real estate

Pay to fix house you haven't bought yet?

Steve McLindenDear Real Estate Adviser,
The home inspector of the house I'm buying said the furnace has to be replaced and its electrical systems need to be brought up to code. In fact, the bank put a hold on my loan until such repairs are complete. My Realtor, who is acting as a dual agent for the seller and for me, is asking that I contribute to the repairs. I really don't have any extra money right now but don't what to lose my deposit money if I refuse to pay to fix a house I haven't bought yet.
-- Marie

Dear Marie,
Allow me first, if I may, to correct you on your use of the term "my Realtor." The real estate agent you're using, unlike a true buyer's agent, does not have a sole fiduciary duty to you in this transaction and hence is not really yours. Unfortunately, you're feeling the fallout. When you agree to dual agency, which people tend to do in so-called friendly sales, for convenience or to save money among other reasons, you essentially give up your rights to exclusive advocacy. Bad idea!

A good buyer's agent, after all, would never allow you to be pressed to contribute to repairs of a house you don't even own yet unless it's an "as is" foreclosure. But this dual agent -- or "double agent" as I like to call them because they play both sides -- has apparently put you on the spot.

While just about everything in a conventional real estate deal is negotiable, the seller is almost always responsible for making any necessary repairs or at least for issuing a credit to the buyer in the form of a reduced price. While some negotiating leverage, such as asking the buyer to help pay commissions, is shifting back to homeowners in hot markets, your financing of repairs in a house you haven't bought yet is fraught with risk.

If you were buying a foreclosure home, then such a request would make sense because most if not all necessary repairs are then made at the expense of the buyer who's ostensibly purchasing at a steep discount. But in your pending deal, your bank has the right -- and an obligation in the case of an FHA-insured loan -- to require that major repairs to the furnace and electrical system be completed to assure the property has sufficient value on which to lend. My guess is that the seller is hurting financially, hence the fishing expedition by the double agent. I'm also left to wonder if your contract obligates you to share in repairs. Yikes!

Regardless, you should know that any money you volunteer to fix the place before you close on it could be lost if the deal falls apart for any reason or the loan isn't approved -- unless you have an airtight sales contract that protects you in such contingencies. Since you've already plunked down earnest money, a thorough examination of the contract by a real estate attorney or similarly qualified professional is called for to see if you have an "out" -- even if you're a little short on dough. This is important stuff, after all.

If you can't get financing until the repairs are made and the owners can't afford to pony up for them, I'd suggest you drop back 15 yards and punt if you're contractually able to do so.

There are surely less-problematic deals waiting out there. Good luck!

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