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Seeing the Forest for the Trees

I received Buyers Inspection Notices today on two properties I have in escrow. One repair request was three items. The other was 15. But in both cases, the repairs made are relatively minor in nature and likely can be repaired at a minimal cost. One seller likely will agree to the repairs, the other is working on getting their arms around what is being asked of them.

Negotiating the troubled waters of a repair request is one of the bigger challenges we face on a day-to-day basis. Buyers are angling for a home in better condition than what they've already seen, while sellers often become defensive when any aspect of their home is brought into question. If they lived with it, why shouldn't the new buyers be able to do the same?

Experience has shown presentation goes a long way toward smoothing this process. You want a home inspection who will call the issues they see, but who also will keep them in the proper perspective. For example, the lack of a GFCI outlet on a back patio is an extremely minor issue. Could it potentially be hazardous? In specific circumstances, sure. But by and large, no one walking on the patio under anything approaching normal conditions is in danger.

How the issue is written often determines how the buyer will proceed.

From a sellers' perspective, nothing seems to strengthen their resolve to fix nothing quicker than a laundry list of cosmetic fixes. One of my peers once received a Buyer Inspection Notice asking for a cracked light-switch plate to be replaced. Total cost: $2. Maybe $3 if they bought a higher grade of plastic. A buyer has the right to ask for such a thing and for the home to be perfect at move-in. And a seller has the right to tell the buyer to take a long walk off of a short pier (which would include having to travel to a state with actual piers.)

The trick for a real estate professional on either side is to not allow their client to lose sight of the forest for the trees - to remember that the goal isn't to negotiate to "win" per so but to negotiate in such a manner that the buyer still buys and the seller still sells. The purchase of a $250,000 home shouldn't hinge upon a $2 repair.

Posted by Jonathan Dalton on 12/28/2006 06:15 PM

Comments (36)

repair requests, inspections, negotiating, binsr

36 Comments on Seeing the Forest for the Trees

DEC

2006

... and they'll all get their knickers in a twist over a $2.00 item. It never ceases to amaze me. I have brought more junk to a closing that a buyer took out of spite than I care to admit. It's always something trivial. They must have been the kids that were given the hand me down Barbie with a bad haircut. They're still trying to make up for it, when $500 worth of therapy could have fixed their "issue". :)

Jonathan, I NEVER show my Seller the inspection report. When the Buyer's broker sends it to me I ask them to discuss it with the Buyer and place any of the Buyer's concerns on a separate addendum and have them sign it. Then I present it to my Seller. I've found, by doing it this way, that a lot of the nit picking items disappear. The Buyers normally do not want to lose the deal and will eliminate a lot of stuff. Then the Sellers and I will come up with a cash credit figure and be done with it. The only repairs my Sellers will ever do prior to closing are lender required repairs. Other than that, cash. If there are major items we get estimates before responding. Sometimes things look a lot worse than they really are.

Another thing I have learned over the years, is that when there are major repair issues, the Sellers were fully aware of them already, but chose not to disclose them. So really, they just need to make it right and move forward. The issues will not just go away, sort it out with the Buyer you have now and get the deal closed.

I agree with Bryant, cash or credit for repairs is the only way to go and here's why.

If I'm the seller and my buyer asks me to do anything that's going to cost me money I'm going the cheapest and fastest route possible; hey I'm selling the house, I don't have to live with what I 'fixed'.

If I'm the buyer I want cash or a credit for the same reasons above. I'll fix it myself after I move in and ensure it's done correctly.

The problem with the credit is if it a major repair the buyer may not have the money to repair after closing which is why I tell my buyers to get it repaired. A $5000 credit on their mortgage does nothing for the buyers except lower their payment $10 for 30 years. Usually it some combination of both (repair & Credit)that gets the deal done.

We (Colorado) have a state approved Inspection Notice. Unless the buyer wants something done, we NEVER look at the actual report- nor do we give it to our sellers. The Inspection notice is filled out, with items that are to be repaired fixed replaced etc... signed by the buyer(s) and then the Seller can DO all the things, do NONE of the things or suggest an alternative resolution... before the Inspection Resolution date specified in the original contract. If no action is taken (the seller never signs the notice) then the contract becomes void. Further, if the buyer does not like the alternative resolution, then the contract can become void as well.

Are there any other states that have a state approved Inspection Notice and a detailed system on how to deal w/ inspections?

Good post, Jonathan, and so true. While I have not had a deal fall apart as a result of the negotiations on the inspectional issues I know people who have, and I have had several deals where this part of the negotiation was the most ridiculous, drawn out, childish display I have seen. Some folks just HAVE to negotiate and not give in no matter what, nor how absurd the issue. And in this market the intensity of these discussions has increased. Interesting to watch how things have changed - a couple years ago people would almost kill to get their hands on any house, and now they argue over minor stuff that isn't worth the time it takes to complete the repairs request form. Signs of the times...

NC doesn't have anything similar to what Mariana describes-but it sure sounds helpful! I am with BB-i present the list of repairs to my sellers, not the whole report. If I get a 'fix everything' report, I send it back and politely ask the other agent to let us know what is truly essential to their buyers. Also recommend repair allowances in lieu of repairs when I can, since buyers like to have control over who they use and such. Our repair allowances aren't reducing the price of the home-it's escrowed to a third party and appears on the HUD so it's above board.

I try to coach my buyers and sellers prior to the property inspection. For buyers: Focus on real issues, rather than maintenance issues. Expect to have to clean the furnace, clean the gutters, etc. This makes sense to them if they think about it propr to the actual inspection. For sellers: Expect a repair request, and let's plan on being fair about the deal. For both buyers and sellers: Let's keep in mind the major goal of the whole deal: To buy or sell the home. Let's keep that in mind and not let minor issues ruin the deal.

