Repair Negotiations - What is Reasonable?

September 4, 2008

I continue to be amazed at the number of agents who cannot grasp a simple concept when it comes to repair negotiations and who respond to reasonable, normal requests as if the sky is falling. My concept of reasonable is, in a nutshell, what would an ordinary buyer and seller consider reasonable, and what is fair to both parties?

In Texas, buyers have two bites at the apple when negotiating the terms and conditions of a residential real estate purchase. The initial negotiation is focused mainly on price and closing date. But your home isn’t necessarily sold just becuase it goes under contract. It has to survive the inspection and “Option Period” before we consider it a “hard” contract. That involves, in most cases, a second negotiation resulting from inspection items.

The second, final negotiation is completed during the Option Period after the buyer has had an inspection of the home performed. The buyer may then seek remedy or compensation for latent defects or repairs that were unknown and/or undisclosed at the time the initial contract was finalized. The buyer, through a final proposed amendment, essential tells the seller “if you agree to these additional terms and conditions, which are a direct result of the inspection or other discovery, we will waive our Termination Option and proceed to closing”.

Sellers in Texas have no contractual obligation to make any repairs whatsoever, period. All homes are sold “as-is”. However, a seller can refuse to work with a buyer on repair issues at risk of the buyer terminating the deal and seeking another home in better condition, or with a better price/condition relationship.

Sellers and their agents often fail to consider the fact that, if they let the current buyer walk away, the next reasonable buyer will probably ask for the same or similar repair remedies. In other words, those tree damaged roof shingles, leaking A/C coil, rusted out A/C drain pan, plumbing leaks and other items are not going to disappear upon the next buyer’s inspection. Furthermore, the next buyer may be even tougher in their requests than the current buyer.

So unless the buyer is completely unreasonable, ridiculous and over the top in the requests being made (as can indeed often be the case), it’s almost always going to be in a seller’s best interest to work with the buyer and make the deal happen - but to a limit.

This would be a lot easier if all buyers, sellers and agents had a common viewpoint or opinion of what constitutes “reasonable” repair requests. I have my own concept of what reasonable is, and I advise buyers and sellers according to this approach. But we often run into agents and buyers or sellers who have different ideas about what constitutes “reasonable” requests. When that happens, the final repair negotiations can become difficult, normally because of emotions, and sometimes deals fall apart because our buyer walks away from the unreasonable seller, or our reasonable seller tells the unreasonable buyer to take a hike. This isn’t a good outcome for either side, but neither is an outcome that is not win/win, and which has one party succumbing to the unreasonable demands of the other.

So what do I consider reasonable? Let go over it and see if you agree.

For Sellers:
If you are selling a home and you list as the included components of that home items such as a sprinkler system, central air and heat, gas range, etc., AND you have furthermore noted on your Seller’s Disclosure Notice that all of the major mechanical items of your home are in good working condition and without defect, it is not unreasonable of your buyer to request that the home be delivered at closing as it was represented at the time of the initial price negotiation. This, to me, is reasonable.

So, if the inspection reveals that the sprinkler system has multiple leaks and broken heads, it’s NOT unreasonable that the buyer asks for it to be repaired, or for a price adjustment to fund the repairs after closing. The buyer may in fact have picked your home over another just because of the sprinkler system, for crying out loud. And now you want to pucker up, get angry and say, “well, I’m not paying to fix that”? Why should the buyer pay, I ask? You said in your Seller Disclosure it was working, which was a misrepresentation of fact. You need to fix it or pay the cost of fixing it to the buyer at closing.

If it turns out that the HVAC system that you represented as working and without defect instead is found to have the a leaking condenser coil, is low on freon, and the drain pan is rusted through, it’s not unreasonable that the buyer would want that system returned to good working order prior to closing. And it’s not unreasonable that you, the seller, absorb the cost of this remedy, even if it means having the unit replaced with a new one.

You represented these items as being in good working order and the buyer did not factor in these potential expenses when she agree to the final sales price. It is therefore not reasonable to expect a buyer to pay the necessary costs to remedy items that were misrepresented by you (knowingly or not) or to absorb the financial consequences of your neglect and failure to properly maintain your property and its equipment. By not properly maintaining your home while you owned it, the maintenance expenses remained in your pocket. You don’t get to keep the money you thought you saved by not properly maintaining your home. You’ll have to spend it now, plus some, to put things back into order for the buyer.

When presented with a repair amendment based on this logic, or way of thinking, neither you nor your agent should, in my opinion, become angry or insulted. There is nothing unreasonable or insulting about a buyers request to cure items that you represented as being in good working order and which negatively affect the value of the home.

