In an odd quirk of timing, we’ve had two listings in “the inspection period” at the same time this week.
In a previous article, Francy did a great job of covering the inspection period from the buyer’s perspective. That post covers the what’s, why’s and how’s, including the time periods generally allowed for inspections and responses (in Arizona. It may well be different in other states).
What about the seller’s perspective of the inspection period?
A home inspection is a stressful time, for both home buyer and seller. No buyer wants to buy a home that needs repairs, and no seller wants to be faced with a daunting and potentially expensive list of repair requests.
In the buyer’s market that we currently face in Phoenix, home buyers are clearly in a position to request more repairs than they would in a neutral or sellers market. It’s just the nature of the beast, and is something sellers need to understand, preferable before they get the buyers repair request.
Separate your emotions from the transaction. It’s difficult, but critical.
Selling a home is an emotional experience. It’s important — and exceedingly difficult — for a home seller to set their emotions aside. Every seller wants to maximize the dollars they receive, and of course the buyers want to minimize the dollars they spend. This puts buyers and sellers at a natural opposition to each other. In a sick and twisted sort of way, it’s also one of the things that makes being a real estate agent fun and rewarding. Getting opposing parties to come to agreement in an emotionally charged event is not as easy a task as many perceive it to be.
So what should a seller do when they receive a list of requested repairs?
First, take a deep breath. Understand that professional home inspectors are paid and trained to find and document a wide variety of items. Neither the inspector nor the buyer are saying, “Your home is a falling down piece of crap”. The inspector is just doing his job, and the buyer is just trying to protect their future interest. A list of items in need of repair is not a condemnation of your ability to maintain your home. It is simply what it is — items noted by an inspector that may need attention.
Typically, the inspection period lasts 10 days. Most buyers utilize the entire inspection period before delivering to the seller a list of requested items to be addressed. And typically, the seller has 5 days to respond.
In Arizona, you as a seller have three basic options:
- You can agree to the entire request
- You can decline the entire request
- You can agree to a part of the request
And here are the potential ramifications of those decisions:
If you agree to the entire request for repairs, the escrow process moves forward — ultimately to closing.
If you decline the entire request, the buyer can either 1) cancel the contract and get their earnest money back; or 2) accept the home “as is” and move forward to closing.
If you agree to address some, but not all, of the buyer’s request the buyer can either 1) cancel (with return of earnest money); or 2) move forward to closing.
“Negotiations” for repairs are somewhat limited. This is not something that goes back and forth several times. The buyer submits one request for repairs and the seller responds once. Other terms in the contract are not negotiated in this process. (In other words, it is not acceptable to “trade” concessions such as price, closing date, etc. in lieu of requested repairs.)
Sellers frequently ask, “What should I offer to fix, and what should I decline?”
Unfortunately, this is almost impossible to answer. Some buyers want everything fixed, others only ask for “big ticket” items like roof repairs, water heaters, etc. Sometimes we can glean information from the buyers agent as to what is critical or a “deal breaker”. Occasionally the seller may offer a credit toward the buyer’s closing costs in lieu of repairs. The bottom line is, there is a risk the buyer will cancel if you don’t complete the entire list. Any time you give the buyer an option to cancel with no ramifications you are taking a risk.
Ultimately, the prudent seller will get estimates for significant repairs and utilizing sound judgment and the experience of their agent determine what the seller can afford in time and hard costs. Keep in mind that if the buyer walks, it’s quite likely that the next buyer that comes along will have similar repair requests. This is especially true of the big ticket items. This is why it can be a good idea to have your home “pre-inspected” prior to, or at the beginning of the listing period. In addition to giving you an idea of what a buyer’s inspector will probably note, a pre-inspection report with evidence of completed repairs can help set your home apart and give potential buyers incentive to put your home near the top of their list.
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Discussing the inspection with your seller can be a trying time in your relationship…I try to prepare the seller by telling them repeatedly through out the process that once they put their property on the market everything is business and nothing is personal and they have to put themselves above the situation..
