Buyers: Use common sense negotiating repairs
Originally appeared in Bay Area News Group publications on July 12, 2013
“Common sense is not so common.”
Despite its technical aspects, almost everything in residential real estate involves common sense, including negotiating for repairs after a home inspection. Successfully doing so requires knowledge of the business and of people and their circumstances. It is important to use good judgment. Not everyone does.
Although getting money back for problems is more difficult in a seller’s market such as we have today, there are situations where it is appropriate. Nonetheless, how you handle your request can be the difference between a successful closing and a frustrating sale that flops.
A major consideration is whether the buyer is provided with comprehensive disclosures and reports, including a recent general home inspection, before he makes an offer. If he receives them, the buyer will have significant material upon which to base his bid. If not, he will have limited information about the property’s condition and, unless otherwise disclosed, will be forced to assume there are no costly conditions requiring repair.
In the former scenario, the buyer is still entitled to, and should be encouraged, to hire his own inspectors to substantiate the findings in reports provided by the seller. Generally, only new problems, and/or already disclosed difficulties with a much higher repair cost, are considered for funds back to the buyer. It is assumed that serious issues, disclosed in advance with the cost to repair, will be understood and accepted when the buyer decides how much to offer.
In the latter situation, anything that comes up in the buyer’s reports that has a significant price tag is fair game for negotiation with the seller. This is one of the reasons I strongly suggest that my sellers have general home inspections before the home is marketed. Surprises can be deadly.
For either scenario, I counsel my buyers that inspections are intended to uncover expensive problems with a property, not to create a laundry list of relatively small items.
Sale almost failed
Not long ago, in competition, an East Bay purchaser made an offer well over asking price. It was accepted. After home inspections, he committed some serious, strategic mistakes in negotiating with the seller, almost sabotaging the transaction.
This buyer was provided with disclosures as well as a structural pest control report and a pre-sale home inspection. During his inspection period, the buyer had another pest control inspection, as well as inspections from his own home inspector, structural engineer, roofer, heating contractor, asbestos removal company and others.
Shortly before his inspection contingency was due, the buyer had his agent email the listing agent a long list of problems with the property along with reports and bids totaling around $90,000. The selling agent said the buyer planned to do everything on this list and he was asking only about half this amount. The buyer’s estimate far exceeded reports and proposals the seller had shared before the buyer wrote his contract.
Bids of almost $11,000 for a new furnace and heating ducts and an additional $1500 for removing existing ducts covered with asbestos were presented. The most common reason for a new furnace is a cracked heat exchanger; however, both the seller’s and buyer’s home inspectors had checked the heat exchanger and indicated it was not cracked.
The furnace was working fine. A new furnace and accompanying asbestos removal were not needed and this was rejected out-of-hand.
The structural engineer estimated over $40,000 for foundation, seismic and drainage work despite the fact that the buyer had had significant foundation work done while he owned the home. And this work was based on the same engineer’s previous recommendations. The seller did not believe the home had drainage problems, but agreed to some credit for this issue in order to keep the transaction together.
Previous roof inspections had been disclosed by the seller. A bid from the buyer’s licensed roofer was for more than $12,000, implying the buyer would hire this company to do the work.
The seller saw this as uncalled for as the buyer was a licensed roofer and his report was from another firm. Clearly, the buyer’s cost would be nowhere near this figure. Other items and costs on the buyer’s long list were also dismissed as unreasonable.
In the end, the seller offered what he considered a reasonable credit to the buyer and the buyer refused. The seller stood his ground and, after sleeping on it, the buyer accepted.
If the sale had crashed
In transactions like this, the stigma of unfair and purposely puffed up repair costs often sticks and the seller would probably have suffered financially if the sale had not closed.
The seller would have been obligated to have his agent give every inspection report and bid from the failed buyer, including the unnecessary heating and asbestos proposals, to all future buyers. This could have severely diminished the property’s value because buyers and their agents normally just scan reports and disclosures and ask few, if any, questions. When repair costs are high, buyers typically lose interest and go on to the next home.
I constantly remind clients of the importance of condition, especially in a seller’s market where it is challenging for buyers to get price adjustments.
I also counsel them to focus on real, expensive, previously unknown issues and not pump up the cost and lead the seller and his agent to question their honesty and integrity. Doing otherwise can lead to an unhappy ending.