Repair Negotiations in Real Estate

Negotiating repairs can be one of the most emotionally charged aspects of the real estate transaction and setting appropriate expectations is key. {Would you rather watch than read? Scroll down for the video version of this blog post.}

There are a lot of factors that go into negotiating repairs and it’s often emotionally charged on both sides. The seller loves their home, may have difficulty seeing it objectively, and often wants to spend little money on a place they’re leaving. On the opposite side, the buyer is making a huge investment and they want the home to be in good shape. The negotiations can be a bit of a dance but having clear expectations on both sides can really help.

Factors That Influence Repair Negotiations

Repair negotiations can be influenced by a number of things: whether it’s a buyer’s market or a seller’s market, the sales price of the home, whether the offer was over list price, the type of financing, and the purpose of the transaction. For example, if a client is buying a fixer upper or an investment property, they often care less about small details than a client who’s buying their dream home.

Seller Expectations

Let’s talk about seller expectations first.

Being proactive about repairs before the house ever hits the market is the best bet because deferred maintenance will come back to bite you. When a buyer gets a super long inspection report with problem after problem, getting to the closing table becomes trickier. No one wants to invest in a land mine. And the more problems a buyer sees on an inspection report, the pickier they tend to get.

Once the inspection report comes back and negotiations begin, my best advice for a seller is to be reasonable and try really hard to take emotion out of it. Don’t create bad blood with the buyer.

Here are some things to consider:

Are these reasonable requests? If the HVAC system isn’t functioning, that’s a reasonable request. If this deal falls through, that same request is going to come up in the next round. Everyone in Texas needs a functioning HVAC system.
What’s the total cost of these repairs? Don’t get upset by small requests. Look at the requests as a whole. Some requests may seem nitpicky but if it costs you 25 cents and five minutes to replace a switchplate cover, it might be worth doing … but that will also depend on the rest of the requests and whether it’s getting really crazy. There’s give and take in every transaction but there are also boundaries.
Will there be issues with financing if these repairs aren’t done?
What will you lose if this deal falls through? Different scenarios create different negotiations. If you had twenty offers in the first two days and the buyer comes back with an unreasonable list of repairs then maybe you risk putting your foot down, knowing that the deal might fall through. However, if the house has been on the market for sixty days and you finally have an offer, those negotiations probably look a little different.
What are you getting out of this deal? If a buyer is paying you $30,000 over market value, I’d advise a seller to show some generosity in return and be fair with repair requests.

I touched on the financing and this is an important factor. A lender can’t require that a buyer or seller make certain repairs but they can refuse to finance the property if certain repairs aren’t done. Since financing comes into play in the majority of transactions, those items should have increased importance in a seller’s mind. Lender requested repairs typically have to do with the safety, security, and soundness of a property.

Buyer Expectations

Now let’s tackle the buyer side.

My recommendation is to be reasonable while still asking for repairs that are important to you.

When first looking at the i nspection report, I advise my clients to create a list with three columns: musts, wants, and unimportant items. Once that list is made, we go over it together and decide how we want to proceed. You can ask for absolutely anything but there are certain things that will probably not get covered and asking for the moon can create an instant shutdown in sellers.

The first list is the only list. This is a saying I’ve adopted from one of my fellow agents and it’s a line I now use regularly. Rather than going back and forth and adding and taking away items, buyers need to create one list of important items and negotiate over that list.

Decide up front what the deal breakers are, if any, and decide what you’re willing to let go. You also need to consider whether you want all the repairs completed prior to closing or would you be willing to accept a credit at closing?

There’s a fine line for buyers in repair negotiations. Getting too picky can create bad blood with a seller but if you’re spending a huge sum of money, or paying well over asking, I think you deserve to be a little specific on repairs. However, if you know your offer was one of twenty-five offers and the sellers have already executed a back-up offer, you can expect that they will probably be less willing to negotiate with you. Knowing your situation and knowing your boundaries is really important.

There are a lot of factors that play into repair negotiations but one phrase can help on both sides: be fair.