Everything is looking good; your house sale will close in a couple of weeks. Bang! The buyers want to renegotiate the purchase of your home. The situation has to be the number one fear of every seller, save the actual cancellation of the contract.
What is a seller to do? That depends on the reasoning of the buyers. It could be sincere or perhaps sinister. Let’s look at the various reasons and possible responses.
Let’s be clear; renegotiation doesn’t limit itself to a new purchase price. It could take the form of repairs, credits, or change in terms.
The appraisal and inspection reports are the elephants in the room. This discussion will limit itself to these factors.
The result of an appraisal below sales price has the most significant impact on the purchase price.
The buyer most likely will use thrid-party financing to purchase your home with the lender not willing to commit to loan over the appraised value. The buyer will request a reduction in sales price to meet the loan limit.
As a seller, your options are clear. Accept the reduction, say no, holding fast to the buyer’s offer, or negotiate somewhere between offer and appraised value. The first option will result in the completion of the deal. The second option will result in cancellation. The third rates 50/50 depending on the buyer’s wants, needs, and in some cases, desperation. A seller incorrectly assessing the situation will result in cancellation of the contract.
Then we have the unknown, inspection reports. Any number of responses can emanate from the buyer.
Every home has deferred maintenance, and undoubtedly, an inspector will find.
The report will mention if a system is not compliant with today’s building code, with the caveat that the installation satisfied the building code of that time. Unfortunately, some buyers conclude that the home is unsafe and ask for compliance upgrades.
So what type of requests can a seller expect? Perform repairs, provide a seller credit, or reduce the selling price. There is one more obvious option. The buyer does not request repairs. Beautiful non-response for the seller, but rarely occurs.
Performing repairs by the seller can have far-reaching implications. If they are extensive, the closing date may have to adjust. A buyer will want verification of satisfactory completion, which means documentation.
Sellers, you will need to provide a completed work order for the repairs. If you don’t have one, the very least would be photo documentation showing before and after.
I know you, sellers, the repairs will be performed at the cheapest cost. You need to consider just how long you will be responsible for the quality of the repairs. It will depend on the buyers, so the answer is–who knows? You, the seller, will be responsible, not the person you hired to perform the corrections.
A better response for the seller regarding repairs would be to offer a credit, no future surprises. The buyer assumes responsibility. Yes, the credit may exceed the actual repair cost, but so what? Chances are you will never know. Proceed with the sale and get it completed, the next chapter of your life is waiting.
Reducing the sales price for repair cost coverage when a lender is involved is difficult — two prominent reasons for the difficulty.
Changing the sales price requires the lender to redo all their underwriting and loan documentation. They are reluctant to do so–cost money and time. The closing date could be affected. Not impossible.
Secondly, the lender will ask for a copy of the inspection report if the sales price reduces due to repairs. Once that occurs, an underwriter can request or require other corrections. As a seller, I would concern myself as to what’s next.
If a loan is not part of the contract, then yes reduce the price. Doing so will lower if ever so slightly, the buyer’s property tax bill and closing cost. Plus, the commission, payable to the brokers, will adjust downward.
So, what are we to conclude?
Renegotiations for appraisal conflicts should be rare. There is a plethora of public data to help develop a market value asking price. In those instances, when the appraisal is light compared to selling price, the options are reasonably clear.
Inspection resolution is dicey. One correction can lead to another finding. I can recall an occasion when repairing dry rot around a fireplace; the contractor discovered bore beetles inside the walls, became very expensive for the seller.
If you would like more details concerning inspectors and their reports you can find the information here. https://capitalburbsnests.com/unfiltered-truth-concerning-home-inspections/(opens in a new tab)
The key is not to get emotional and to regard this phase as a financial decision.
One additional word of advice. I advocate that sellers perform pre-listing inspections to mitigate any surprises. As a listing agent, for those sellers willing to take that step, I will reimburse the cost of the inspections when the transaction closes.