Preface on Termites:
Every house (well, almost every house — at least in Ventura County) has termites. It is nothing to be alarmed by — it is extremely common. Old houses, brand-new houses, and all houses in between can and will be affected by termites.
Types of Termites:
These termites live in the ground. They come up through “mud tunnels,” which they build and look like inch-thick brown lines on walls, ceilings, etc. They can also come up through direct earth-to-wood contact and will then harvest wood and return to their underground colony. Fumigations (tentings) do not work on subterranean termites as the colony lives in the ground. Usual treatment? Chemical injections into the ground.
These termites make the structure/building/house their home. They will harvest wood and create small “kick-out” holes where they can release their feces, a.k.a., “termite droppings” or “frass.” When these droppings are found in multiple areas of a house — often in attics and crawl spaces, a fumigation is generally recommended to kill the colony. This fills the structure with gas and (hopefully) kills the colony. If droppings are only found in localized areas, a “local-treatment” method can be used. This generally involves spraying chemicals and termite bait on and around affected areas of wood.
What is “Section-1” Termite Work?
Section one generally refers to any actual damage or infestation in the wood. This includes damage by termites and wood rot along with other moisture damages.
What is “Section-2” Termite Work?
Section two is considered the preventative section. For instance, it could be a good idea to remedy any areas where the earth (ground) meets wood, as this contact can not only lead to rot, but can become a conduit for termites.
Who generally pays what / which section? What has been the common practice?
Custom (in Ventura County) has been that sellers generally pay section-1 termite work and the buyers pay section-2 termite work. Since section-2 work is preventative, this work can be done after escrow closes. If the transaction is utilizing a VA loan, a full section 1 & 2 termite clearance is required by the Department of Veteran’s Affairs.
Custom does not translate to must. Termite repairs are usually negotiated at the time an offer is negotiated. Therefore, it can be a good idea to have a termite report on hand prior to soliciting offers.
Which repairs should a seller anticipate a buyer to ask for?
A seller should often expect to set aside funds to pay for a fumigation and some wood repair work. For a 1,500 square-foot house, this usually ranges from $1,200-2,500 (above and below are — of course — possible as well), with the median amount of termite work likely around $2,000. Some reports come back clean; no termite damage. Others come back worse: Major rebuilding; $10,000-20,000.
Again, buyers often ask for the seller to pay for section one work and the termite report. The termite report & inspection usually costs $50-75.
Why Things are Changing
The California Association of Realtors (CAR) has just (as of November 24, 2014) changed its primary real estate purchase agreement (RPA). The old agreement contained a checkbox for the “Wood Destroying Pest Addendum” (WPA). This addendum could be attached to an offer and would request that the seller: 1) provide a termite report, 2) complete section 1 and/or 2 work. It also described that work performed should be the “recommended” work, not the substandard options that are often given by termite companies as secondary (more affordable) options.
The WPA is no more. Asking for termite repairs as part of an offer has completely changed. With the absence of the WPA, agents will need to come up with some clever verbiage to replicate the WPA (this is unlikely as any additional verbiage will complicate a transaction). The only form available now that references termite work is the “Buyer request for repair,” but this only seems usable once a termite report actually exists and the buyer and seller are already in the transaction (offer has already been negotiated).
So CAR seems to be sending two messages or suggestions:
1) Get a termite report prior to negotiating offers.
2) Leave termite work out of the real estate transaction.
Why might this be?
Well, it could be for a number of reasons and likely including some that I am not aware of. However, here are some problems with termite work in real estate transactions that I know of:
Problems of Including Termite Work:
Termite companies tend to include verbiage (fine print) in their work-authorizations or the termite reports that recommend owners get a professional roofing estimate for roofing repairs after work is completed. Example: I sold a house in Camarillo with a detached garage. The roof sheathing (plywood) was visible from the garage floor. When looking up, one could see termite damage. When the termite company went to remediate the wood work, they essentially destroyed the flat roof that was on the roof (removed so much of it). That ended up costing the seller an additional $1,500 — above and beyond what the termite report had indicated a total completion would cost, catching the owner off guard and causing an upset.
