Enhance your working relationships with clients by making sure they understand how the real estate market really works. Read on to find out howby Cara Ameer Cara Ameer, a top-producing broker
Inspection’s over! 7 tips for negotiating repairs, credits and reductions
At this point in the deal, it's in both the buyers' and the sellers' best interest to follow these steps...
Cara Ameer, a top-producing broker associate from Northeast Florida, writes about working with buyers and sellers, sticky situations and real estate marketing in her regular Inman column that publishes every other Wednesday.
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It’s the day after the inspection. Anxiety levels are running high on both sides of the aisle. The buyers and their agent are waiting on the report, and the sellers and their agent are hoping they don’t hear much.
The process went on for hours, and the inspector seemed to take a lot of notes as well as pictures, and there was a lot of information both agents and buyers were trying to keep track of during the process.
Inevitably, the report hits your (and the buyers’) email like a ton of bricks. After sorting through umpteen disclosures, disclaimers and all the fine print of 50-plus pages of descriptions, photos, subsections and educational primers of each part of the house, the buyer is left to try to make sense of this document and determine what’s next.
Do they ask the sellers to make repairs, reduce the price, offer to pay for some or all of their closing costs or some combination thereof?
How do buyers know what repairs they should address with the seller and what should be left alone?
Welcome to one of the most confusing parts of the real estate transaction. There is no handbook for post-inspection negotiation, and no amount of training can tell you exactly what to do because, quite frankly, it depends on the specifics of the deal.
So much of what happens next is predicated by several factors including what has already been negotiated into the transaction with regard to price, terms and concessions (if any), the buyer’s expectations (realistic or unrealistic), experience buying a home (first time, seasoned, etc.), the type of sales contract in use, what is customary in the particular area the property is located as far as handling repairs as well as the negotiating savvy and inspection knowledge of the buying and selling agents involved.
So without further ado, here are seven post-inspection negotiation tips:
1. Look at the big picture
Review the report to determine what is major and what is minor.
What items are structural or mechanical and could have the biggest impact for the buyer as the next homeowner?
Is there anything that is not functioning properly that needs to be fixed? Does the roof or chimney have issues? What about the home ventilation and air conditioning (HVAC) system, water heater, plumbing and electrical systems?
Are any of the items needing attention critical to the sale going through and/or the buyer’s loan getting approved? Is the roof near the end of its life? This could potentially be called out by an appraiser or make it difficult for the buyer to obtain insurance.
Is there an abundance of wood rot, tree limbs on the roof line or the fence severely broken or leaning?
3. Obtain estimates
When dealing with repairs, you must negotiate with facts and figures in hand.
Too many agents and buyers throw out arbitrary costs without any idea as to what is reasonable.
Arbitrarily inflating numbers is a surefire way to lose credibility and shut down post-inspection negotiations with the seller.
No seller will likely agree to any sort of concession or repairs without obtaining estimates themselves.
Seasoned agents who have been through numerous transactions generally have a good gauge of what things cost.
They also have a roster of contractors on speed dial so that they can quickly round up some estimates.
It’s not uncommon for the buyer and seller to obtain a few estimates and then determine a course of action from there.
4. Determine the next move
Decide whether you should ask for a fix, concession or price reduction.
Here’s where it gets tricky. If there is something that must be done to close the transaction, then asking the seller to have the repair done prior to closing is the only way to go.
If you are dealing with major repair items regardless of whether a mortgage loan depends on it, requesting a repair can be a better option from a buyer’s perspective because there could be more to the fix than meets the eye.
A concession or price reduction might not be enough to cover the cost entirely, and buyers could be left having to cover the additional expense.
For example, something like a roof, HVAC, extensive wood rot, leaks and major electrical issues such as repairs involving the electrical panel, faulty wiring, etc., are often better addressed prior to closing with the buyer’s inspector going back to reinspect the repair to ensure all was done properly.
If the repairs are relatively minor in nature and easy to address, it might be better for the buyer to deal with them after closing with vendors of their choosing. In this case, a price reduction or closing cost concession based on the estimated cost of the repairs is an easier and welcome option for all involved.
Sometimes, a combination of the seller handling some repairs and a closing cost credit can be a way to appease the buyers. The sellers will often be pleased too, as they won’t have to take on the burden of all requested items.
5. Avoid liability
A buyer and seller need to weigh the risks of having a repair or correction done before closing versus offering a concession or price reduction.
For example, a water heater nearing the end of its life located in the attic might be better off replaced and relocated to the garage before closing. Although this might be viewed as an improvement rather than an actual repair, consider the ramifications of what can happen between contract and close.
The water heater ends up with a slow leak that no one notices until the time of the walkthrough at which point a glaring spot is on the ceiling or worse yet, the leak ends up accelerating to where it comes through the ceiling causing a ton of damage.
The stress of this situation, not to mention the scramble to have all repair and replaced will cost more in the long run than had the seller just complied with the buyer’s request to replace and relocate the water heater to safer ground in the first place.
With so many buyers on the move from one part of the country to another or having painting or remodeling work done prior to moving in, it’s possible that the home might be vacant for a few weeks or a couple of months before a buyer is actually living there.
Vacant homes are ripe for issues to occur, and when something happens, everyone starts pointing their fingers at everyone else.
6. Be realistic
An inspection report can be a helpful tool in renegotiating the terms of a purchase with sellers. However, the inspection report should not be used to go for a “beat down” of the entire transaction with the seller.
A buyer needs to be reasonable and should not expect every item in the report to be addressed, regardless of whether it is an actual repair.
Inspection reports often contain many recommendations for improvement and maintenance, but that does not mean it is something that needs correction by a seller.
Just because an inspector recommends that gutters be added does not mean it falls on the seller to take care of that. Ditto for adding drainage, repairing or replacing a fence, etc.
Some items are best left to a buyer to take care of with vendors and materials of their choice. Every resale will have “things” as a result of what was found from the inspection.
7. Work it out
Although repair negotiations can often put sellers on the defensive, it really is in the best interest for both sides to work out an acceptable compromise.
Otherwise, the sellers are faced with having to put the home back on the market and deal with questions about why the prior sale fell apart, as well as disclose the inspection report, which could risk scaring a buyer away.
The sellers will now need to come up with a plan for repairs and might end up having to do more than they would’ve had to if they had just worked out an acceptable solution with the previous buyer.
It can be difficult to recover from a sale falling through post-inspection, and the sellers might end up selling for less, no matter what.
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