Parsing a “5-2-1” Timeline in the Buyer’s Inspection Contingency
[Editor’s Note: The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced. If you need legal advice, please consult an attorney.]
One of the trickiest clauses in the standard Minnesota housing purchase agreement concerns the Buyer’s Inspection timetable.
In fact, the Inspection Addendum specifies not one but three timetables: 1) how long the Buyer has to perform their inspection; 2) once the Buyer has completed their inspection, how long they have to deliver a written list of any issues to the Seller; and 3) once the Buyer has delivered the list in #2., how long the parties have to resolve same.
Independent & Dependent Timelines
The trick for home Buyers and Sellers (and their agents!) to remember is that, while interval #1 is independent of intervals #2 and #3, interval #3 is dependent on intervals #1 and #2.
Huh?!?
In plain English, what the foregoing means is that a Buyer who negotiates with their Seller for a typical “5-2-1” inspection timetable has a maximum of 5 business days to do their inspection, 2 days to follow up with a written list of issues, and 1 more day to resolve the list.
However . . . if the Buyer performs their inspection on Day #3, and delivers their list on Day #5, the Buyer and Seller must resolve any issues by the end of Day #6 — not Day #8, as many (most?) people assume.
” . . . . or Else“
What difference does any of this make?
Absolutely none, if both Buyer and Seller want to stay in the deal, and are making good progress resolving any inspection issues.
That’s because — by mutual agreement of both parties — Inspection timetables can always be lengthened (via amendment), cancelled contracts revived, etc.
Ahh, but what if one side or the other wants out?
That can be the case if the Buyer suddenly gets cold feet — or more likely in a Seller’s market with very tight inventory — a more attractive offer materializes.
Then, the Inspection Addendum’s default language, which provides that the Purchase Agreement is automatically cancelled (using the example above) at the end of Day #6 if the Buyer and Seller haven’t resolved any inspection issues, suddenly has real bite.
Here’s betting that that will come as an unhappy surprise to at least one Twin Cities Buyer or Seller (and an agent or two) this Spring.
P.S.: All of the above is sufficiently confusing that a change is reportedly in the works for later in 2016.
Also, thanks to Edina Realty colleague (and fellow former lawyer) Morrie Hartman for flagging this lurking issue.
See also, “When is Counting to Five a Challenge? When They’re Business Days, and July 4 Falls on a Weekend”; “The Difference Between a Home Inspection Addendum and a Repair List”; “Inspection Addendum: ‘Seller to Power Wash Garage Floor“; and “Reason #38 Not to Nitpick on Inspection.”
