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What condition should your new home be at closing?

You’ve signed the contract, gotten the mortgage, passed the board interview, and now it’s time to close on your new home. The last step before it’s officially yours is the final walk through. In what condition can you expect to find your new home?

For most folks, the short answer is the same condition as when you signed the contract. Buyers of a resale apartment -- meaning one that is not a new development -- are presumed to purchase the apartment “as is” with possibly some repairs agreed upon explicitly in the contract.

Aside from agreed-upon repairs, “as is” customarily means the apartment will be delivered in the same condition as when the buyer signed the contract and “broom-swept.” This doesn’t mean scrubbed toilets or dust-free surfaces, it just means no debris or leftover furniture or personal items. A clean paint job is not expected, but holes in the wall that are larger than a dime need to be spackled and smoothed out. Any damage caused by the move should also be repaired.

In addition, the electrical, plumbing, HVAC systems and appliances must be in working condition, unless otherwise provided in the contract. Working condition means they must be functional: all outlets must provide power, light fixtures turn on, faucets and showerheads work without leaking ... However, this doesn’t necessarily mean these systems or appliances need to be in perfect condition -- for example, the stove must turn on and the burners ignite, but the oven’s temperature could be off or one of the burners may be low because it’s an older appliance. The showerhead can work insofar as water comes out and nothing leaks, but it may not be anything close to an even spray that would effectively shower anyone (that’s how mine was… first thing to be replaced when we moved in).

For anything that falls short of “as is,” or doesn’t adhere to the specifications in the contract, there are a few options. Either the seller can correct these issues immediately after the walk-through and show proof at the closing table, or the buyer’s and seller’s attorneys can agree to either a credit or escrow to cover the repair costs. With an escrow, a higher amount than is estimated for the repair is held back from the seller’s proceeds from the sale. The repair costs will then be deducted from the escrow, and the remainder will be released back to the seller upon completion of the repair. In this case, the relationship between the seller and buyer continues to some degree after the closing. If the parties instead opt for a credit, it is usually a smaller amount, and is simply given to the buyer at closing. With a credit, the buyer can keep any remainder, but they are also on the hook for any additional expenses if the repair ends up costing more than was expected and negotiated for the credit at closing.

It’s a different story if you’re purchasing in a new development. A new development buyer is often buying their home based off of specs, so at the time of contract the home may be little more than a hole in the ground or active construction site. Thus, the contract represents the sponsor/seller’s promise of what will be delivered to the buyer. At the final walk-through, a new development should be in immaculate condition and to the specs promised.

For many buyers, the final walk-through may be the very first time they are seeing their actual apartment -- not just floorplans, raw construction site, and floor models. During this walk-through, the buyer and their agent along with a representative of the sponsor/seller will create a punch list itemizing every single observed imperfection -- a scuff mark on the wall, chipped paint, even a mis-installed or uneven towel bar in the bathroom. The sponsor/seller is obligated to correct every item indicated on the punch list, and must do so within a certain time period (typically 30-180 days, as agreed).

Compared to a resale, the relationship between the buyer and sponsor/seller survives long after the closing. In addition to the punch list items, the sponsor/seller is usually obligated to correct any hidden defects which are brought to their attention within one year of closing. It is almost impossible to predict how a brand-new building will fare in the first few months of rain, snow, etc. -- no matter the quality of the construction -- and there will almost always be some minor issue to correct.

There can be a lot of gray area when it comes to “as is” condition or other repairs, and it is important to work closely with your attorney and agent to get in front of any issues at the onset during contract negotiations and so that they may guide you through closing so that your expectations are met.

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