Negotiations After the Contract: Seller's Allowances and Fixing Problems

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I had made a request to repair that included $3700 credit for closing costs. I wanted to get things done like safety issues and more critical maintenance issues done. Our estimate said that it would be about $4900 to do all the maintenance we were looking for. The seller was doing a bit, but not all.

The seller apparently balked at giving us any credit. He felt they conceded all they could. Anyway, my agent convinced them to at least counter. I was a bit angry at the initial balk. (the emotion part of the deal). After the initial anger, I went looking for problems and found one that frightened me. My agent had given me the inspection report from the seller's purchase of the home six years ago. There were things on there that were still a problem two years later. Primarily, high water pressure in the house (with the dire warnings of damage to pipes and fixtures as the potential side affect). Secondly, ants. The report six years ago had mentioned ants. Every time I looked at the house, (we visited it 5 times), I always saw ants not many usually only 1 sometimes 2. So, my residual anger ballooned these concerns way up. My ignorance was on the pipes. I have since talked to one plumber and an extended family member who is a retired contractor, home builder and home inspector. It was his comments that alleviated my fears about the pipes and allowed me to calm down a bit. He basically said, "Wow, six years of a pressure test - and it passed. Great! We usually only do two hours." He also said, get a regulator on it, but you shouldn't have a problem.

So, emotions, ignorance and too much time to think - nearly killed the deal.

Sometimes, people get all worked up over the little stuff.

On the other hand, sometimes people don't get worked up when they should. This person wasn't clear, but I'd get upset if my agent tried to placate me with a six year old inspection. If it's just compare and contrast with a brand new inspection, fine. But if someone else paid that inspector, they may not have any responsibility to you, and you want them to be responsible to you. I wouldn't accept the inspection that the previous prospective buyer had done. Sometimes, agents trying to make sure a transaction goes through will try to give you an existing inspection, because they know what problems that will show. This is always the hallmark of a commission grabber, and you should fire them. Then start looking for something else.

An inspection around here will almost always reveal some defect which wasn't dealt with in the first round of negotiations that resulted in the purchase contract. Usually, they're dinky little stuff. Replace one light bulb, brace the water heater, maybe replace the garbage disposal. Sometimes, however, it is major work: rotting substructure to the roof, foundation damage, etcetera.

It does not matter if it is major or minor. It needs to be fixed. The way I usually explain minor stuff to sellers is, "You don't want to lose a $500,000 sale over $30 in repair work, do you?" It does sound rather silly, doesn't it?

If it's major, it still needs to be fixed. Here's a new defect in your property that causes it to be worth less than the agreed upon price. You can often get the buyer to accept the property for a lesser price - estimated cost of repairs plus an allowance for them being the person who has to deal with it. You're not getting out of major repairs on the cheap unless the buyer's agent hoses their clients. I want a reliable contractor out there to give my buyers an estimate for major repairs, and you'll find that's about par for the course. As the seller, you can have your choice between fixing it, giving them an allowance that makes your buyer happy, or losing the transaction.

Lest you think, "I'll just forget about that prospective buyer," even in seller's markets the next one that comes along is likely to find exactly the same set of defects and want exactly the same set of repairs, which is going to cost - you guessed it - pretty much the same amount of money. The only differences are one, in the meantime, you've spent some money on your mortgage, taxes, etcetera, and two, the earlier offer is usually the better one. In other words, same situation, but you're out more money.

Somebody's going to ask about "as is" sales. They really don't make much difference to this fact. I'm not going to let a buyer put in an offer on an "as is" property without an inspection contingency. The inspection shows something major that we didn't already know about, the choice is going to be give us an allowance, fix the problem, or lose the transaction. It's only an actual "as is" sale if the inspection doesn't reveal anything new and major. Matter of fact, selling "as is" is a red flag that tells me the seller probably knows about something major, unless it's a lender-owned property. If it is lender owned, "as is" and "without warranty" are the ways that business is done. Otherwise, it really doesn't mean a lot beyond that you are indicating that you would rather give an allowance than pay for repairs.

For buyers, you don't need to freak out about every last little thing. If you're getting a screaming deal, the fact that you need to put a handrail up in the stairway at a cost of a couple hundred bucks shouldn't cause you to pull out of the deal. If the owner doesn't want to make repairs, be willing to accept the cost plus something reasonable to represent your time and the decreased utility in the meantime. Don't demand triple the cost of major repairs unless you really are going to have to spend that much sitting in hotels and eating out until the work is done.

A reliable contractor is your best friend in subsequent negotiations. First off, it should tell you what it really is going to cost. If they've said that it's going to cost $7500 to fix, that's better information than any agent or inspector can give you. This does wonders for peace of mind, knowing that it's going to be $7500 to fix the problem after you're in title, not $75,000.

An allowance for construction work from the seller can be a great opportunity if you've got some cash left in your pocket after the sale. For example, if you're going to have to replace the green board in the bathroom anyway, it doesn't cost that much more to add some nice updates and upgrades. An extra $500 for better materials can really go a long way. When you go to sell, more money in your pocket. In the meantime, a much nicer bathroom. Even more to the point, one much more aligned with your personal tastes.

Every negotiation after the initial purchase contract is at least as dependent upon the good will of both parties as the initial purchase contract. If one party or the other thinks they got the worst of the initial negotiations, you can expect that to be reflected in how far they are willing to go for you when the inspection reveals defects. You want the person on the other side of the transaction to be thinking they get a decent bargain, one that they would make again. That way, they won't want to blow it off before it happens, by being unreasonable about the repair negotiations. Yes, this is one more reason that you want a buyer's agent to help with negotiations.

Caveat Emptor

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This page contains a single entry by Dan Melson published on March 2, 2007 10:00 AM.

Refinancing When The Rates Are Higher was the previous entry in this blog.

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