Negotiations After Inspections
The HOME INSPECTION PERIOD is the Buyer’s opportunity to truly discover the house and it can be a startling process, especially for first time home buyers. You should expect that any buyer is going to ask for some concessions after their inspection, no matter how well it goes. Here are the ways to negotiate those repairs and credits.
All inspections, estimates, and negotiations for repairs must be completed by the last day of the home inspection period. There are several ways that a buyer might ask a seller to help pay for repairs discovered during their inspections. Your negotiation will depend on several factors including: the buyer’s motivation to move forward after inspections, the original price negotiations, whether the buyer wants to do the repair themselves, whether the buyer wants the repair done before closing, and whether the repair is a true repair or an upgrade.
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 (with their earnest money!) 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 a reasonable amount of repairs that are immediate safety risks or should have been taken care of as standard and obvious home maintenance (plumbing leaks, clogged gutters, leaking oil tanks, unsafe electrical conditions). Sellers 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 THE BUYER MAY ASK A SELLER TO CONTRIBUTE TOWARDS REPAIRS:
1. Ask the seller to do the repair before closing and not contribute any money.
This option sometimes gives the seller more control over the repair, although the buyer may 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. There are several disadvantages of this option for a seller. First of all, they have to schedule the work, live through the work, and make sure that it’s done to the buyer’s satisfaction. Also, sometimes the cost of repairs can be higher than originally bid. Depending on the repair, the seller may be out of pocket for the repair or be able to pay for it through closing. But if the buyer backs out at the last minute, the seller is completely out of pocket for the repair.
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 can expect that the buyer might agree 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 essentially allows the buyer to finance the repair.
3. Buyer will ask for a credit for their closing costs for either the whole or partial amount of the repairs.
If the buyer has already asked the seller to pay for your closing costs as part of the offer, this is likely not an option for the buyer. Buyers can only ask the seller for the actual amount of their 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 the buyer has not asked for closing costs already, this option will give the buyer more cash in their pocket after closing to do the repairs themselves. This option also gives the buyer more control over the repair, but also means that they will have to deal with the hassle of scheduling and living through the work. This option also allows the buyer to combine the repair with other upgrades and may be cheaper than doing things separately.
4. Lower the sales price for either the whole or partial amount of the repairs.
This option ultimately gives the buyer the most benefit over the life of their loan, but very few benefits in the meantime. However this is usually a great option for the seller since you will not have to deal with repairs and by lowering the sales price that also ultimately slightly lowers other related expenses like the listing and title fees.