It is a common belief that once an offer is accepted, the negotiation phase of the sale process is over. It's easy to get that impression, with all of the real estate shows on cable TV and streaming services these days. They make look so easy, right? Unfortunately, those shows typically do not involve the entirety of the purchasing process and what's commonly a second round of negotiations: Repairs.
Once an offer is accepted, the next phase of the sales process is the home inspection contingency period. This is where the buyer hires a professional home inspector to assess the property's condition. The inspector is looking under the home, in the attic and at the interior and exterior systems, mechanics, structural integrity, appliances, plumbing and electrical. In addition, the inspector is also looking at fire, life and safety hazards. The inspection and report help the buyer to know what repairs or potential issues exist so that they don't run into costly problems once the purchase is complete. For example, an inspection can help a buyer know the age of the roof and if it requires replacement, whether the HVAC system is working properly or if the foundation is sound or at risk of failing. It's not uncommon to see that a seller didn't know that the insulation and HVAC ducting in the crawl space is sagging, or that the grounding rod in the crawlspace is corroded. Maybe the cadet heater is part of a safety recall or the fan motor isn't working correctly. These are common items on an inspection, and more often than not, the seller isn't aware of the issues.
With the inspection complete, the buyer can request mitigation of the issues—and this is where the negotiations for repairs begin. Here are five tips to consider when negotiating the repairs:
Determine what needs repairing: Keep in mind that no home is perfect and nearly all homes will have some issues that stem from age, care, weather exposure and general wear and tear.
Determine what the most important repairs are: Put the repairs into three categories. 1.) Major repairs as well as, fire, life, safety and structural issues. 2.) Potentially costly repairs, for example, replacing motors in a furnace or windows with blown seals. 3.) Minor and inexpensive repairs, like paint touch ups or cracked caulking.
Get bids for the repairs from a licensed professional contractor/tradesman: It is important to gather accurate real-market pricing by licensed professionals for the repair. This is crucial, as it provides accurate pricing for the repairs and also provides clarification for both buyer and seller as to the scope of work, possible permitting expenses, material and labor costs.
Determine one's preference of a monetary credit or repairs: In most cases it is advantageous for both the buyer and seller to negotiate a credit for the repairs, in lieu of completion of repairs prior to closing. A credit allows the buyer to work with their preferred vendors, avoids a contractual deadline for completion of repairs and eliminates potential for miscommunication of expectations. The timing is especially critical in today's market, as many vendors are booked out three weeks or more and are not compelled by the deadlines of completion of the sales contract like the buyer and seller are. In addition, some repairs require permitting or involve a lengthy process to complete, again, creating potential issues with staying on par with the terms of the purchase contract.
Be realistic with repair expectations: First, unless specifically outlined in the initial purchase agreement or by state law, the seller is not required to make any repairs. However, the seller generally discloses prior to offer acceptance or in the initial listing that the property is to be sold and accepted in "As Is" condition. As a buyer it's important to be clear and realistic with the repairs. Are these things one is willing to take on and be capable of completing after the closing of the sale? Are the repair costs manageable? Are the repairs one is expecting to be mitigated reasonable? A mentor once gave me some of the best advice that I now give to my clients. When addressing the repairs on a resale property, think fire, life, safety and structural. Generally speaking, fire, life, safety and structural issues are reasonable repair requests.
For a successful repair negotiation, the key is to understand the perspective of the party on the other side of the negotiation. A seller may feel as though the home is in great condition and had no idea that there were major electrical issues or a plumbing leak in the crawlspace. A buyer may feel that they shouldn't be responsible for the improperly terminated wiring or double lug breakers in the breaker panel. Consider where the other party is coming from. This consideration, coupled with realistic expectations, will more often than not result in a successful conclusion to the repair negotiation.