1. It is not required that a property be brought up to the current Building Code. It simply must comply with the Code as of the date it was constructed--which is defined as when the Certificate of Occupancy was issued.
2. Carefully review the provisions in the INSPECTION/REPAIRS section of the Contract. In North Carolina, the items being inspected are spelled out very specifically. You also will see that the "acid test" is that an item or system "must be performing the function for which it was intended and is not in need of immediate repair". Your contractor's estimate should be written from this perspective. Other "improvements" he finds do not count toward the $4,000.
3. Consult with an attorney. With $4,000 at risk, an hour of a lawyer's time is very inexpensive by comparison. Ditto for filing an action in Small Claims Court (and paying the small extra fee to have the papers delivered by a Deputy Sheriff, which is a nice theatrical touch--Grin.) But first, see if the lawyer will write a demand letter on his/her letterhead.
So, how do you avoid this problem in the future? Simple. Use Alternative 2, instead of Alternative 1. You pay a small, non-refundable Option Fee. This gives you the right to inspect ANY aspect of the property (instead of only the systems outlined in Alternative 1). Equally important is your right, prior to the end of the Option Period, to withdraw the contract "for any reason, or no reason". In other words, you simply state that you are withdrawing. You do not need to specify why. (But, If you decide to continue with the transaction, the Option Fee is a credit to you, on the closing statement.)
Can the Seller refuse to return the Earnest Money under Alternative 2? Not if you are my client. It is my standard of practice not to turn over the Earnest Money until the end of the Option Period. The Seller can't lock it up, because it never was tendered. [Chuckle]
Say, that's pretty good for an agent's first day on the job, eh? Just kidding, of course. After twenty-three years in this profession, I've developed some techniques which bring some sanity to the practice of real estate brokerage. And I hope what I've written here is helpful.
Your out, for this contract would indeed be the cost of repair contingency, based on the the estimate your contractor gave. However, the contract also clearly states that it takes a signature from both the buyer and the seller to get your earnest money back. It is a very sticky situation, but a situation that your buyers agent should have spelled out to you very clearly. There is always the possiblity of of a dispute over earnest money!!
Many times the earnest money will remain in a trust account while the dispute is arbitrated. If that does not happen, the Earnest Money may eventually be turned over to the State.
Another possibility is splitting the Earnest money with the Seller, cut your losses and get out of this, or as the others say small claims court.
Good Luck, and hopefully you have a great Buyers Agent to represent you in this difficult time.
Sheri has an excellent question. Are you represented by a buyer's agent? If not, you should be, as you get a consultant who is not paid out of your pocket. If you are represented by a buyer's agent, he/she should be taking care of this.
I am an attorney in addition to being a Realtor, so I can be more effective in this part of the business, but any buyer's agent should be able to take care of you on this one. Worse case, you go to small claims court, but I have a hard time imagining this going that far.
And, Yes, you can take them to small claims court to recover earnest money.
Regardless, you are in negotiations and either your agent or an attorney should be advising you as to the stipulations and consequences in the contract.
The cost of repair cont. is part of the contract and as long as the specifics are met, reasonable estimate of repairs needed by a licensed contractor, they would have to return Earnest Money, but keep in mind the repair cont. is in reference to the specific systems listed on the contract, and refrences that they be performing the task for which they were designed, so not everything found on a home insp is included in that usually. However you could still get out of the contract if the seller is not willing to make those repairs, unless you specifly made the offer "as Is".