Understanding Your “Very Limited” Obligations as a Seller
In the State of California home sellers are only required to install smoke detectors, carbon monoxide detectors (one per floor) and the hot water heater must be properly strapped. That’s it. Everything else is sold “AS IS”. The buyer does however have the right to perform an inspection and ask for the repairs. The buyer can ask for the moon and sometimes does. The seller however can tell that buyer to “Pound Sand” and get lost.
The purchase contract states “Should the seller not even respond to the buyers repair request, then the buyers sole recourse is to cancel the transaction”. Often times I need to remind buyers agents of this critical point, as many are mistakenly under the perception that some concession should be expected. Yet no where in the contract does the seller have any obligation to do more than just the three items listed above.
The First Order of Business – Is the Buyer Serious?
After a buyer performs an inspection, it is likely that, as the listing agent, I get a repair request (RR). Sometimes these requests are well thought out, sometimes the agent is being lazy. Nothing pisses me off more that a buyer’s agent emailing me the entire report and just saying they want everything fixed. First off, this is just lazy. Secondly, it isn’t realistic. I have to assume at this point that we don’t have a realistic buyer. While the physical inspection clause is most often used to evaluate the condition of the property, it can also be used as a “Buyers Remorse” clause.
The contract states that the transaction is “Contingent upon buyers approval of the property, and any matters surrounding the property”. This is pretty all inclusive. During the “Buyers Investigation” period of the contract the buyers can back out for ANY reason. For this reason, I usually keep this period as short as possible, usually 10 days. Until the buyer has performed their inspection and waived a repair request or submitted something reasonable, the transaction is not officially solid in my mind.
If I do get the “I want everything repaired or rebuilt” repair request (RR), then my job as a listing agent is to shut it down quickly and get the property back on the market. My job is not to have the seller satisfy each one of the buyers concerns, because the buyers, based upon their unreasonable request, will prove to be impossible to satisfy. When a buyer that has no expectation of a seller making any repairs per the contract and yet asks for the world, I can only assume that they have gotten cold feet. Often times this isn’t truly the case. Many times it is just an incompetent buyers agent that has little knowledge of the contract or hasn’t properly advised their buyer. Either way it is my job to shut this down. What does this look like.
Once I got a repair request to have everything fixed plus a $50,000 reduction off the sales price. Well this can only be perceived that the buyer simply wanted to back out. I sent over a contingency removal that the buyers had to accept the property “AS IS” with no repairs and no credit within 24 hours otherwise the seller was putting the property back on the market. Seemed like a reasonable response to the buyer’s very unreasonable repair request. To my surprise the buyers immediately signed off on the inspection with no repairs and no credit and closed. So it was all a bluff.
Many other times, I have to call up the buyer’s agent and tell them “Well it looks like we will be putting the property back on the market because it is clear to me, based upon the repair request, that the buyer doesn’t want the property”. When they respond with “No, no…. the buyer really wants the property”, then I have to ask them why they are asking for the Moon. Since the buyers only recourse is to NOT buyer the property, should the seller not make the requested repairs, then there is an assumption that the buyer will not proceed with the transaction if the seller doesn’t make the repairs. This is at least my interpretation of the contract.
After I have simply stated that their repair request is unreasonable and that it is likely we will have to cancel the transaction, then I have to school the agent that the seller is under no obligation to do any repairs, let alone even respond to their request. While it may sound like I am being difficult, I am not. I simply have to make sure that the other agent understands the nature of the contract and hasn’t improperly coached their buyer to expect repairs. Often they have given the buyer the wrong impression and it is my job to instill in him the reality of the contract and let him know that he has ZERO leverage.
It is my job to represent the seller and having them agree to do repairs that they are not obligated, is simply not in their best interest. Even if I were representing the buyer, it would be wrong of me to give the buyer the wrong impression that they could expect repairs or concessions.
Sellers – Only Make the Buyer as Happy as they are Making You
Once I have determined that a buyer still wants the property and their repair request (RR) is reasonable then we have to look at the RR in context with the original offer. Has the buyers offered the seller an extremely good price for the property and the seller wants to keep the buyer happy? If this is the case then it is in the seller’s best interest to offer the buyer some concession. One transaction I handled, we got several offers. All the offers were around the list price, but one was $20,000 higher than the rest. Needless to say the seller accepted the high offer. After an inspection, this buyer asked for a $3,000 concession for badly needed electrical work. The seller agreed to this request. It was easy knowing that the buyers were paying top dollar and they were still ahead by $17,000.
