I am selling my house in SATX to a 'flipper' and have a question about the "as is" section in the TREC Residential Contract. The signed contract is checked at Paragraph 7, D, (1) basically stating that the buyer accepts the property "as is".

Since signed (19Dec2022), a test (04Jan2023) on the plumbing has discovered two leaks in the drainage under the foundation.

Who is responsible for fixing? Me, the current owner, or the buyer?

Have you closed? If sale has yet to be complete it could be anyone. If its closed and it said as is new owner is out of luck if no one knew. If they did and didnt disclose....

Closing on Wednesday.

So, until then, who pays is negotiable?

"It's all negotiable." -Ed Elmore

I can't give you legal advice because I'm not an attorney, but if you could re-read all of P7D (below) and Ed's words above, you'll have your answer.

"ACCEPTANCE OF PROPERTY CONDITION: "As Is" means the present condition of the Property with any and all defects and without warranty except for the warranties of title and the warranties in this contract. Buyer's agreement to accept the Property As Is under Paragraph
7D(1) or (2) does not preclude Buyer from inspecting the Property under Paragraph 7A, from negotiating repairs or treatments in a subsequent amendment, or from terminating this contract during the Option Period, if any.
(Check one box only)
(1) Buyer accepts the Property As Is.
(2)Buyer accepts the Property As Is provided Seller, at Seller's expense, shall complete the following specific repairs and treatments:________________"

A few questions:

1. Did you know about the leaks and fail to disclose? I assume you provided a seller's disclosure that didnt show the leaks.

2. Did the leak occur due to an action of the buyer? Hydrostatic testing would be one way they caused the leaks.

Not a question but a flipper is going to handle anything very differently than a traditional buyer. There is no emotion just looking at rates of return.

Aggie Infantry said:

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I am selling my house in SATX to a 'flipper' and have a question about the "as is" section in the TREC Residential Contract. The signed contract is checked at Paragraph 7, D, (1) basically stating that the buyer accepts the property "as is".

Since signed (19Dec2022), a test (04Jan2023) on the plumbing has discovered two leaks in the drainage under the foundation.

Who is responsible for fixing? Me, the current owner, or the buyer?

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Who performed the test?

Based on the dates of signing and the tests, I assume they were run ouside of the option period. If they were found during the option peod,it would have been negotiable, but probably mostly paid by you, unless they really wanted the property.

Tests or inspections shouldn't be performed outside the option period, because of the gray area you find yourself in

Technically, I don't think you have to fix it Realistically, you have a problem that would have been negotiable if found earlier and will have to be disclosed to the next buyer, if you don't close. The buyer generally can't be forced to close and I understand that getting the earnest money has to be mutually agreeable. Unfortunately, I'd negotiate with them and treat it as a lesson learned. Maybe make it as a gesture on your part to even consider it.

BTW, not a lawyer.

Your flipper has wiggle room. Tell him the house is already being sold at a discount and you can't come down any more. If he balks, include the issue on your sellers disclosure and put it on the MLS.

1. Did you know about the leaks and fail to disclose? I assume you provided a seller's disclosure that didnt show the leaks.
A: The house had a history of foundation issues and the previous owner spent $75k to fix. The buyer wanted to run a leak test, Which they did and discovered the 2 leeks after having to run a camera down the pipe.

2. Did the leak occur due to an action of the buyer? Hydrostatic testing would be one way they caused the leaks.
A: I don't know. Once the test failed, they ran Cameras. The camera revealed separated joints at 2 locations.

I'm assuming you're outside of the option period. If so, it's really in the buyer's hands to decide how they will proceed.

They will likely make contact before closing to back out and request the earnest money to be returned or ask for some concession.

It will then be up to you to decide how to proceed. If y'all can't reach an agreement on how to proceed and close, it's best to reach some type of agreement regarding the earnest money and get release signed. Otherwise you'll have issues getting under contract with another buyer.

In any event, you now have knowledge of the issue and will need to list the condition in the future if it isn't fixed and you list on mls or do a non mls sale to protect you from a future claim of failure to disclose. Best of luck on the sale.

Not trying to derail, but I thought if you back out of a sale after the option period (as a buyer), you automatically lost your earnest money. Why are people saying that the seller needs to come to an agreement with the buyer about what to do with the earnest money?

I understand the potential benefits of coming to an agreement on a reduced price or a repair in order to allow the sale to proceed. My question is more of a general one in response to some of the responses on this thread.