It also helps if Buyer Agents remind their clients that they are not purchasing a new home and should be more concerned about the big items rather than the small items. This is especially true if they have made a rather low offer on the property.
I am with Patsy that it is true if you have made a low offer..
Hey Jay, not to nitpick
, but you said:
“The buyer is not required to deliver you the complete inspection report. It’s their report, paid for with their money. ”
I thought this is required in the standard AAR contract line 192: “Buyer shall provide Seller…, at no cost, copies of all inspection reports.” Of course, assuming the contract is not modified. Do you have a different interpretation?
I have found that by the time you get through the inspection period (after negotiations are completed) the buyers are ready to buy and the sellers are ready to sell. It is both realtors jobs to make each side feels satisfied that they are not getting a raw deal when the inspection report comes back. Down here in Miami, we typically split the amount detailed in the inspection report (unless of course it was a wildly outrageous number, in that case, we have another inspection company come out).
One of the ways to greatly diminish this anxiety issue is to have a home inspection done right at the time the property is listed. The Seller can address the issues that both the Seller and the Realtor think are critical and then can provide the inspection and the repair list to potential buyers. Often times, we are able to bring the original inspector back out to “reinspect” without the buyer ordering a new home inspection.
Rob – not nit-picky at all! You’re absolutely right. I don’t know what I was thinking — I had appraisals and inspections spinning around in my head and apparently appraisals fell out onto the keyboard. Post has been corrected, thanks! Note to self: Proof read before hitting “publish”.
Don, Patsy – I’m with John – great points.
Riley – if I’m reading your comment correctly, your inspection reports in Miami contain dollar amounts? That’s interesting as we don’t typically see that here.
Joe – I mentioned “pre-listing” inspections in the last paragraph. Great point about getting a re-inspection. It’s also typically much cheaper. We’ve even had buyers accept the pre-inspection report and not get their own inspection (though personally, I would advise our buyers to hire their own inspector if at all possible).
I think the negotiation of inspections is the most important of the negotiations because the buyer can still get the home lower and the seller in their mind has already “sold” their home so is usually intense when negotiating inspection items.
Great Advice. I think that Critical Items are usually up for negoiation, such as roof, furnace,etc.
Thanks
Fox River Real Estate
Jay,
I think you have written an excellent article and made some valid point.
I was wondering if I could use some of your article in my marketing. If you want I could rewrite it but I would love to send some of this information to my client base. If not I completely understand but I don’t think it would be a conflict for you since we are not competing for the same clients. I always like to ask before I duplicate or use somebodies content.
Best wishes,
Kanoa
One of the things I’ve found work well in our market in Chicago (and probably in other markets as well) has been to offer buyers a home warranty to ease their mind, especially when the home has big-ticket items that might be in need of repair or replacement soon, such as central AC units or furnaces. A $4,000 issue can be remedied with a $400 solution ensuring that the transaction doesn’t fall apart.
If you prepare your seller for the facts of home inspections before they accept an offer life is much easier. All sellers need to allow for potential repairs when negotiating an offer as it will effect their net price. Have this conversation early in the listing process then again when starting to negotiate an offer and your clients will feel much better about the transaction.
More great points by all.
Kanoa – I emailed you.
Mark, I think home warranties are about the only type of warranty coverage that is worth every nickle. The peace-of-mind alone is well worth the price. One must be wary of “pre-existing conditions” though.
Micheal – while I think sale price is the most important negotiation, inspection/repair negotiation isn’t far behind.
Ken, agreed. It is ALWAYS easier to discuss these things up front, before they become an issue. I think one of our biggest jobs as agents is educating our clients. We help people buy and sell homes every day, passing that experience on to someone who most likely will only go through the process a few times in their lifetime is really, really important.
Hmmm.. I stumbled across this gem here and have to say that, even though the real estate market has changed drastically the last year, your advice still holds!