agreement to do repairs.
B. The buyer can cancel the contract because the HOA being underfunded by $24,000 per unit is a new, previously-undisclosed material fact.
C. The buyer was not given a deadline to do as the seller had proposed in the seller’s response to the RR#1.
D. The buyer has removed all contingencies. 

Answer: Answer A is wrong. The seller’s withdrawal of his proposal to do repairs is likely to be valid. Under paragraph 29 of the C.A.R. Residential Purchase Agreement (RPA), nothing in the agreement can be amended, except in writing signed by both the buyer and seller. It is true that the seller had agreed in the second section of RR#1 to do the repairs. However, that agreement was predicated upon the buyer’s removal of all contingencies (which the buyer had not removed by the time of withdrawal), and the buyer releasing the seller from all claims (which the buyer had not yet complied with by signing the third section of RR#1).

There is a possible exception to the seller’s ability to withdraw his proposal if the buyer had done something to his own detriment in justifiable reliance on the seller’s promise to do the repairs (e.g. loan funding). However, nothing in the above Fact Pattern suggests that something like that happened.

Answer A is a very good reminder to buyers’ agents to make sure that your buyers understand the risks of failing to immediately counter-sign a seller’s agreement to do repairs or give a credit.

Answer B is not the best answer. It is not altogether clear whether the HOA being underfunded is a new material fact that allows the buyer to cancel. After all, it is at least arguable that the information is not a new material fact, but merely the opinion of the buyer’s accountant, based on HOA financial statements that had already been provided to the buyer.

Answer C is the best answer. Unfortunately, the RR form does not provide a deadline for the buyer to do as the seller had proposed. That lack of a deadline could have easily contributed to the buyer’s failure to comply before the seller withdrew his proposal.

Answer D may be correct depending on how the CR was completed. If the top of the CR form stated that the CR was in accordance with the terms of the RPA, then the buyer has removed all contingencies. If, however, the top of the CR form stated that the CR was in accordance with the terms of the RR#1, the buyer has not removed all contingencies, because the seller already withdrew the second section of that form.

-Thank you to Kristi Olson (La Jolla Prospect Office) for suggesting this week’s legal tip.

Copyright© 2019 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of November 4, 2019. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.