For Buyers:
The Option Period is intended to be a period of time during which you can have the home inspected and verify that the home does not have latent defects or condition items which could not have been anticipated or assumed based on the visible condition and/or age of the home. You want to make sure that the home doesn’t have “big ticket” mechanical and condition repairs, which may affect you financially in the near term, and which you were not aware of when you agreed on the sales price.

Examples would be failing or near-failing HVAC equipment, plumbing leaks, damaged roof, leaking roof, foundation issues, non-functioning appliances, dangerous electrical or mechanical conditions, etc.

Should such items be discovered, the value of the home has changed. A $200,000 home that contains potentially $12,000 in urgent deferred maintenance is no longer worth $200,000. It can easily cost $5,000 to $10,000 to replace a bad roof. It can cost $2,000 to $8,000 to repair/replace failing HVAC equipment. It can cost $500 to $1,000 to put a neglected sprinkler system back into proper working order.

All of these items must be mentally added to the price you are paying for the home, and it’s our job as your buyer agent to make sure you understand the TOTAL cost of purchasing+owning the home and to prevent you from paying too much.

It is not unreasonable as a buyer to seek remedy or price adjustments for such items. Additionally, items not functioning at the time of closing are excluded from the Home Warranty you are receiving from the seller when you purchase the the home. So don’t let the seller or agent tell you “the Home Warranty will replace that after closing”. It won’t. It has to be fixed. It has to be in working order at closing to be covered by your home warranty, otherwise, your coverage will be void and you will be stuck paying for the new A/C system.

What is Unreasonable?
What IS unreasonable is to expect a seller to cure low level, knick-knack repair items. No home is perfect, and any home you buy will have minor defects and problems. Even newer homes have minor problems and defects. The older the home, the more of this you should expect and be prepared to accept without fuss.

It’s unreasonable to expect sellers to cure code items in older homes, when those items were not required at the time the home was built. We had a buyer on one of our 1970s listings once send a laundry list of requested repairs which essentially represent a remodel and code upgrade of the entire home to present day standards, including the entire electrical system and all the aluminum wiring. That was a ridiculous request and, as we suspected, both the buyer and the agent were newbie first timers who knew nothing about the home purchase or inspection process. Our seller of course refused and the buyers missed out on a great home which someone else quickly purchased with no fuss over the inspection (the house was in fantastic condition for its age).

Yes, the inspector may flag things on the inspection as “safety” issues, such as missing GFI outlets, or the flex gas line supplying your furnace (which really should be converted to solid pipe at your expense after you buy), but that’s the way the house was built when it was new, it met code at that time, and the seller did not agree to “upgrade” or modify the home to current building standards when your offer was accepted. When you choose to buy an older home, you should know and accept this, and your agent should help you understand what to expect.

Most agent, buyers and sellers are in fact reasonable. We tell sellers before accepting an offer that you should mentally be prepared to give up at least $500 in repair concessions if asked and justified, so factor that into the price you are willing to accept. It simply lubricates the deal and keeps things moving, as we know we will almost always receive some sort of repair request no matter what.

Same with buyers, we tell you that you should be ready and prepared to accept at least $500 in needed repairs that a seller may not be willing to cure, plus the smaller knick-knack stuff and code upgrade items. Factor that into the price you agree to pay so you won’t have to get stressed out when the seller balks at or counter-offers your repair request items with less than you deem is fair.

Finally, there can be exceptions, to what is ordinarily considered a “reasonable” repair request. If the buyer has absolutely hammed the seller on price right at the outset, you can’t come and hammer them again on repairs. Likewise, if the seller holds out for at or above market value, full price on the sale, expect to be a bit more flexible on the repairs, as the buyer will want the full price home to be in fuill price condition, which means no major problems.

If everybody would approach their deals this way, there would be fewer instances of buyers and seller letting emotion and unreasonable expectations infect and derail what could otherwise be a win/win, smooth transaction. I’ve experienced listing agents literally act like someone off their medication when presented with normal and well justified repair remedy requests. Same with buyer agents when told that the seller isn’t going to do free code upgrades to the home for the buyer.

They breathe heaving breaths of dismay, “well, I just don’t see how your buyer can be asking for anything at the price they’re paying”. And I’ll say, “The agreed price is fair market value and doesn’t factor in all of these unknown defects and mechanical issues. That changes the value of the home”.

Some agents, frankly, let their ego get in the way, and make all sorts of comments about the request before they’ve even presented it to the seller. I understand, and it happens to me too (though I refrain from initial comment to the other agent until I talk with the seller). I want my seller to receive the best price possible, and I feel personally distressed at the prospect of that not happening.

But the transaction isn’t about me or my ego. It’s not my decision as to what terms and conditions the seller is willing to accept in order to keep the deal moving. So I simply present the request, offer my opinion as to it’s reasonableness, and let the seller decide. I wish other agents would do the same.

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