What is a 1 percent clause in Real Estate or a Property Inspection Schedule?
Currently, the way an offer to purchase in Alberta is written, when there is a property inspection condition, a buyer can back out of a deal if they state they are “Not Satisfied” with a property inspection. Buyers do not need to elaborate, they simply need to state that they are “not satisfied”, and they can back out of the purchase (sign a non-waiver). Or they can try to renegotiate to either get money off the originally agreed-upon purchase price, or ask for things to be fixed.
A property inspection schedule is designed to protect a seller from minor defects in a home, while still offering protection to the buyer from major defects like a roof or furnace needing to be replaced. A property inspection schedule can be added to an offer to purchase. We like to think of it as the “non-nitpicking schedule.” It gives the buyer the right to do a home inspection. However, it limits the items a buyer can bring up after an inspection.
For example, if you have a 1 percent clause on a house where the agreed-upon purchase price is $500,000, it means that the buyer is willing to accept defects in the home up to $5,000. (A dollar figure may be negotiated instead of a percentage). However, an inspection may reveal minor defects in a home such as:
- Doors don’t shut correctly
- Toilets are loose
- The grading by the house should be altered.
- A leaky tap
- There is a recommendation for the furnace to be checked
- Exterior Caulking missing or failing
- Water heater nearing end of life
- Drywall cracks
- Water stains
- Smoke alarms or carbon monoxide detectors are old
- Basement bedroom windows are not egress
If the home inspection results and value of deficiencies are open to interpretation, most offers to purchase still have a financing clause which is an easy out for a buyer, as it states that a buyer has to be “satisfied”, with their financing. For example, if a bank agrees to finance a buyer, but the buyer is not happy with the rate, they can still walk away from the deal.
Is there something wrong with the house, if the seller insists that a buyer sign a property inspection schedule?
Not necessarily, sellers just don’t want to have to go back and forth after a home inspection. If there are any latent defects in the home, the seller is obligated to disclose these in advance. An inspector will find some deficiencies. There are also some REALTORS® who insist on property inspection schedules for offers on their listings, no matter what the property is.
How can a property inspection schedule benefit a buyer?
If you are in multiple offers, a seller is likely to go with the one with a property inspection schedule, as they know there will be less hassles after an inspection. It also might help a buyer to get a better price on the home, as a seller will feel more confident about the offer.
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