A lot of it has to do with expectations. Did the buyer pay top dollar based upon cosmetic appeal and the physical condition of the property was discovered to have some issues. Then sometimes a buyers request can be considered more reasonable because the inspection showed issues that the cosmetic condition didn’t reveal. Other times even reasonable repair requests can be shut down because negotiations involved several buyers and the buyers that didn’t get the home are chomping at the bit should it fall out. Or maybe the home was a fixer upper and sold at a fixer upper price. Then the buyers expects to get things fixed as if the home was a gem. The context the of the negotiations need to be considered.
Repairs to Consider Fixing or Offering Compensation
There are some repairs that sellers should or might consider. The most obvious category would be repairs that the seller would want fixed. An example of this would be an active plumbing leak that was previously unknown. This is something that most sellers will undertake immediately. Another category that is often considered reasonable is basic functioning of the homes mechanical systems. It is reasonable for heaters to work and roofs not to be leaking.
The final question to ask is will every new buyers that comes along see the same issue. If there is no way around the issue, then coming to terms with the existing buyer will be better than putting the home back on the market, only to be faced with the same issue.
What concessions should a seller make?
So you have confirmed that the buyer does still want the property and the RR in essence is reasonable. How do you respond? This really depends upon so many factors, many already discussed. Here are a couple more guidelines.
Approach the negotiations from an emotional or psychological point of view. The buyer has already made a decision that they want your home. They have spend the last several weeks thinking about their new lifestyle in their new home. Thinking about everything they can do to make it their own and how beautiful their new life will be. Hopefully their agent has prepared them that they don’t have an expectation or guarantee of their RR being accommodated. If this is the case, then my job is to just make sure that all of the positive Mojo the buyers feels about their new home and life doesn’t get derailed by them not feeling heard.
At this point in the process the buyer wants to move forward. They are spending upwards of a million dollars or more for a home and realistically will spend $10,000’s more in making it their own. So the RR is less about the absolute dollar cost and more about communicating fairness.
Are there a few things on the list that can be fixed in almost no time and at no cost. If so agree to fix these items. Are there items on the list that can be fixed for $50 or $100? Then offer the buyer a dollar credit for those items. Most repair requests can be handled for not much money and still keep the buyers happy.
A Dollar Credit is ALWAYS your Best Bet
Agreeing to fix items is almost always a dicey proposition. I only ever have my seller agree to fix something if we absolutely positively know that it can be fixed and that the issue is very black and white. Often times RR call out a condition and not necessarily the solution. If a repair is negotiated how should it be fixed, by who and in what manner. These are all gray areas. Then there is still the inconvenience of having to get somebody to do the repair and get it done on time without it opening up more issues. This is the last thing a home seller needs to add when they already have their plate full with moving and finding a new home. A dollar credit is simple, efficient and doesn’t allow for misinterpretation. Almost always seek this solution.
Be Willing to Call a Buyers Bluff
Finally, the most important item to restate is that you as a home seller or listing agent need to call the buyers bluff if necessary. They can ask for the world and if they do, they are not realistic buyers. You want to get rid of these buyers and not negotiate with unreasonable buyers. If the repair request is from reasonable buyers, it maybe skewed in the buyers favor. Remember, the buyer has no expectation of having items fixed. If they are requesting a $4,000 credit and you agree to fix a couple small inconsequential items and give them a $1,500 credit, will they walk away for $2,500? Very unlikely. I will even go so far as to say that if they did walk away from a $750,000 purchase for only $2,500, then they were never really buyers in the first place.
If your agent doesn’t understand this dynamic, they won’t be capable of negotiating on your behalf. Beware of the agent that negotiates from fear. Most agents do very little business and don’t know how to negotiate from strength.
The real purpose of the physical inspection is for the buyers to have an opportunity for full disclosure and learn more about the property they are purchasing. Every single home needs maintenance and upgrading. It is not the sellers obligation to correct or fix deficiencies. An inspection is not an opportunity to re negotiate the sale. It is primarily an opportunity for a buyers to proceed with a purchase with their eyes wide open. This greatly reduces a sellers potential legal liability, as now the buyer completes the purchase with full knowledge of a professional inspection.
Do You Have Questions about Your Home?
Please don’t hesitate to call should you have any questions about items that you may think need fixing. I have negotiated over 1,000 home sale contracts, have 30+ years in the business, a mechanical engineering degree and general contractors license, built and rehabbed many homes. I am uniquely qualified to answer your home fix up / preparation issues. Consultations are free with no cost or obligation. Call John 562 572 2296.