The perils of “Section One”

The California Association of Realtors Residential Purchase Agreement (RPA) has not contained terms allocating the cost of repairing items appearing in a termite report for over 15 years.  The amendments to the RPA in 2002 eliminated the terms allocating the costs of repairing “Section One”  and “Section Two” items.

At that time, the custom in the marketplace was for the seller to repair Section One items so that the Pest Control Operator could issue a certification declaring that the home was free from signs of active infestation by wood destroying organisms.  Conversely, the custom at that time was for the buyer to pay for the costs of repairing conditions that could lead to future infestation.

Apparently, CAR recognized in 2002 that brokers and agents have a hard time changing their habits so they released the Wood Destroying Pests Addendum (WPA) at the same time that the RPA was overhauled.  This allowed brokers and agents to continue to allocate Section One repair costs to the seller and Section Two costs to the buyer.

With the recent amendments to the RPA, CAR discontinued the use of the WPA.  Therefore, the costs of repairing both Section One and Section Two items is to be negotiated between the buyer and seller as is any other item that a buyer may request be repaired.

We have seen that brokers and agents are still clinging to the concept that Section One items must be paid by the seller and are adding language in the “Other Terms” section of the RPA to allocate that cost to he seller.

This practice is dangerous for several reasons.  The WPA contained language dealing with allocation of costs of inspection and repair if the pest control operator found signs of infestation extending into inaccessible areas.  There were also terms relating to re-inspection and certification.  If an agent simply puts in a term that says “Seller to pay Section One items” these terms will be absent from the new RPA.

Also, obligating the seller to pay Section One items is always attendant with some amount of risk.  If there is no termite report before a seller commits to repairing Section One items, then the seller has essentially written a blank check to cover those costs.  Even where the seller has obtained a termite report before an offer comes in, there is no way of knowing whether a buyer will obtain a second report.  If that report contains a higher cost to repair Section One items, there will be a dispute between the seller and buyer as to the scope of appropriate repairs.

Therefore, the best and safest practice is to follow the procedure CAR has been steering agents toward for almost thirteen years – let Section One items be negotiable between the buyer and seller.