The inspection is one of the most important steps in the home buying process. If it reveals unexpected problems with the house, the sale can come to a grinding halt. However, if both parties are willing to negotiate, a solution that works for everyone can be found. Learning how to negotiate effectively is key when entering the real estate market as either a buyer or a seller.
Negotiating Tips for Buyers
If your inspection report came back with some surprises, you’re probably considering renegotiating your offer. Here are a few tips for buyers to successfully negotiate home repairs:
Pick your battles.
Chances are, the home inspection will reveal some minor problems with the house or some areas that will need attention within the next few years. Almost any home you purchase will have a few small issues, so it’s important to pick your battles when negotiating.
Focus on items in the inspection report that affect your safety or hurt the value of the home. The following are some home inspection problems that are usually worth negotiating over:
- Cracks in foundation, uneven floors, bowing walls, and other foundation issues
- Old or damaged roof
- Electrical problems
- Significant water damage
- Aging or faulty HVAC system
- Termite damage
Know what you need for an FHA loan.
If you’re using an FHA loan to purchase the home, the property will need to meet certain inspection and appraisal requirements. Your lender will not approve your FHA mortgage if the inspection reveals major defects or safety issues. For example, the home cannot have broken or missing handrails on the stairs, exposed wires, or poor ventilation.
Before the inspection, you and your agent should review the list of FHA requirements so you get an idea of what to expect from the inspection report. If the home fails the inspection, the seller will have to make the repairs or the sale will be canceled.
Get estimates.
Once you’ve reviewed your inspection report and identified the problems to negotiate, start gathering quotes for the repair work. Try to get a few quotes from different contractors so you have a ballpark estimate of how much the work will cost. Your real estate agent may have recommendations for professionals you can contact.
Ask the sellers to make the repairs.
One option when negotiating is to ask the seller to make the repairs themselves before closing. This takes a task off your plate and ensures that you’re moving into a home that’s already safe and functional.
Your real estate agent will handle the communication with the seller. What’s most important is that you and your team remain respectful and flexible. The seller will be more open to negotiation if they know that your request is honest and earnest. If the seller agrees to make the repairs, ask them to hire a licensed contractor for the projects and provide you with the receipts.
Ask for a credit at closing.
Instead of requesting the seller to make repairs, you could ask for a credit. A closing credit is cash given from the seller to the buyer when they close on the home.
This option is ideal for buyers who would rather be in charge of the repair projects than wait for the seller to complete them. You may not have enough money after making your down payment to fund the work out-of-pocket, so the credit makes the repairs possible.
Negotiate a lower price.
If the repairs amount to thousands or tens of thousands of dollars, the seller may be willing to negotiate a lower price. This can reduce your monthly mortgage payment, freeing up more cash to use for maintenance. However, unlike with a closing credit, this option won’t provide funds for you to make immediate repairs.
Negotiating Tips for Sellers
Issues with the home inspection can be disruptive during the closing process, but that doesn’t mean that everything will go wrong. As a seller, you still have negotiating power. Here are five tips for negotiating with the buyer when the home inspection reveals problems:
Get a pre-inspection.
A pre-listing inspection can give you valuable knowledge on the condition of your home and prevent unforeseen issues during the closing process. The pre-inspection is exactly the same as a standard inspection, but it’s paid for by the seller and the seller receives the report.
If the pre-inspection reveals major issues with your home, you have a few options. You can list the property as-is and disclose the results of the inspection, or you can make the repairs yourself before putting the house on the market. Either way, you reduce the risk of a buyer backing out of the sale or renegotiating due to inspection issues.
Identify the non-negotiables.
If the buyer’s inspection reveals significant problems with your home, the buyer has a right to renegotiate the contract. Hopefully, both parties can come to a fair agreement with minimal back-and-forth.
You and your agent should try to identify which repairs are the most important to the buyer. Any problems that affect the value of the home or make the house unsafe or uncomfortable to live in should be addressed first and foremost. If you’re open to negotiating on the highest priority repairs, the buyer will be more likely to let go of the smaller issues.
Offer a price adjustment or credit.
You could offer to complete the repairs yourself before closing, but many sellers prefer to negotiate a lower sale price or offer a closing credit to the buyer. It’s less work to renegotiate the deal than to hire contractors to fix the house. A closing credit can be an especially appealing offer to buyers, although it will reduce your profits from the sale.
Be flexible.
An unfavorable home inspection can be very frustrating as a seller. You’re excited to close on the house and move on to the next chapter of your life, and negotiating over repairs can drag the process out.
As difficult as it can be, try to remain flexible and open-minded. Remember that both parties have the same goal: to close on the house. When you’re both willing to compromise, you’ll reach a new agreement faster and move toward your shared goal.
Know when to stand your ground.
Flexibility is key when negotiating, but you should also stand firm when it’s necessary. If the buyer has unreasonable demands, you don’t have to meet all of them. Your agent can help you decide when to compromise and when to hold your ground. Walking away is never an easy option, but it is a possibility if it feels like the negotiation is going nowhere.
Problems with the home inspection can be painful for buyers and sellers alike. Both parties want to move smoothly toward closing, but unexpected repairs will affect the deal. Whether you’re buying or selling a home, what’s most important is that you stay flexible, explore all your options, and remain willing to compromise.
