Sometimes during the buyer’s physical inspection, an unexpected defect (cracked chimneys are common in Southern California) will materialize.  The seller is not obligated to repair, and the buyer is not obligated to continue with the purchase.

Assuming that the buyer successfully negotiates the repair there are several options:

1) The seller has the chimney repaired prior to escrow closing.

2) The seller credits the buyer the cost of the chimney repair and an amendment to the original escrow terms is drafted. This is more problematic. The buyer’s lender will not be pleased to learn that the chimney is cracked. The other option is to credit the buyer with seller paid closing costs (then the lender does not need to be informed that the chimney is cracked).  But most lenders have limits as to how much the seller can contribute towards buyers closing costs and chimney repairs can be costly.

3) Lender withhold: Some lenders will allow the cost of the repair plus a cushion to be held in escrow until the repair is made.  The withhold allows the escrow to close. The lender has withheld an amount sufficient to ensure that the repair will be made.  The buyer has the funds needed to make the repair, once the repair is made, escrow pays the contractor.  The cushion is returned to whoever deposited the cushion in escrow.