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Our AREA contract requires a seller to provide a current Real Property Report (RPR) and evidence of municipal compliance.
Sellers often don't have the required RPR and want the buyer to accept Title Insurance instead. This implies that Title Insurance and RPRs are equivalent documents that do the same thing and are therefore substitutes for each other.
That is NOT correct. These are different documents that do different things and are NOT substitutes for each other! Let's talk about the RPR and compliance side and a couple of situations where Title Insurance will not assist and therefore why the RPR and compliance are so important.
The first reason a buyer should always try to get a current RPR and compliance is because that's what the contract says! A buyer might not have any RPR concerns and really not care. But, when that buyer is a seller and it's a buyer's market, guess what? A future buyer will demand a current RPR and compliance. Our current buyer who is now a seller will have to obtain them. There might be nasty, expensive permit or other surprises which would have been way better to know about when buying.
Okay, that's the first reason.
The second reason is, generally, they are needed any time the buyer wants to make an improvement to the outside footprint of the property.
Example: On a recent purchase, the seller didn't have a current RPR and compliance. My buyer accepted Title Insurance in lieu of the RPR. After closing my buyer went to the town office and made inquiries around a new fence as well as permits for a larger deck and a hot tub. Much to my buyers surprise, the development officer said that because of the lot size as well as the location of a utility right away, my buyer couldn't do any of these things. What a shock! And, Title Insurance will NOT help the buyer in this situation.
NOTE: The buyer did NOT tell their realtor about their plans for the fence, deck and hot tub.
As a buyer's realtor you know that the RPR will show any improvements/structures on the property including the home, any garage, sheds larger than a certain size or that are permanently affixed, decks, hot tubs, pools and fences. Also, and importantly, the RPR will show utility rights-of-way and easements boundaries and lot size.
When a seller says they want the buyer to accept Title Insurance instead of the RPR, proper practice would be to ask the buyer what their plans are for the property.
Tearing it down and building a new home? Putting on an addition? Or, in this case, new fencing, enlarging the deck and installing a hot tub? If your buyer wants to do anything to the property, the RPR and compliance help a lot with making sure buyer's plans can go ahead.
Here is a KEY point: When do they need it?
Our standard AREA contract says the RPR and compliance are part of closing documents that I get from the seller's lawyer right at closing and, most importantly, AFTER the buyer has removed conditions. It would be too late for our buyer to use the RPR to help determine if he could add the fence, bigger deck and hot tub.
So, what to do? Buyer's realtors, ask your buyer if they have any plans to improve/build/renovate the property. If they do, then the deal should be conditional on:
- The seller providing a current RPR and compliance on or before, (insert date), and;
- The buyer satisfying themselves on or before (insert date at least two weeks after the above date) they will be able to obtain all permits and permissions for their renovation plans.
With the RPR in hand it is much easier for the buyers to satisfy themselves as they consult with their builder and/or the municipality or any other relevant entity to determine whether or not their plans would be allowed.
Yes, buyers can probably figure out whether they will be allowed their building plans without the RPR and compliance, but it is often way tougher.
Don't let your buyer point fingers at you when they can't do what they want!
Protect yourself.
Cheers,
Barry
I'm taking on new clients. Please consider me and Field Law when you write your next deal.
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