WHY CHANGING ONE WORD IN THE PURCHASE CONTRACT CAN COST YOU A LOT OF MONEY!

What a Difference a Word Makes: Watch Out for Attempts to Limit Buyer Negotiation Rights in Delaware Real Estate Transactions

Under Delaware’s Buyer Property Protection Act (BPPA), all known material defects with a residential property offered for sale must be disclosed and documented in the Seller’s Disclosure of Real Property Condition Report. This disclosure form cannot be altered as it is specifically required by the Delaware Real Estate Commission. However, this is not the case for other forms related to a real estate transaction.

The Delaware Association of Realtors (DAR) provides an Agreement of Sale for Delaware Residential Property form that serves as the basis for most residential real estate transactions. As of 10/26/2024, the form defines a major defect as any deficiency or condition that causes an item to perform in an unsafe manner or that prevents the item from performing its intended function. This is also the material defect definition used by most home inspectors; however, by substituting the word major for material, the DAR form does not mirror the verbiage used in the BPPA. Moreover, because the purchase agreement is a contractual document governing a business transaction, many of its terms can be changed by the parties involved prior to ratification.

The DAR purchase agreement form explains the rationale for changing material defect to “major” defect (although it doesn’t acknowledge doing so) with the words, “If buyer is not purchasing a newly constructed home, the Property may have minor problems associated with a previously owned property…A major defect is any deficiency or condition that causes an item to perform in an unsafe manner or that prevents the item from performing its intended function.” The only change is the substitution of the words (material to major defect), but, since the verbiage of the form can be changed further at the individual brokerage, it can become even more restrictive. The obvious motivation for categorizing a material defect as “minor” or “major” is to use these terms to limit the ability of defect-related items from the inspection report to be used by the buyer for repair or credit negotiations through a repair request addendum. Stated differently, categorization is used to limit the potential for items from the home inspection report to threaten the transaction.

This practice likely could help limit frivolous addendum demands, such as replacement of every lightbulb in the house or a missing bathtub stopper; however, this rarely is an issue for parties that want to complete the transaction. The problem with this material defect categorizing is that is allows buyers to be too easily dissuaded from adding potentially costly material defects to a repair request addendum. For example, an inspection report could call out fogged windows that have lost their seal as a major defect. A narrow interpretation of this term in a purchase agreement could be used to dissuade the purchaser from requesting repair or replacement by arguing that the fogged windows are a “cosmetic” defect and should not be used in negotiations to obtain repair or concessions from the seller.

Don’t assume all real estate purchasing agreements are the same. Buyers should carefully read their purchase agreements, and the required property condition disclosure form, prior to signing and presenting their offer. Be particularly suspicious of any purchase agreement text that doesn’t say the same thing as the DAR purchase agreement form located at https://delawarerealtor.com. Remember, it’s a contract and it’s terms and conditions become binding upon ratification. Be careful what you agree to.