Negotiating home repairs

During the housing boom last decade, it seemed as if problems that killed real estate deals were rare. Appraisals almost never came in low, and if it did the buyer gladly paid cash for the difference between the sales price and the appraised value. Loan denials were also rare, because mortgages were easier to obtain. And of course, the home condition almost never seemed a problem because many people forwent home inspections.

Today, however, buying and selling a home feels different than it did in those halcyon days. Although the process remains the same, the rules have somewhat changed. Buyers are more apt to ask the seller to address issues that arise along the way, including problems with the home’s condition. Both the buyer and seller need to be aware of property condition issues that may arise as well as being prepared when encountered.

Home buyers are looking for their perfect home, while sellers already view their home as such. Because of this subjective view, it seems as if home buyers are “walking away” more often these days because they cannot come to terms with the seller on property condition repair items.

Home sellers generally have progressed over the last few years such that they are more open to a buyer’s request to address reasonable and necessary repairs. However, it is not uncommon for repair negotiations to end in a “take it or leave it” scenario when the buyer’s request is deemed excessive by the seller.

The termite inspection can also create tension between buyers and sellers, even though sellers usually treat infestations and/or repair resulting damage. Many buyers and sellers do not realize that the termite inspection is somewhat of a misnomer because the inspection not only checks for termites, but searches for evidence of any wood destroying insects (such as: termites, carpenter ants, and powder post beetles) as well as reporting damage. Infestation of termites and other wood destroying insects can occur anytime in the life of a home; if left untreated, an infestation can feast on a home leaving behind costly damage and in cases left untreated for many years- possibly an uninhabitable home.

Another source of a property condition inspection, that most buyers and sellers are unaware of, originates from the buyer’s lender. Mortgage lenders require the home to meet minimum condition standards, which is reported on the appraisal; the appraiser will “inspect” the home for the lender. For conventional mortgages, the appraiser will rate the overall condition as well as possibly noting condition flaws (such as structural deficits and utility connections). A poor rating will typically raise a red flag for the underwriter to require repairs prior to closing.

FHA and VA appraisers not only rate the home’s condition, they will also list all deficiencies that do not meet minimum underwriting condition requirements to be addressed prior to closing. The list of deficiencies is provided to the buyer, who in turn typically addresses with the seller. The seller can agree or refuse to make repairs; however, the contract is sometimes voided when neither the buyer nor seller agrees to make the repairs.

When it comes to property condition repairs, buyers and sellers should be prepared for extra rounds of negotiations. However, surprises and further negotiation can be minimized if both sides are prepared and understand the scope of the required property condition repairs.

By Dan Krell
Copyright © 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.