What is the Right to Cure?

What is the Right to Cure?

Like any profession, we Realtors have all sorts of terms and phrases that may seem link a foreign language unless you’re “in the know”.

Today, we’re going to talk about one of those terms.  Hearing your Realtor say “Right to Cure” may conjure up images of hospitals, nurses, and medicine, but in our world, this phrase means something quite different.

A Bit of Context

To understand Right to Cure, we’ll first have to understand the inspection contingency as it appears in the offer to purchase a property.  The inspection contingency states:

“This offer is contingent upon a Wisconsin registered or Wisconsin licensed home inspector performing a home inspection of the property after the date on line 1 of this offer that discloses no defects”

We teach our clients that the offer to purchase is a promise:  “I promise to buy your property”.   A contingency means “… but only IF…”  So in this case, we are saying,”I promise to buy this property, but only if the inspector I hire finds no defects.”

Now, I don’t know about you, but I don’t think I’ve ever been in a house that has ZERO defects.  The topic of “what is a defect” is not as simple as you may think, and will probably be the topic of another blog post, but suffice it to say that an inspectors report pulls this contingency into play a very high percentage of the time.  What happens when the property has defects?  Like in many things related to real estate, the answer is “It depends.”

Choices, Choices

There are two main parts of every contingency.  The first part explains the condition or event that must occur to satisfy the contingency.  The second part explains options for proceeding if that condition or event does NOT occur.

If your inspection discloses defects, your basic options, along with their means of execution are:

1. Ignore all the defects and buy the home as it is.  You can simply do nothing, but many times, as a courtesy, buyers will offer an amendment which states that the inspection contingency is hereby waived.
2. Negotiate with the seller to change the terms of the contract to include some or all of the following.  Of course, you must keep in mind that any proposed amendment must be agreed to by both sides of the transaction and signed by all parties.
   1. Obligation for the seller to have the defects repaired or remediated (CURED) – Offer a proposed amendment which states what conditions are to be cured.  You may specify who does the repairs, how they are completed, and even a date by which they must be performed.
   2. A price reduction, closing cost credit, or some other financial consideration– Offer a proposed amendment which describes the price change or including a credit from the seller at the time of closing.
   3. A combination of both– Naturally, you can offer a proposed amendment which includes all of the above.
3. Issue a Notice of Defects – A Notice of Defect states “The buyer objects to the following defects” and lists all the conditions to which the buyer objects.  A buyer will take this path if:
   1. They have tried to negotiate new terms with seller and have been unsuccessful
   2. There are defects to which the buyer objects and the buyer is not interested in negotiating new terms.

What Happens Next?

If a Notice of Defects is issued, what happens next depends upon whether Right to Cure has been granted or not.  Finally we arrive at the subject of this blog post!  Every buyer must make this decision when writing their offer.  Granting Right to Cure makes the offer more appealing to the seller because it puts more power into the seller’s hands.  Not granting right to cure may make your offer a little less appealing, but it does keep more of the power into the buyers hands when it comes to how defects are handled.  Here’s how it works:

If Right to Cure is NOT granted: Issuing the notice of defect effectively terminates the transaction.

If Right to Cure IS granted:  The seller now has a decision to make.  They may either allow the transaction to terminate, or ELECT TO CURE the defects listed on the notice.

Electing to Cure

If the seller elects to cure the defects on the Notice of Defects, they must follow the steps explained on the offer to purchase:

1. Deliver a notice officially stating their election to cure defects.  This must be done within the time frame written on the offer.
2. Cure the defects listed on the Notice of Defects in a good and workmanlike manner (more on this later)
3. Deliver to the buyer a written report detailing the work done.  This must be done no later than 3 days prior to closing.

In #2, you’ll notice the words “good and workmanlike manner”.  This phrase has long been a point of some frustration among real estate professionals, as it is difficult to define clearly in a way that applies to all situations equally.

As is often the case, perhaps we can start with what it is NOT.  The seller is not in any way required to hire a professional, and they can do the work themselves, or have a friend or family member do the work.  Contrast this to a typical situation where the buyer proposes an amendment which states something like “Have a licensed and insured plumber fix the leaking drain below the bathroom sink”.  When the buyer has more power, the buyer is in a better position to dictate specific details like these.  Most buyers will be much more comfortable knowing things like plumbing and electrical work are done by a professional.  If the problem were to recur in short order, the buyer will usually then have recourse with that service provider, especially if the work is insured.

The bar is set much lower for “good and workmanlike”, which simply means something must be done with the quality of work performed by one who has knowledge, training or experience necessary for the successful practice of a trade or occupation and performed in a manner that is generally considered proficient by those capable of judging such work.  The truth is, this definition is more useful for dispute resolution than anything else.  The decision of whether work has been completed in a good and workmanlike manner will ultimately be made by the factfinder involved in litigation regarding the repairs.

This is one reason that buyers may be nervous about granting the right to cure to sellers.  If a homebuyer is confident and competent with repairs themself, they may have more comfort, knowing that they could handle any little problem that arose later down the road.

Not All Defects Are Created Equal

It’s one thing to allow a seller to fix a dripping faucet.  It’s something entirely different to allow them to remediate an attic wall full of a black mold-like substance.  In fact, some home buyers are so concerned about things like mold that they would rather look for another home than buy a property that has been professionally cleaned to remediate it!

Some buyers get caught up in the urgency of a competitive situation (multiple offers to compete against) that they don’t seriously consider all the risk they may be exposing themselves to by granting the right to cure.  A good question to ask oneself is “Is there any defect we could find in the inspection which would make me change my mind about buying this property, even if the sellers agreed to fix it?”  If the answer is “yes”, and you feel there is a reasonable chance this condition could exist, it may be best to consider withholding the right to cure to protect yourself from this possibility.

Another possible approach, although not as common, would be to write exceptions into the right to cure clause.  Your Realtor can execute this in a couple of ways, but the general idea would be to say “excluded from the right to cure are conditions related to mold or bacterial growth, instability of the home’s foundation, or the home’s drain tile system.”.  (Just an example).

Bonus- Tips for Writing a Notice of Defect

Never forget that if the seller elects to cure, they must elect to cure ALL the defects listed on your notice.  For this reason, if you get to the point where you are delivering a Notice of Defect, it’s generally to your advantage to list every defect that you’re aware of on the notice.  Either the seller will become too intimidated by the list and will elect to not cure and subsequently allow you to terminate the transaction, or they will elect to cure and will have to address all the defects you list, big and small.  At least you’ll have the cracked window pane, dripping faucet, and non-functioning outlet fixed if they move forward with repairs.

Other “Right to Cure” Situations

The concept of Right to Cure extends to other contingencies as well.  For example, the appraisal contingency requires that the property appraise at or above the purchase price.  If the seller is granted Right to Cure, they would be able to unilaterally lower the price to the appraised value to keep the transaction moving forward.  With a radon testing contingency, a seller with Right to Cure can install a radon mitigation system to lower the radon levels and keep the deal alive.  Even a financing contingency may have  it’s own version of Right to Cure, whereby the seller could offer financing to a buyer who has been denied by traditional lending institutions.

In Conclusion

The Right to Cure is a very important and powerful element of any real estate transaction, and a comfortable understanding of it helps to drive confident and intelligent decision making while crafting an offer to purchase.  While simple at its core, the Right to Cure has layered and subtle influences on negotiation throughout the homebuying/selling process.  Representation by a Realtor you trust is the safest path to protecting your interests, writing winning offers, and avoiding unnecessary risk.  When dealing with these nuances, why not have someone in your corner who deals with these situations daily?

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