If it's a flipper, this has at least a scent of fishiness. They performed a non-standard test outside of the option period and now want you to foot the bill. It would appear that they are playing hardball knowing that they've put you into a somewhat precarious position whereby you would now have to disclose this issue if they walk, possibly causing you to have to reduce the price by the cost of the repair.

If the Buyer refuses to close because of the leak and the contract is beyond the option period, then the Buyer would be in default and the Seller is entitled to retain the earnest money under the standard form language. Alternatively, the Seller may try to force the Buyer to purchase the property (i.e. specific performance, which is a remedy under the standard TREC form).

The Buyer may argue that you knew and failed to disclose the leak and resort to litigation, which could cloud title and make it difficult to sell the property. To avoid this problem, you could agree to some partial release of the earnest money to make the Buyer more comfortable with the deal, or you could agree to do the repairs.

The seller keeping the earnest money is NOT AUTOMATIC. The last thing the title company wants is to be part of a dispute and potentially liable if they give the seller the money and later the buyer proves he should get it back. Title could be stuck with the bill.

A flipper knows that and probably picked his friendly title buddy for the transaction.

This is a fair point. Title holds the EM in escrow and won't release it if there is a dispute, meaning you'd have to bring suit to get it released.

As Red Pear pointed out…'as is' in the TREC contract doesn't mean what most people assume it means. It means the buyer accepts the property in its current condition (when they looked at it) with any and all defects (defects which would need to be disclosed in the seller's disclosure and in which the buyer is okay with or in which the buyer asks to be repaired as part of their offer.) Accepting the property 'as is' does not prevent a buyer from having inspections done and attempting to negotiate repairs or seller credits based on the findings (new repairs/issues in which no one was aware of prior to inspections being done). No one is necessarily responsible to make or cover the repairs…it is not black/white…it's a negotiation.

Bought 5 houses and sold 3 of them the last 12 years and so my experience is entirely anecdotal and am not a lawyer, but I'll share what we do because it's worked well for us.

We either don't leave the option period till all testing we want to do is done or we rewrite the contract to be able to exit as if the option period pending results of whatever testing we want done.

For example, this last house I just bought on Friday. We had questions about the roof so hired a roof inspector, made the appointment, and asked the sellers to extend the option period. They obliged, and we got it figured out.

In the past, we have gone out of option period with the contract rewritten to say to allow us to exit with earnest money pending results of foundation inspection. This just lets us walk away from the deal if we felt the foundation report was worse than what we wanted to handle. We compromised with the seller and they made some concessions. We bought the house.

I just can't imagine doing some testing that would make or break buying a house without some way out. I feel like that makes things very murky, but that's just my personal preference.

The Seller doesn't have to reach an agreement with the Buyer if the Buyer wants to back out after the option period. However, if the Seller wants to get the earnest money from the title company, they will need to get the Buyer to sign off on the release of the earnest money. If the Buyer refuses to sign a release of earnest money, then you not only have a potential fight over the earnest money funds, you also have an executed contract that may cause issues since no formal written termination of the contract has been executed. The Seller will also have potential issues with selling the property to another Buyer with these issues still pending. That why it is best to attempt to get the earnest money issue resolved and get a formal termination of the contract executed by Seller and Buyer. This isn't to say that that the Buyer couldn't litigate to seek enforce specific performance, monetary damages, or the turn over of the earnest money - that just takes time and can tie up the property.

Was the test done during the option period?
Have they asked for any repairs or gotten estimates for repairs during option?
Did you agree on fixing the issues?

It seems odd that this is coming up now right before closing when the test was performed a couple weeks ago. Your realtor should be addressing your questions.

Hydrostatic test are very common for older homes. It's a common misconception that extra pressure is applied to it, all the hydrotest is filling up your underslab pipes (from a toilet most commonly) with water and seeing if the water level drops. The only pressure is basically gravity so its very tough to damage pipes from this test. They will just pinpoint leaks.

If it's under contract as is, why did you have a test done?

The Seller can list the property as is, however, if the Buyer included an option period then they can conduct inspections during that time. Depending on the inspection, the Buyer can walk away during the option period if they desire or they can attempt to negotiate concessions from the Seller. If the option period expires without the Buyer opting out of the contract, then the situations mentioned in replies come into play.

Typically, if outside option period, buyer can terminate and seller retains the earnest memory as your damages unless there is some additional provision added that buyer could terminate before closing for reasons that included the leak.

Aggie Infantry - any updates?

Gigem_94 said:

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Typically, if outside option period, buyer can terminate and seller retains the earnest memory as your damages unless there is some additional provision added that buyer could terminate before closing for reasons that included the leak.

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This was how I understood it. I thought it was fairly black and white...I guess not.