You and your real estate agent have already hit the ground in search of the purchase of your new home. You’ve already seen a couple of properties and started weighing your options. Among your options, you find a gem within a conducive neighborhood and whose floor plan fits your lifestyle.
Noticing and getting interested in a home is only the start of the buying process. One of the most important stages of the property buying process is home inspection. While it might be upsetting to realize that your dream home has a pest infestation, foundation damage, or issues with the electrical appliances, it’s better to know before you can commit to the deal.
What do you do if the house needs some repairs? You can ask the seller to facilitate the repairs before you can continue with the purchase. The seller, on the other hand, can;
- Agree to repair the home
- Turn down the request
- Offer other options in lieu of repairs
Our main focus is on the last option. Sellers may offer other options in lieu of repairs when they’re running low on cash and don’t have extra to spend on the repairs. Remember, they only get paid after the closing of the sale, so they’d have to get cash out of their own pocket to do repairs.
As the buyer, a credit in lieu of repairs is beneficial since you can hire a competent contractor that you trust to carry out the repairs. It’s common to find sellers who hire the cheapest contractor to do a shoddy job.
What are the options in lieu of repairs for buyers to choose from?
Lower Price
Buyers asking for a reduction in the selling price is the most common option in lieu of repairs. For example, let’s say the total repair costs come to $4000. You can ask the seller to take this amount off the selling price so that you can cater for the repairs yourself.
This option is dependent on the type of repairs needed and the urgency. Some buyers don’t even ask for a reduction in prices.
At this stage, the seller has already accepted your buying offer. In short, you’re not in competition with other potential buyers. If the seller turns your request down, you can negotiate a smaller amount or forgo it altogether.
Whichever way it goes, always set aside money for repairs after closing. If you’re getting financing, you may speak to your lender to roll over the repair costs to the mortgage.
Closing Costs
This option works in the same way as lowering the selling price. In essence, you ask the seller to pay for the closing costs.
In typical real estate transactions, sellers cater for both agents’ commissions, which is usually about 6% of the sale price. As the buyer, you’re required to pay for everything else. By the time of the close, you’ll have to spend about 2%-5% of the sale price on closing costs, such as:
- Title fees
- Attorney fees
- Taxes
- Escrow charges
- Recording fees
- Loan origination charges
You can ask the seller to settle or contribute to the closing costs, especially if they’re not ready to adjust the selling price.
If you choose to use this option, talk to your real estate agent and lender. Some financial institutions set a cap limit on the maximum amount a seller can contribute to the closing costs.
Cash Credit
Sellers can also offer cash credit in lieu of repairs if they don’t want to reduce the selling price or contribute to the closing costs. The seller may also not want to be associated with the hassles that may come with repairing the property themselves.
How does a cash credit in lieu of repairs work? With this option, all transaction factors, such as selling price and closing costs, remain unchanged. However, the seller can offer cash credit on repairs at closing. In short, you receive a check for the repair amount, which is taken out from the seller’s check.
Before you proceed with this option, you need to check with your lender. Some loan programs and mortgage financing institutions don’t fund your purchase until the necessary repairs have been made before closing.
If you’re using a loan program or lender that might not allow the seller to offer you cash credit in lieu of repairs, you might have to negotiate further or use other options so that you can ensure the repairs are complete for the lender to fund your mortgage.
The transaction may fall through if all parties fail to find a common ground. Canceling the contract, however, is not beneficial because you have already paid for the home inspection and it might mean you need to start the house searching process all over again.
The seller also knows the issues raised will have to be addressed either way, so they might have to compromise a few things here and there.
Furniture and Appliances
The seller may offer to leave their furniture and extra appliances that were not included in the original offer behind. This offer is really suitable for sellers who’ve run out of cash to do the repairs before closing.
As the buyer, it’s a win for you too if you like the furniture since you can now stay away from the bother of buying new furniture for your new home. However, don’t expect to sell the items to get the cash back at closing for repairs.
With this option, you might have to draft a separate bill of concessions since lenders want their contract to stick to the property and the sale itself. Lenders don’t want the trouble of having to get an appraiser to put a value on all the items.
Some common items that can be included in a deal in lieu of repairs include a washer and dryer, dishwasher, refrigerators, and chandeliers. However, don’t limit yourself. Some deals have included unusual items such as livestock and fruits.
Property Warranty
You may also consider asking the seller to offer a home warranty plan that would cover your appliances and other items, such as plumbing and the HVAC system. If any of the items were to break when the warranty is still valid, the repairs would be fully covered.
A property warranty is a great option when the repairs needed are too expensive. It might not provide you with any cash savings, but you rest easy knowing you won’t have to get into your pocket if anything happens.
Key Takeaways
As you can see, discovering some issues that could need repairs in your dream home during the inspection is not exactly a loss. You could sort it by asking the seller to pay for repairs. However, this is not always possible. In that case, you can use some creative means to your advantage and settle for a win-win situation. You might want to give the seller a couple of options.
In the meantime, make sure to use the Mashvisor Property Finder to search for suitable real estate investments in any housing market. To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.