No California statute decides who pays for Section 1 repairs in a California home sale. The cost falls on whichever party agrees to it in the purchase contract. Local custom pushes sellers in many markets to handle the work, and lender rules often force the issue regardless of what the parties would prefer, but the legal baseline is simply this: it’s negotiable.
What Section 1 Covers
“Section 1” is a category on the Wood Destroying Pests and Organisms (WDO) inspection report, a standardized document regulated by the California Structural Pest Control Board. A licensed pest inspector divides findings into two buckets:
- Section 1: Active infestations or infections currently evident. Live termite activity, dry rot, fungus damage, and other wood-destroying organisms already harming the structure.
- Section 2: Conditions likely to lead to infestation or infection later but not yet active. Earth-to-wood contact, excessive moisture, poor drainage near the foundation, insufficient ventilation.
California Business and Professions Code Section 8516 requires pest companies to separately identify these two categories on the report when the person ordering the inspection asks for the split.1California Legislative Information. California Business and Professions Code 8516 Buyers and lenders focus on Section 1 because those findings represent damage happening right now, the kind that can affect livability and loan approval. Section 2 items are preventive and rarely drive the negotiation.
California does not require a termite inspection for every home sale. It usually happens because the buyer orders one during the contingency period or because the lender demands it. Either party can order the inspection; who pays for the inspection itself (typically $50 to $325) is also negotiable.
How the Negotiation Actually Works
The purchase agreement controls everything. No statute assigns Section 1 costs to either side, and the outcome depends on local market norms, the buyer’s financing, and each party’s bargaining position.
Many Southern California markets follow a longstanding custom of sellers paying for Section 1 work before closing. Northern California practice varies more by city and price point. Custom is not obligation, though. A seller fielding multiple offers may refuse to touch pest issues at all. A buyer in a slower market can push for the seller to complete every Section 1 item before escrow closes.
The typical sequence looks like this. The buyer orders a pest inspection during the contingency period. The report comes back with Section 1 findings. The buyer submits a Request for Repairs. From there the seller can:
- Agree to make the repairs before closing.
- Offer a credit toward the buyer’s closing costs so the buyer handles the work after closing.
- Split the cost.
- Refuse entirely.
If the seller refuses and the buyer still has an active inspection contingency, the buyer can walk away.
Separate from who pays for the repair, the seller carries an independent duty to disclose known problems. California Civil Code Section 1102.1 requires disclosure of any fact materially affecting the property’s value or desirability, including prior inspection reports.2California Legislative Information. California Civil Code 1102-1102.19 – Disclosures Upon Transfer of Residential Property A seller who received a prior pest report showing Section 1 damage has to disclose it even if the current buyer hasn’t ordered a new inspection. That disclosure duty exists whether or not the seller ends up paying for any repairs.
When the Lender Takes the Decision Away From You
Even when a seller negotiates out of paying for Section 1 work, the buyer’s lender may refuse to close on a property with active pest damage. Lender requirements regularly override whatever the parties agreed to.
VA Loans
The Department of Veterans Affairs requires properties to be free of wood-destroying insects, fungus, and dry rot under its Minimum Property Requirements. If the VA appraiser flags pest damage, someone has to fix it before the loan funds. Current VA policy allows the veteran to pay for both the pest inspection and any compliance repairs, though the VA encourages veterans to negotiate those costs with the seller.3U.S. Department of Veterans Affairs. VA Circular 26-22-11 Earlier VA rules barred buyers from paying for the pest inspection in many states, which pushed sellers into covering the work; that restriction has loosened, but many sellers in VA deals still handle Section 1 to keep the transaction on track.
FHA Loans
FHA requires a pest inspection when the appraiser finds evidence of wood-destroying pests during the appraisal. If the inspection shows active infestation or damage, the property has to be treated and repaired before the FHA loan can close. Who pays is still a contract question, but the work itself isn’t optional.
Conventional Loans
Conventional lenders vary. Some require a clear pest report in areas with high termite prevalence; others defer to the appraiser. When Section 1 work is needed and the seller offers a credit instead of doing the repairs, Fannie Mae caps the total seller concession at a percentage of the lower of the sale price or appraised value:4Fannie Mae. Interested Party Contributions (IPCs)
- Less than 10% down payment: 3% maximum.
- 10% to 24.99% down: 6% maximum.
- 25% or more down: 9% maximum.
- Investment property: 2% maximum regardless of down payment.
These caps cover all seller-paid closing costs and credits combined, not just pest repair credits. A buyer putting 5% down on a $700,000 home can receive at most $21,000 in total seller concessions. If the seller is already covering $15,000 in other closing costs, only $6,000 is left for a repair credit. Concessions also cannot be applied toward the down payment.4Fannie Mae. Interested Party Contributions (IPCs) A seller offering a credit instead of doing the work needs to make sure the number actually fits inside those limits.
Does “As-Is” Change the Answer?
An as-is clause signals that the seller doesn’t want to negotiate repairs, but it doesn’t eliminate the seller’s disclosure duties. California law explicitly states that delivery of the Transfer Disclosure Statement cannot be waived, and any waiver is void as against public policy.5California Legislative Information. California Civil Code 1102 – Disclosures Upon Transfer of Residential Property A seller who hides known termite damage behind an as-is clause remains exposed to fraud claims after closing.
Buyers in as-is deals can still order a pest inspection, still submit a repair request, and still cancel during the contingency period. The as-is label describes the seller’s negotiating stance, not a surrender of the buyer’s inspection rights. And when a buyer’s lender requires pest clearance for the loan to fund, sellers in as-is transactions often agree to Section 1 work anyway because the alternative is a dead deal.
The Inspection Contingency Is the Buyer’s Leverage
If you’re the buyer and the seller refuses to pay for Section 1 repairs, the inspection contingency is what gives you a way out. California residential purchase agreements typically include a contingency window of 7 to 17 days after acceptance. During that period you can order the pest report, request repairs or credits, and cancel the contract for inspection-related reasons.
With a subjective inspection contingency, you have sole discretion over whether the results are acceptable. You can cancel even over relatively minor Section 1 findings, as long as you act before the deadline. An objective contingency narrows that right, allowing cancellation only for specific defects (structural or safety issues, for instance) and sometimes requiring professional documentation.
Miss the deadline and the math flips. A buyer who tries to cancel after the inspection contingency has expired risks forfeiting the earnest money deposit, facing a breach-of-contract claim, or being pulled into arbitration. If a pest report reveals serious Section 1 damage and the seller won’t budge, canceling before the contingency lapses is the cleanest exit.
Confirming the Repairs Actually Happened
When the seller agrees to pay for and complete Section 1 work before closing, verify it was done. A receipt from the pest company is a starting point, not a substitute for your own eyes. At the final walkthrough, check that the repaired areas look finished, the damage appears resolved, and nothing obvious remains.
Raise any incomplete or inconsistent work before you sign closing documents. Once escrow closes, your leverage is almost gone. For substantial items like subfloor replacement or fumigation, request a completion report from the pest company. California pest companies file a notice of completed work with the Structural Pest Control Board, which creates an independent record that the treatment or repair was performed.