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A Roof Allowance is NOT A Price Reduction... Is It?

Wednesday I was asking another agent about the motivation level of his sellers and whether they are flexible on their price. The house would well suit my buyer's needs but it's a little out of their price range.

So, I'm asking this agent if his sellers are flexible on price. His answer: "Well, they are offering a $9,000 roof allowance so that's nearly a $10,000 price reduction". WHAT? I was speechless. Since when is a roof allowance a price reduction?

Isn't that like a car dealer telling you they're going to include a steering wheel so that's like a $300 price reduction? Uh... what would I want with a car without a steering wheel. Likewise, what would I want with a house without a good roof? Unless you're making an all-cash, "as-is", sale you cannot sell a house with a bad roof. In my experience, lenders will request the appraiser to estimate the roof life at about 5 years or more.

You cannot price a home at market value and consider it a price reduction by putting on a new roof!

A roof allowance does reduce the sellers net proceeds but it is NOT a price reduction... is it?

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Posted by Carol Williams Wenatchee Real Estate on 11/17/2007 10:14 PM

Comments (14)

wenatchee real estate, carol williams, price reductions, repair allowance, roof repair

14 Comments on A Roof Allowance is NOT A Price Reduction... Is It?

NOV

2007

It's a credit. Bottom line is the same, but it's not a price reduction per se. And we would not represent it as such.

best

It is if your buyer is a roofer :)

In Arizona we would negotiate the best offer for our clients on a property then perform a 10 day inspection period. During the 10 days we will come up with a list of items that need to be corrected... In your case the roof would be on the top of the list! Finally, after the items requested to be fixed is approved the property still needs to appraise. Appraisers aren't throwing high numbers out any more.

Your right...it's not a price reduction. In a Buyer's Market you better be the best priced and best home. With as many homes as we have on the market we can just pick up and go to the next property.

Negotiate hard!

The seller must have a real desirable home, or it is already priced below what the market is dictating. In this day and age I will have my clients consider all offers and certainly try to come up with a reasonable counter.

It's a credit. My commission is based on the sale price on the contract, not on the net price, after credits.

It's a credit. Good post Thanks for the info

Carol,

Yep, I'm in agreement with the others, not a reduction. And in fact if it needs a roof...that too should be considered in an offering price as a compensating factor.

lol. Don't you just love these comments? Of course it's not a price reduction, it's an allowance. Next thing you'll know is having termites is a good thing too!

Like Gary said, it all affects the bottom line. When you deal with foreclosures bottom line is all you must think about. In this case, an allowance is maintained so that it will be done ASAP, and is not a reduction.

NOV

2007

ARDELL, Good point but they still have to buy the roofing materials. Would they save 50%?

As for the roof allowance being a credit, one of my main points was the financing issue. Unless the appraiser can assure there is reasonable life left on the roof it will need to be replaced BEFORE closing. Yes, this is an expense to the seller but, essentially, they are just having the buyer finance it into their loan by not reducing the price.

In this slowing market, the home needs to be priced competitively AND in ideal condition... no leaky roofs (or other obvious repair issues). One of my buyers recently walked away from making an offer on a home that would have been perfect for them... except there was a lot of deferred maintenance. They weren't enticed by a cheaper price. In this market, you have to have both... the best price AND the best overall product.

NOV

2007

As far as the seller is concerned, the difference between a price reduction and a roof allowance is the additional commission he'll pay if it's called a roof allowance. And, yes, you need to be careful about the appraisal question -- plus, the underwriters are likely to require that the work be done before closing or that funds be held back and paid directly to the roofer within a short time after closing.

NOV

2007

Carol,

I agree with Gary's comment. It seemed to me like that is a credit.

Dave

NOV

2007

Carol, buyers have to know the difference between allowances and price reductions. If the seller wants MAXIMUM sale price he needs to fix what needs fixing. If he goes down the allowance path he will "net" less. It's his choice.

NOV

2007

I would certainly not consider it as a price reduction. It is a credit. There is a difference, although to the seller, it is less money they are ending up with so they are probably just looking at their bottom line. They may not have much room to wiggle given they need to cough up a $9000 credit. Hopefully they will move some on the price given the inconvenience the buyers will still have to go through in getting the roof fixed.

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