When should I pay seller to repair home?

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Dear Real Estate Adviser,
I was planning to buy a house from a guy who I agreed would tack on a set dollar amount for major upgrades he would do. Just prior to final inspection, this owner, who essentially gutted the place during the rehab, gave me a bill for an extra $5,300 beyond that. I told him my lender wouldn’t approve the extra sum and that I’d have to back out of the contract. However, I’d already forked over $1,870 directly to him to install new windows! My agent later got him to sign an addendum to pay back the repair money, but after the seller sold the house a few months ago, he still refuses to pay, instead offering $226. How do I get my money back?
— J. Dice

Dear J.,
Contract addendum or not, you put yourself in a compromising position by directly giving the seller repair money before the deal was done. Further, it sounds like your agent may have let you down by allowing you to take such a costly risk. While I can’t say for sure, it sounds like the owner is actually an investor or handyman who you felt could relieve you of the dust and hassle of replacing those windows after you took occupancy.

Unfortunately, a lawsuit against this seemingly duplicitous seller is impractical for such a relatively small (but still painful) dollar amount. But you can try taking him to small claims court. First, you’ll have to do a little local research. While you typically file small claims petitions in the county in which you live, some states require claims to be filed in the defendant’s county. Make sure you can produce that contract and whatever other written evidence you have well beforehand. Certainly, the fact that he offered you a small sum back is an indication he owes you something. Also try to determine, either from deed records or your agent, what price he sold the place for, then weigh that sum against the original list price and factor in the improvements he made, including those windows of course, to see if his estimates add up.

By the way, had you acted before Mr. Fix-It finally sold the place, you might have been able to file a lis pendens, which is a public notice of litigation or a lien recorded against a home, against its title. That may have at least forced him to settle up because it could have blocked a future sale.

As an FYI to you and our other readers, the seller in a home transaction is almost always the one who pays for all repairs, except in some short sales or other distressed sales, where buyers sometimes agree to spring for needed repairs after the sale because they’re getting such a good deal. But it is not a good practice to directly prepay for repairs for reasons that you now understand. I might point out that there’s something called “insurable with repair escrow” that allows buyers of Department of Housing and Urban Development, or HUD, properties to get Federal Housing Administration financing on homes that don’t yet live up to FHA’s minimum safety or livability standards. While this likely wouldn’t have been germane to your case, the funds sufficient to fix a home in this scenario are put into escrow by the lender and added to the buyer’s loan amount.

All said, I wish I had better news for you. Good luck on your next purchase. You might just consider employing a more seasoned buyer’s agent this go-round.

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