Home sellers naturally don’t want to make repairs to a home they’re about to vacate. But homebuyers, equally naturally, want their dwelling to be perfect. So, who’s right?
Usually, buyers and sellers negotiate a compromise that allows their transaction to move forward.
But not always, says Kent Temple, broker and owner of Keller Williams Realty – The Temple Team in Mooresville, N.C.
“Buyers think every house should be a new house, and sellers say, ‘Why should I fix anything?’ At that point, it’s one more thing we have to negotiate, and not only does it get contentious, but we lose deals because of it,” Temple says.
No one-size-fits-all standard
Real estate contracts differ from place to place, and some places have more than one common or so-called standard contract in use, explains Harvey S. Jacobs, a real estate attorney with Joseph, Greenwald & Laake in Rockville, Md.
Buyers and sellers should always read the inspection and repair contingencies carefully and make sure they understand them before they sign the contract. That’s because these contingencies dictate the scope of inspections that buyers can perform, the time frames for those inspections, the form of communication or notice requirements and the consequences that might or will occur when the time frame ends.
“Buyers do need to be careful about what type of inspection and repair clause they need,” Jacobs says.
Some contracts benefit buyers; others benefit sellers
To illustrate the point, he describes a contract that allows the buyer to obtain a general home inspection and then give the seller a copy of the inspection report, indicating which repairs are to be made or stipulating a dollar amount credit in lieu of repairs. The seller can then make the repairs, agree to the credit or propose another arrangement, which the buyer can accept, negotiate or reject. This type of contract benefits the buyer.
But another contract Jacobs describes allows the buyer to obtain an inspection, but not request any repairs or a credit. Instead, the inspection is “for informational purposes only,” i.e., to inform the buyer of the property’s condition. This type of contract benefits the seller.
Know the limits
Even when repairs or a credit is allowed, buyers should be sure to understand the limits. Some contracts give buyers and sellers plenty of leeway to negotiate what will be fixed and what won’t. Other contracts state that buyers can insist only that true defects or building code violations be fixed.
State laws vary and can be complicated, so buyers and sellers should discuss repair contingencies with a real estate broker or attorney.
Split the difference
Local customs vary as to how repair-or-credit negotiations are carried out.
Sometimes, negotiation takes place through what Jacobs describes as “a flurry” of emails between the buyer’s and seller’s representatives. Other times, the buyer’s and seller’s agents have a telephone conversation to hammer out a deal that seems reasonable to both sides.
Seeking repair money
One strategy Temple uses is to get a contractor’s estimate for the repairs and suggest that the buyer ask for a lesser credit rather than insist that the seller make the repairs, which might be done in a shoddy fashion.
“If I’m the buyer’s agent,” Temple says, “I get a quote for the work, and I tell the buyers, ‘It’s going to cost $2,000. Do you trust the sellers to fix it or would you rather have it done to the quality you want? Why don’t we be fair and ask for a $1,000 allowance and everybody can go home happy?'”
That approach usually works, Temple adds, unless the repairs involve an expensive “killer” defect such as a broken heating, ventilation and air-conditioning system, leaky roof or mold or moisture problem — or when the other agent’s ego gets in the way.
“A few agents think this is their chance to show how good they are and that they’re going to get their buyer something extra,” he says. “I always try to work for a win-win.”
Say no to report
Sellers should be aware that a buyer’s inspection report can be problematic for them because if the deal doesn’t close, they could be obligated to tell subsequent buyers about any defects mentioned in the report.
“Once they’re in possession of the report, they have a duty to disclose all of those now-known defects to all future purchasers,” Jacobs says.
To avoid that scenario, Jacobs says he “strongly urges” sellers not to accept a copy of the report, and to strike any wording in the contract that says that the buyer must give the seller a copy of the inspection report. That doesn’t end the seller’s obligation to disclose known defects, but it limits new knowledge of additional defects, giving them a safeguard if the deal falls through.