Besides a loan approval appraisal, the third most common for escrow to bog down timelines and stress everybody out is the “Home Inspection.
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Home Inspections –
7 Tips for Negotiating! Repairs, credits and reductions
BY CARA AMEER
Welcome to one of the most confusing parts of the real estate transaction. 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.
Inevitably, the report hits your (and the buyers’) email. 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? 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 concerning 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 structural or mechanical items could have the most significant impact on 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 HVAC system, water heater, plumbing, and electrical systems?
2. Prioritize
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? An appraiser could call out this or make it difficult for the buyer to obtain insurance.
Is there an abundance of wood rot, tree limbs on the roofline, or the broken or leaning fence?
Lender Rules for Termite Inspections and Repairs
Depending on the type of loan that the buyer is taking on, such as FHA loans or VA loans, some of these items can come into play.
3. Obtain estimates
When dealing with repairs, negotiate with facts and figures in hand. Too many agents/buyers throw out arbitrary costs without any idea of what is reasonable. No seller will likely agree to any concession or repairs without obtaining estimates themselves.
Seasoned agents 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 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 a 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 before COE is the only way to go.
If you are dealing with significant repair items regardless of whether their 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.
Editor’s Note: Don’t open a new can of worms; get the monies in the form of closing cost credits; otherwise, the loan underwriter may ask to see the entire report; never a positive from a lending perspective.
For example, 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 before the buyer’s inspector inspects the home.
Why wait to until the home is in escrow; repairs often delay COE.
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.
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, 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.
Garage Conversions & Un-Permitted Additions
For example, a water heater near the end of its life located in the attic might be better off replaced and relocating to the garage before closing. Although this might be viewed as an “improvement” than an “actual repair,” consider the ramifications of what can happen between contract and COE.
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 repaired 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 before 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 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 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” due to what was found from the inspection.
7. Work it out
Although repair negotiations often put sellers on the defensive, it 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 and disclose the inspection report, and risk scaring the next buyer away.
The sellers will 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 challenging to recover from a sale falling through post-inspection, and the sellers might end up selling for less, no matter what.
Daniel Dobbs (.org)
Managing Broker
Mutual Home Mortgage
265 S. Randolph #140
Brea, Ca. 92821
Cell: 949 250-3981
Dandobbs6@gmail.com
DRE # 00986886 …..NMLS# 307631