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Home Inspection Reports.

Tuesday, July 5, 2005 posted by Tommi Crow

Should Sellers fix a problem, credit money or lower the home price?
Each solution has its own Pro’s and Con’s.
No home is perfect. This means that all Home Inspection reports invaribly reveal a defect. Buyers and sellers find themselves back at the negoiation table trying to arrive at a workable solution. Who pays for what is one part of the process. Figuring out how and when the repairs will be made is the other.
When negoitating repairs or defect issues, there are 3 options for most home sellers and buyers. There are advantages and disadvantages to each option.
The seller can complete the work before closing.
The seller can credit money to the buyer at closing and the buyer can fix the problem later.
The seller can reduce the purchase price by the amount of the repair estimates.
OPTION 1: If the seller fixes the problem before closing, the work is done. The buyer doesn’t have to deal with fixing the problem after they move in. But, the sellers, who are moving on, may not take the same interest in overseeing the work as the new home owner might.
If the seller is fixing the defect, they may opt to do the bare minimum required to “fix” the problem. The seller may perform the work themselves to save money, even if they are inexperienced in making such repairs. A buyer who would choose an upgrade or prefers the repair be made by a professional, should negotiate for a credit at closing and handle the repairs themselves, once they move in.
If the seller is making the repairs, the buyer should have the right to approve any work order before the job is underway. The buyer should make sure that the contractor guaranantee’s their work to the new buyer, as well as the seller. The seller should provide a copy of the paid invoice, and any workmanship warranties to the buyer after the work is done.
Sellers usually prefer to credit the buyer for repairs at closing. This relieves them of the responsibility of having work done in the midst of their move. If you are having trouble convincing a seller to make a repair, you might offer to accept a credit to speed the negotiations.
Credits can also be a very cost-effective way to solve a problem, if buyers are planning a larger renovation. It might be a waste of money to repair a stove if the buyer is planning a kitchen remodel, for example. In such a case, a credit benefits both parties. Since there is usually several ways to “fix” any problem, a credit allows the new owner to decided how to fix the problem and when to fix it.
If the seller and buyer agree that a credit is in their best interests, buyers should check with their lender before finalizing the repair negotiation. Many lenders have limits on how much money they will allow a seller to credit to a buyer at closing. Buyers: If you accept a credit for repairs, make sure you follow through and have all the work done after you move in.
Option 3: Reduce the purchase price.
Credits generate extra cash to make repairs, which works well for buyers who are cash-strapped. If cash is not an issue, a price reduction can make sense for buyer and seller. Since closing costs such as title insurance, transfer taxes, etc. are based as a percentage of the purchase price, a lower price means less closing fee’s for both parties.
In many area’s, property taxes are based on the purchase price. A lower purchase price can result in sizable, property tax savings over time. Also, if capital gains are of concern to the seller, a lower sales price can mean real savings come April 15th.