Negotiating Repairs Requires Productive Negotiating Between Buyer and Seller

You received an offer that you made acceptable after some negotiation. Thankful, you turn to other matters, believing the transaction has been put to bed. The buyer seems financially secure so the financing is assured. Time to start planning for closing.

Think again. If this is like about two-thirds of residential and commercial transactions, the toughest part of the negotiation is yet to come. Prepare for this part and you and the transaction will survive.

The reason for this insecurity is that in our market buyers make offers that are subject to inspection. The buyer wants the property off the market before investing in an inspector. A typical residential inspection runs about $300. A commercial purchaser frequently mobilizes a team of specialists whose bills can quickly exceed $5000 just to get minimal assurance that the property is sound.

So the next thing you hear after accepting the offer is that the inspector has come up with some problems. Maybe you never knew the problems existed. Maybe they relate to something you disclosed and their analysis has convinced them there is more to it than you appreciated. Whatever, they want you to fix them.

Good communication will help you understand what the buyer’s objective is here. People differ in their approach to real estate. For some it is a process fraught with uncertainty and risk. For others it is a challenge to get the most favorable possible deal. For others, this transaction with you may be totally routine. Learn what the buyer’s motive is and you will have valuable information on how to respond.

Consider the nervous buyer. You may need to come across as very concerned and accommodating with such a person just to keep him or her in the transaction. Before giving away the store, however, you also need assurance that this is not just the first of a series of requests that’s going to drive you crazy for the next few months. How committed to this purchase is this person, really? Test and probe.

What about the person who is just trying to improve the deal, the negotiator? Or the buyer who is all business; this is “just another deal.” As with many business interchanges, you should practice good mirroring techniques. Think back to the original negotiation and recall the buyer’s style. Match that style in your response to repair requests and you may find yourself communicating productively.

Where there is a lender financing the purchase, a common seller response is to bring that lender into the picture. In most cases a lender has more money invested in the property than the buyer. The lender has a legitimate interest in being sure a property doesn’t have major defects it could be stuck with in the event of foreclosure.

When the buyer’s inspection requests come in, then, a seller will often say he is willing to repair anything the lender determines to be a barrier to financing. The rest becomes the buyer’s responsibility to take care of after closing.

The difficulty with this approach is that many lenders, particularly in residential transactions, take an overly conservative view of what really needs fixing. Nobody disputes that a perpetually wet crawl space with no visqueen over the dirt threatens the structural integrity of the building. On the other hand, a deck that’s basically at ground level that has a weak supporting member is probably not going to seriously injure anyone or diminish the value of the property as it deteriorates.

Underwriters reading appraisals and engineering and inspection reports too often fail to make rational distinctions between different levels of deficiencies. Rather than face criticism after the fact for exercising judgement, the underwriter hauls out the rubber stamp that reads “fix everything!”

Knowing of this tendency, many buyers and sellers write their purchase documents to omit any reference to inspection reports. Call it real estate’s “don’t ask, don’t tell” policy. Some lenders quietly encourage the practice, in the interest of expediency. This leaves all concerned with the uneasy feeling that a lender might later claim it was the victim of a fraud if a significant defect remained undisclosed and only came to light after foreclosure.

However you as a seller elect to handle this issue, be prepared to respond after the inspection report comes out and work through the issues, knowing that no sale is really complete until the very end, when it hits the recorder’s office after closing.