When Should an Inspection Kill a Real Estate Deal?

by Steve Crossland, REALTOR in Austin TX on August 31, 2006 · 8 comments

I had a deal bust last week over repair items revealed in the inspection. After the property inspection, the buyer asked for certain things to be remedied by the Seller, and the Seller refused. The buyer terminated the contract and we found them another house.

Who is dumber…a buyer who walks away from a good home over a few thousand dollars in repairs, or a seller who let’s a buyer walk away from a deal over a few thousand dollars in repairs? It depends. In this case, the seller is the dumb one.

In this particular deal, our buyer was already paying a price that was slightly above market value, which is ok in a hot area and a rising market, but after adding a bad roof and the cost of curing other items to the price tag, I felt the home was no longer a good value. The other factor is that a substitute property in the same neighborhood came on the market which was newer and priced at market value instead of slightly above. Had we been able to negotiate a better price up front on the first house, there would have been a higher level of tolerance for inspection items. The second house was newer, priced better, and ultimately had way fewer problems revealed on the inspection.

Where does this leave the seller of the first house? Now the seller of the first house has put the property back on the market and must disclose to all prospective buyers those defects and conditions that he is now aware of as a result of our buyer’s inspection. New buyers are not going to be any more accepting of those conditions than our buyers were. The seller is going to have to cure some or all of those issues anyway, or discount the price of the home to reflect its needed repairs. Either way, letting my buyers walk away over these things was not the smartest move.

Buyers can be equally dumb though when walking away from a good deal over nominal repair items. We’ve seen this happen too. If a buyer has negotiated a good price on a home and the repair items are normal and expected for a home of that age in a particular area, then we advise the buyer to stick with the deal even if the seller is stubborn about making needed repairs.

Our California buyers tell us that things are done differently in California. Apparently, they have a certain class of repairs that a seller has to make. Not so in Texas. All homes are sold as-is. Sellers may refuse to make inspection repairs but do so at the risk of having the buyer terminate the deal prior to the end of the Option Period, as happened in this case.

{ 8 comments… read them below or add one }

1 Jim August 31, 2006 at 6:11 pm

Oh but wait, the dumbest one of all is their listing agent. He should have told them exactly what you just said and advised to make the repairs. Now he doesn’t get the commission, and his sellers will be left with a sour aftertaste if this home ever sells. The agents reputation suffers. It’s subtle knowledge like this that makes a good agent.

2 Steve Crossland August 31, 2006 at 7:49 pm

Jim,

I don’t think it’s always the agent’s fault. Agents cannot always control what a client decides to do. We are there to make sure clients, be they buyers or sellers, have considered all the pros and cons of a particular decision, and to add perspective to the choices, but in the end it is the client who makes the decision, not the agent.
Steve

3 bigmouth August 31, 2006 at 10:21 pm

Ok, not all inspection negotiations were truly “urgent repair” things. I know for a fact that many buyers; agents are coaching their clients to bid high and then negotiate hard on inspections to get the price down (by either get a bunch of repairs or get the discount). I personally find this tactic unethical. Of course $$$ was almost never spelled ethically.

I’d be very surprised if a seller is putting his house on the market with “above market value” and yet the house has a noticible leaking/bad roof. Also, if the house is so out of shape, why would a buyer want to put full offer down? That doesn’t make logical sense. What’s the most likely case here is that the seller thinks that his house is in generally good shape (although most resale homes have minor wear and tears here and there), and he thinks the inspector was nit picking. So, what really needs to be examed is exactly what was on the inspector’s report. Are they really constitute repair/discount requests?

4 Steve Crossland September 1, 2006 at 7:25 am

Hi Bill,

> if the house is so out of shape, why would a buyer want to put full offer down?

Even the nicest, prettiest homes can have defects and conditions that are not obvious upon casual walk-through. Buyers don’t climb up on the roof before making offers, and they are not qualified to assess the condition anyway.

Likewise, I’ve seen “rough” looking homes check out pretty good upon inspection.

> I personally find this tactic unethical.
There is nothing unethical about a party trying to negotiate for the best deal they can obtain. Any tactic or strategy is at the mercy of market conditions and the personality and motivation level of the person on the other side of the deal.
Steve

5 Naples Florida Real Estate September 1, 2006 at 1:59 pm

I don’t think it’s the listing agent’s fault. Agents can offer real estate advice but that’s where they need to stop and let their buyers/sellers make their own decisions. I’m sure the listing agent provided advice to the sellers and the sellers made their decision to reject the buyer’s offer.

6 leo September 8, 2006 at 7:11 pm

$620,000 home. advertised as ultra high quality custom built… better than new construction.
about 25% of the windows had broken seals (some with “growth”). (home only 8yrs old)
all buyers (us) asked for was replace those 9 windows.
seller refused… contract terminated. don’t think i (as buyers agent) didn’t try everything possible to save deal…. buyers went out of their way to ignore other “inspection related problems”… the window company went belly-up a few yrs agon due to defective windows!…. i pity the sellers!

7 Kimberly September 13, 2006 at 12:25 am

How about this.
Buyer comes in and low balls, even though they know another offer is on the table. Other offer is accepted, then falls through.
Buyer comes back, responds to seller’s counter just above original offer, and changes sellers’ $5000 cap on repairs to $7000K.
Seller agrees to price and cap.
Seller’s agent insists client will respect cap (here in CA repairs must be only if things are not operable…not to bring things up to code or to new condition).
Enter into contract. Inspections done. Buyer nitpicks outside of required repairs, and above cap, and attempts to negotiate for $3K more in repairs.

Now, being that “There is nothing unethical about a party trying to negotiate for the best deal they can obtain”, at what point does the seller say ENOUGH.

It may not be “unethical” but it sure as he** is rude and a waste of a seller’s time to misrepresent your or your client’s attitude towards already agreed upon points of a contract.

And I don’t think the agent is to blame in the posted situation. Agents are go betweens and advisors, they can hardly be held responsible for the clients’ decisions. In our circumstance, we are so irritated by the buyer, we might take losing some money over having to give in _again_. Cutting off our noses despite our faces perhaps, but everyone has a limit.

8 Grant Pollet October 22, 2008 at 10:51 am

If the agent is representing the seller, he should mentally prepare his client that any known defects could become points of negotiation. Here is what I always ask myself and tell my clients as well: if the house has any many defects and is as bad as the buyer claims, why do they even want the house to begin with? You also really have to discern if you are selling to an investor or someone who will occupy the property. When the inspection results come in, this will have everything to do as to whether the owner should keep his ground or accept a lower price. For many, this is a game of intimidation. Don’t be bullied and know your limit.
-Thanks, Grant Pollet

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