BIC TIP #1252: Money, Not Repairs
Money in lieu of repairs sounds like an easy fix late in a transaction. But be careful. Stephen Long warns that if you already have a signed Due Diligence Request and Agreement and then add an Agreement to Amend for more closing cost money, your seller could end up bound to do both.
How the Trap Gets Set
It is a common sequence. During due diligence, the buyer and seller sign a Due Diligence Request and Agreement in which the seller agrees to fix certain items. So far, so good.
Then, closer to closing, things change. Maybe the repairs are taking too long, maybe more issues came up, or maybe everyone simply decides cash is easier. The parties agree: Mr. Seller, you do not have to fix these things. We will just take a seller credit instead. So the agents draft an Agreement to Amend increasing the seller-paid closing costs.
Two Documents, Two Obligations
Here is the problem Stephen highlights. Those two forms operate independently. The Due Diligence Request and Agreement is a binding document that the seller must follow. The Agreement to Amend is a separate binding document that says the seller will give more money.
Unless something specifically releases the seller from the repair agreement, the seller is now on the hook for both: the repairs and the extra money. That is almost certainly not what anyone intended, and it is the kind of misunderstanding that blows up at the closing table.
Make the Repair Agreement Go Away
To resolve this cleanly, Stephen recommends an attorney-drafted addendum that releases the seller from their obligations under the Due Diligence Request and Agreement in exchange for the money offered in the Agreement to Amend.
That way, the record clearly shows the trade: the repairs are off the table, and the credit replaces them. Your seller is protected, the buyer gets what they bargained for, and nobody is surprised. If you are not sure how your firm wants this handled, check with your broker-in-charge.
The Practical Takeaway
Treat the Due Diligence Request and Agreement and the Agreement to Amend as two separate contracts, because they are. If the parties swap repairs for money, have a real estate attorney draft an addendum releasing the seller from the repair obligations in exchange for the concession. Otherwise, your seller may be bound to fix it and pay for it.