Clay and concrete tiles are also often damaged when fumigation companies install fumigation tents. Replacing these tiles is tedious and costly and more tiles may make in attempting to reach damage tiles.
When termite companies complete wood repair work, they leave the new wood primed and not painted. So if you have brown siding along your house and a termite company repairs a section of it, that repaired section will be white (not brown, like your other siding).
Scheduling an owner moving from a house prior to the close of escrow to leave enough time for a fumigation can be challenging.
Caveat: I get it. Termite companies aren’t roofers or painters. But it real estate deals have bombed / cancelled because of surprises during the termite-repair stage. That tends to leave a lot of people upset. Yes, this is stated in the forms. Unfortunately, those notes are not clear enough and most people are caught off guard.
**What’s Next? The Important Change**
As a result of the removal of the WPA from the CAR contracts, the share of real estate transactions with mandatory termite repairs will likely plummet. Sellers and buyers may likely just negotiate buyer credits up front or during escrow for wood work. Then, buyers can do whatever they wish after escrow closes. The likely result: less fumigations, less wood-repair work, and less business for termite companies. Note: buyers rarely complete all — if any — termite repairs post close. Why: there is no urgency.
Tips for Real Estate Agents, Sellers, and Buyers:
Get the termite report before an offer is negotiated. This will prevent surprises during the inspection-contingency period and will prevent the buyer from being saddled with termite damages. It also enables the seller to make an informed decision on how low of a price they are willing to take, as they can now factor in the possibility of crediting a buyer for work to be done.
Credits Instead of Work: The Likely Future
The likely future for real estate transactions will be sellers and buyers negotiating lower house prices rather than doing termite repairs OR offering the buyer credits.
Notes on Credits:
- There are maximum credits.
- Home-owner occupants can generally get up to a 3% credit back.
- Investors can generally get up to a 2% credit back
- Consider prepaying for termite work through escrow — this is dangerous though, as lenders may then require the termite repairs be completed through escrow — which defeats the purpose of a credit.
- CONDITION: Buyers can generally only get credits up to the amount of their closing costs. Otherwise, the credit would be supplementing the buyers down payment, which is not allowed.
Pitfall of Credits:
- Reduces the amount of credit you can use to actually offset closing costs. If a buyer is already asking for a $7,500 credit, there is little more room to ask for a credit for termite repairs as closing costs are usually between $4,000-9,000 — for buyers getting conventional loans.
- There is a danger of not getting enough of a credit. If the termite company damages the roof after escrow closes while conducting repairs, the buyer is on the hook for it. This should be analyzed during the inspection period.
Sellers & Agents: Get the termite report before the house is listed!
Buyers & Agents: Make sure the credit is adequate. Make sure your lender will approve this credit. Note that there are maximum credits.
This will affect real estate throughout Ventura, Camarillo, Oxnard, the rest of the county, and will likely reverberate through the state of California.
What should termite companies do?
If I were the owner of a termite company, I would likely be pretty darn upset at this change. Without a doubt, this will dramatically affect business for termite companies. I would take the initiative: Talk to agents about getting reports done on “upcoming” listings. That will majorly increase the chances of getting work. If a buyer is getting a credit instead of agreeing to have work done during escrow, the odds of actually scheduling that work plummet.
Ants tend to invade houses after fumigations. Why? Ants and termites are enemies. A dead termite colony translate to a lot of easy and free food for the ant colony. Ants love fumigations (except the few that stayed inside when the tear gas was going off — right before the lethal chemicals).
Post written by Realtor Kevin Paffrath at “Meet Kevin“, the amazing real estate agent and brokerage serving Ventura County including Camarillo, Ventura, Oxnard, & beyond and writing for home buyers, sellers, investors, and anyone with an interest in real estate.