Negotiating Real Estate Repairs
The HOME INSPECTION PERIOD is our opportunity to discover as much as we can about the home you wish to buy. We’ve created a simple guide to understanding how repair negotiations work.
All inspections, estimates, and negotiations for repairs must be completed by the last day of your home inspection period. There are several ways to ask the seller to help pay for necessary repairs that you discover during your home inspection. Your negotiation will depend on several factors including: the seller’s motivation to sell the house, the original price negotiations, whether you want to do the repair yourself, whether you want the repair done before closing, whether the repair is a true repair or an upgrade, and how much money you might have to contribute toward the repair.
All repairs are a matter of negotiation. It is the seller’s right to refuse to do any repairs and it is the buyer’s right to walk away from the transaction if the seller will not repair the items that the buyer would like repaired or credit the buyer money for those repairs. The general rule of thumb is that seller should pay for repairs that are immediate safety risks or should have been taken care of as standard and obvious home maintenance (clogged gutters, leaking oil tanks, unsafe electrical conditions). The seller usually will not pay for property upgrades, improvements, or optional repairs (new flooring, chimney caps, updated electrical panel). Also, if the repair will benefit the buyer for a long time and is similar to an upgrade (a new roof or new furnace), the buyer may be asked to contribute towards the repair.
HERE ARE SEVERAL DIFFERENT WAYS TO ASK THE SELLER TO CONTRIBUTE TOWARDS REPAIRS:
1. Ask the seller to do the repair before closing and not contribute any money. This option gives the seller more control over the repair, although the buyer can often specify who they want to do the work, and require a re-inspection when the work is done to make sure it was done right. However, the seller tends to want to be able to hire who they want to hire when they are paying for the repair, and this is usually the contractor offering the lowest bid. The advantage of this option is that the repair is done before closing and the buyer doesn’t have to deal with it or pay for it. Sometimes the cost of repairs can be higher than originally bid.
2. Ask the seller to do the repair before closing and raise the sales amount as a way to partially pay for repairs. Again, the seller does the repairs in this case, but in situations where there is a big ticket item for which the buyer will receive a long term benefit and the seller didn’t offer that benefit as part of the original sale (new roof, new furnace, new sewer line etc.), then the seller often expects the buyer to split part of the cost of the repair. The repair still gets done before closing, but the seller recoups part of the cost through the higher sales price. The buyer then pays a higher monthly mortgage, but doesn’t have to pay for a large repair out of pocket. This method finances the repair at your low mortgage rate.
3. Ask for a credit for your closing costs for either the whole or partial amount of the repairs. If you have already asked the seller to pay for your closing costs as part of your offer, this is likely not an option for you. You can only ask the seller for the actual amount of your total closing costs and pre-paids. Lenders do not allow the seller to give cash to the buyer above the cost of the closing costs and pre-paids. If an option, this will give you more cash in your pocket after closing to do the repairs yourself. This option also gives you more control over the repair, although you have to deal with doing the repair yourself after closing. Closing costs and pre-paids are generally in the neighborhood of $10,000, so if your repairs are under $10,000 then you can ask for that amount to be credited to you at closing by the seller to pay for those expenses, then because you aren’t paying those expenses out of pocket you will have that money to do the repair yourself. This option also allows you to combine the repair with other upgrades and may be cheaper than doing things separately. For instance, if you have an electrical repair to do, but you also want to upgrade some electrical outlets, it will probably be cheaper to do all these things at once rather than at separate times.
4. Lower the sales price for either the whole or partial amount of the repairs.This option ultimately gives you the most benefit over the life of your loan, but very few benefits in the meantime. If you lower the sales price by $10,000 then your payment will probably be about $50 less each month and over 5 - 10 years that will be a big savings. However, that doesn’t help so much when you still need the $10,000right away to pay for the repair that needs to be done. Otherwise, the benefits are the same as the option above because you have control over the repair and what exactly gets done.
As a refresher, the following is a list of inspections, including cost, we recommend in this stage of the transaction. Common and expected inspections include: general home inspection, tank search, radon test, and sewer scope. Most sellers expect that you will do these inspections.
Due Before Closing and NON-REFUNDABLE, whether or not you purchase the home.
- Home Inspection = $500 - $700
- Underground Tank Locate = $99
- Soil Testing (if an underground tank is known to be present) = $175 - $250
- Sewer Inspection = $100
- Radon Inspection = $150 - $200
- Lead Based Paint Inspection = $250 - $500
Other inspections that you may consider having are: lead based paint Inspection, lead in water test, asbestos testing. These inspections are less common in Portland and may surprise/concern a seller if you ask to do them during the home inspection period.