Seller Should Pay at Least Token Repair Amount

by Steve Crossland, REALTOR in Austin TX on January 6, 2012 · 6 comments

We recently had a transaction where the seller refused to negotiate any repair adjustments. None at all. This is actually not completely unusual, but most of our buyers do receive at least a small amount to offset repair and condition issues that were revealed by the inspection and not disclosed on the Seller’s Disclosure form.

But on this particular transaction, the buyer received a favorable contract price. The seller felt that the home was a good deal as-is at the contract price and was unwilling to offer anything else. Buyer was ok with that, so no problem.

But then the listing agent wanted to buyer to go ahead and terminate the Option Period in writing. Buyer had no motivation to do so and didn’t want to give up that right, so the seller and agent ended up having to fret and worry (needlessly) for an additional 5 days. This could have been avoided if the seller and agent had been willing to give up at least a token amount toward repairs. Here’s why.

Most transactions do in fact have a “2nd negotiation” or “repair negotiation” following the inspection. I haven’t sold a “perfect” house yet. Even brand new homes produce a list of deficiencies that need addressing. The offsets or allowances for repairs are most commonly cured by agreeing to an amount to be inserted into paragraph 12(a)1b of the sales contract, via a final amendment.

That paragraph is the “buyer closing costs paid by seller” paragraph. So, if buyer and seller agree to a $500 offset in lieu of repairs, $500 would be inserted into 12(a)1b and would thus reduce the cash buyer brings to closing by $500, which is essentially the same as the seller giving the buyer $500 at closing toward repairs. We do it this way because it’s cleaner.

Also on the final amendment is a checkbox terminating the buyer’s Option Period. So, this 1-page final amendment works to seal the deal, so to speak. Buyer says to seller, via the amendment, “you give me some money to help with these repair costs and I’ll terminate my Option Period and we can move forward”. That’s a fair trade.

In the example about which I am writing, there was no repair allowance, thus no final amendment. Yet the seller and listing agent still wanted the buyer to terminate the Option Period prior to the end of the 10 days. Our response was “the termination of the Option Period is normally done in exchange for some repair offsets on a final amendment, and since there is no final amendment, the Option Period will just expire on the date provided”.

Still, agent and seller fretted and worried about the fact that it was still technically not a “done deal” because the buyer still had 5 days to “change his mind and cancel”. This is where, if I was listing agent, I would advise the seller to offer a small repair amount, which would be addressed in the final amendment along with the termination of the Option Period.

Most sellers probably don’t worry this much about it, but if you’re a seller who does like a sense of conclusion to the repair phase (Option Period) and you want to know that the buyer is ready to move forward, then be ready to give up something in exchange for that certainty, even if it’s just a token $100 toward repairs.

{ 6 comments… read them below or add one }

1 Chris January 8, 2012 at 6:10 pm

I’ve ran in to similar situations, but with the Buyer ready to terminate because the Seller’s unwillingness to compensate for items that came up in the inspection. You’re lucky you had an easy going Buyer that was OK with not getting anything in return and realizing the price was in-fact a good deal. When the Seller is unwilling to move and the Buyer is ready to terminate, i usually try and work with the listing agent and see if we can contribute something to save the deal. It doesn’t make any sense to lose thousands over a few hundred.

2 Steve Crossland, REALTOR in Austin TX January 9, 2012 at 9:09 am

Hi Chris,

In that situation, I’ve resorted to sending a termination notice (provided buyer is in fact willing to walk away over unresolved inspection issues) along with an Amendment which, if executed and returned by seller, would terminate the termination (rescind the Termination Notice).

We put a void date/time on the Amendment. This protects the buyer by actually terminating the contract, but allows the seller a last chance to change his mind. But as you know, an 18 year old home that turns out to have original roof in bad shape, malfunctioning HVAC systems, original water heater and appliances can easily have $12K to $18K in near-term replacement/repairs waiting to happen.

This could be avoided if we had and used better Seller Disclosure Notices that required the seller to list the age of all major mechanical components instead of leaving it to the buyer to go in and discover all that during inspection.

Steve

3 CD January 9, 2012 at 11:46 am

I can understand the sellers point of view. Homes that are selling are selling at steep discounts. Many times the seller has given all they can.

On the flip side, the listing agent could have gotten a backup offer and put lots of pressure on the buyer. In my area that happens a lot.

4 Chris January 12, 2012 at 2:10 pm

Wow, I never thought of approaching it like that. Thanks for that great tip in regards to submitting amendment with termination and your points are right on.

5 Chris Adams June 7, 2012 at 1:37 pm

With my sellers, I insist on a clause which includes up to $1,000 allowed for repairs. This is usually negotiable at closing, with the trend usually allowing $750 off closing totals for repair.

6 R.D. June 21, 2014 at 9:13 am

Help! Please! I was suppose to close on a house 3 days ago but on the final walk through I see that the seller attempted to spackle holes on every wall in the house and painted over the poor spackling job with paint that did not match. This was done after the contract was signed. Now I feel I am being pressured to close saying the work will be done after closing. I am concerned that it will not be done or it will be done poorly and after closing I will be stuck with paying for it. Can you advise me what I can do and still be within the law in tx?

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