Understanding the “Property Condition” Contract Provisions

No provision in the Maryland Association of Realtors Contract creates more dissension and confusion than Paragraph 12 “Condition of Property and Possession.” The introductory provisions of the Paragraph are relatively straight forward and state that the property is to be vacant and clear of trash and debris at the time of settlement. More contentious, however, is the requirement that the property is to be left “broom clean.” Many buyers tend to think that “broom clean” means professionally cleaned, with the kitchen, bathrooms and all other areas of the house sparkling like new. However, “broom clean,” taken literally, means that it has been swept out and or vacuumed, and there are no large pieces of debris in the house. If the oven or bathtubs are dirty, but there is nothing in them that could be swept with a broom, then it is “broom clean.”

The degree of cleanliness required of the sellers should be discussed with the purchasers in order to avoid the purchaser being surprised and disappointed at settlement with the appearance of the property. If the purchasers really want the house to be “professionally cleaned,” then that requirement should be negotiated into the contract.

Secondly, Paragraph 12 provides that the property shall be delivered in “substantially the same condition” as it was on the date of Contract Ratification. Sellers are required to maintain the property from the date of ratification until settlement, including mowing the lawn and maintaining the exterior, as well as rectifying any significant adverse changes in the condition of the home. This would include repairing any basement or roof leaks that occur between contract ratification and settlement, even though Paragraph 12 does not apply to roof or basement leaks. The purpose of this provision is to assure the purchasers that at settlement, they will get essentially the same thing that they bought at contract time. If something significant changes, even if it is not a Paragraph 12 item, the seller still must repair it.

Finally, the most contentious portion of Paragraph 12 requires that the major systems be in “working condition” on the date of settlement, including electrical, heating, air conditioning, plumbing and any other mechanical systems and related equipment and appliances. Disputes abound at settlement as to whether an item is included within Paragraph 12 and further, whether it is in “working condition.” If the applicable system or appliance performs the function for which it is designed, it can be said that it is in “working condition.” It may be on its last thread, but if the item serves the purpose for which it is intended, then it is in working condition. For example, there are specific standards for the minimum heating or cooling capacity of an HVAC system that should be met. Similarly, the plumbing is not serving the purpose for which it was intended if a pipe is leaking or if the toilet runs constantly.

Another common dispute is whether an item is a “mechanical system.” Resolution of that question should turn upon the language of the contract, and the definition of “system.” When considering what is a system, consider that which is systemic or which runs throughout the house. If you envision a house under construction before installation of the drywall, you will observe the HVAC system , the electrical wiring, and the plumbing pipes running throughout the entire home. These are to be distinguished from a hinge on a kitchen cabinet door which clearly is not a mechanical system.

The greatest controversy is whether windows are considered a “system.” Under the above discussion, they clearly are not, even though some people often attempt to argue that windows are a part of the HVAC system. Windows, however, are independent items and not “systemic.” If windows were to be considered a system or appliance just because they open or close, how is one to differentiate kitchen cabinets or drawers, which are clearly not appliances or systems?

To avoid a dispute over Paragraph 12 items, it is essential that agents develop a more complete understanding of the language of the paragraph, and help their purchasers and sellers understand the meaning and intent of the provisions. Most disputes that we see at settlement could have been avoided if the purchasers and sellers had the proper expectations. If all parties are advised, at the time of signing the contract, what they can and should expect regarding the property condition and repairs, then most settlement disputes will be avoided.

Copyright 2008. Village Settlements, Inc. All Rights Reserved.