This is the question that turns a technical document into a negotiation. The
report arrives, everyone reads the total, and the conversation immediately
becomes about who is writing the check.
The short answer
Convention in California is that the seller covers Section 1 items and the
buyer takes on Section 2. But that is custom, not law. Who pays for what is a
term of the purchase contract, and it is negotiable like any other term. Plenty
of transactions close on completely different arrangements.
Why the convention exists
The split follows the logic of the report itself.
Section 1 covers active infestation and existing damage;
Section 2 covers conditions that could cause problems later.
Section 1 items are usually the ones standing between the transaction and
closing, especially when a lender has asked for a
clearance.
Since the seller needs the sale to close, the seller has the strongest incentive
to clear them.
Section 2 items are maintenance. The buyer is about to own the house and the
timeline for addressing them is years, not weeks. So they land with the person
who will be there.
That is the reasoning. It holds most of the time. It is not a rule.
Where it actually gets negotiated
In practice, several arrangements are common:
Seller completes the work before closing. Cleanest for the lender, because
the clearance exists before funding. Slowest, because the work has to be
scheduled and finished inside the escrow period.
Seller issues a credit in escrow. The buyer receives money at closing and
handles the work afterward. Faster, and it gives the buyer control over who does
the job. Some lenders limit or scrutinize credits, so this needs checking early.
Price adjustment. The findings are reflected in the purchase price rather
than handled as a separate line item. Simple, but it removes the paper trail
some lenders want.
Buyer takes everything. Common in competitive markets and in as-is sales.
The buyer accepts the report as part of the deal, usually because they wanted
the house more than they wanted the concession.
Split by item rather than by section. Both sides go through the report line
by line. Slower, but it produces the fairest outcome when the report is
complicated.
As-is does not mean unknown
“As-is” is one of the most misread phrases in a transaction. It means the seller
is not agreeing to make repairs. It does not eliminate disclosure obligations,
and it does not mean the buyer should skip the inspection.
If anything, an as-is sale raises the value of a thorough report. The buyer is
accepting the condition of the house; they should know precisely what that
condition is before they do.
Where the leverage sits
Three things shift the balance:
How complete the report is. A report with many inaccessible areas leaves both
sides negotiating around unknowns. Buyers can reasonably push for further
inspection before agreeing to absorb anything.
Whether a lender is involved. A lender requirement removes optionality. If
the loan will not fund without a clearance, someone has to pay for the work and
both parties know it.
Whether the damage is structural. Treatment has a predictable scope.
Structural repair does not — opening up framing sometimes reveals more than the
inspection could see. Buyers are often right to be cautious about accepting an
open-ended repair scope at a fixed credit.
The mistake worth avoiding
The most expensive error is treating the report as a total rather than a list.
A large number at the bottom of a report causes people to argue about the number
instead of reading the items. But a report is a set of independent findings with
very different costs, urgencies, and consequences. Some are a half-day of work.
Some require opening a wall. Some are a Section 2 note about a sprinkler pointed
at the siding.
Go through it item by item, with someone who can explain what each one involves.
Negotiations built on the itemized list settle faster than negotiations built on
the total.
One caveat
None of this is legal or financial advice. Contract terms, disclosure
obligations, and lender requirements vary, and your agent and escrow officer are
the people who should be advising on how they apply to your transaction. What we
can tell you is what the findings mean and what correcting them actually
involves.
J&M Termite Control has been writing reports for Bay Area transactions since
1973, under California Branch 3 registration #5223. Because we hold a CSLB
general building license, the repair side of a report is handled in-house — which
usually means one scope, one schedule and one company answering for it.