Jonathan, I think your "forest for the trees" analogy is very apt. I rarely deal with sellers as a loan officer but on occasion I have to try to change a buyer's perspective.

I once pulled 2 $20 bills out of my wallet and slid them across my desk to my borrowers who had been fence-riding for 2 days over a $35 item, with the quiet comment "There you go, problem solved". When they quit grinning, I told them "If you take this money out and buy dinner with it tonight, you won't be able to tell me a week from now what you ate". It's not important enough to risk your purchase is it? They agreed and we spent some time trash talking the seller. Everything went fine after that. They had just lost their perspective.

I agree with Don, I too coach my buyers, and sellers prior to the inspection. Buyers need to know what is important. If it is a major fix that could cause a big problem, then ask. If the home is being sold "as is" make sure your buyers are aware that this means that the seller wont or can't fix things that are in need of repair. For my sellers, when there is an offer, I prepare them ahead of time. It also depends on how motivated the seller is to sell..If it is a must to sell, sellers usually fix things... I too have already in my short career purchased several small items to appease buyers/sellers and to get on with things....

I only include pages (normally) that pertain to the repair we are requesting. I also know, If I am writing up an addendum asking for a repair that might give the sellers a causes to be defensive, I type a separate note along with it, usually trying to add things that my buyer is going to be willing to take care of on their own. Of course, this only works when there are such things.

I find it can sometimes help that before an inspection we go over the page on the purchase offer/contract again, that talks about material defects, NOT cracked light switches, etc. And what their options are. I think it also helps when sellers are advised by their agents ahead of time that something could come up, to go with the flow. Of course there are always times....right Jonathan? LOL The only difference is on new construction when nit picking is allowed and expected lol

I am always slightly amused when I have a seller who then becomes the buyer; on the selling side they want no repairs out of pocket and on the buying side they can expect everything out of the sellers pocket. I try to point that out as nicely as I can :-)

When I take a listing I cover inspection with the seller, I have a good idea what are some big items that could come up. My recommendation is to have an inspection done; and fix things before putting the property on the market; testing,water, septic etc. If this was not done the seller would still be prepared to deal with the issue. When working with buyers I do the same, this makes it easier to negotiate.

Jonathan

The Forest for the trees syndrome have been around with all of us for many centuries. We can't understand why the client can't quite get it. I guess it's up to us to bring focus to what's in it for them. Great post.

Ken

When small issue come up it is normally the my fault for not educating the client. While it nice and easy to say the client is crazy, the reality is I didn't prepare my client for the home inspection correctly if they are worried about small items.

Ken Smith I have to agree; I had to learn the hard way!

BB - In Florida can you offer cash in lieu contractually or is it like here where it's commonly done but not really provided for anywhere in the contract? Just curious ...

Jim - I agree with you and BB. If I have the buyer, I would rather go the credit route if possible so they can have the peace of mind of knowing it was done right. If I have the seller ... well, if we can get it done inexpensively, then we'll do it. The buyers' idea of cost may not match what my handymen and contractors can do.

Jamie - we have an inspection notice. Inspections are the property of the buyer. But if they send me a copy, as this buyers' agent did, I may do with it what I choose. In today's case, the BINSR came only with line items mentioned and nothing more - I was left to sort through the inspection report and try to divine what the request may be. In once case, the inspector's note was for the buyer to check it out themselves. What are my sellers supposed to do there?

Leigh - I've gone the hybrid route where I've received an estimate from my handyman, he gets a check in escrow and doesn't get paid until the work's done. Allows for the close to still happen and for the repair to take place.

Carole - I agree with you but technically, who's to say what is a material defect in the mind of a buyer?

Ken - depends on the side of the table. If I'm the buyers' agent, we discuss the point of the inspection and the type of items that can be and likely ought to be requested. If I'm the sellers' agent, it's more like I'm playing free safety. I have a rough idea what may be coming and can even guess ahead sometimes, but in most cases I'm going to have to read and react.

I put it this way to my sellers tonight -- a few things came up we never would have expected. But a lot of things that wouldn't have surprised us in the slightest weren't on the list (disclosed on the SPDS but never made the BINSR.) Also, by following my advice and not fixing anything between the contract date and receipt of the BINSR today, they've already saved money on items they wanted to work on that the buyer never asked for.

Cheap outlet plates only run about $0.89, and that's in downtown Chicago. That's not my real point, of course. the bigger issue isn't the little nitpicky stuff, it's when the list has thousands of dollars in previously unseen issues - toilets that aren't sealed well and have led to rotten underflooring, leaky kitchen sinks that need to have the plumbing repaired...and the cabinet that hides it, cracked granite countertop that costs five grand to replace, etc. that the seller refuses to acknowledge or deal with. As far as I'm concerned, if there is an inspection period in the contract (which usually has a minimum cost issue hurdle, so it won't matter how much the outlet plate costs because it is less than $250 and it isn't a major appliance), the seller better be ready to remedy some things if they are found because if they don't they are (again, as far as I am concerned) in breach of contract. Enforcing this, of course, is nearly impossible without a lawsuit that would be ridiculous to file, so we're left hoping for reasonableness on both sides, which isn't always a given. This is when closings get hostile!

It doesn't make sense probably for a $150,000 sale, but for $1MM + homes, I like to have an inspection in advance, so the expectations can be set and little things even dealt with before the buyer's inspection. What's $300 to a $1MM seller? It saves a ton of hassles and frankly allows fair expectations and disclosure if something is found that the seller simply refuses to fix (like the leaking settlement crack in the foundation that costs $20k but will never get past the buyer's inspector - it's better to find it, disclose it and make sure the price that is agreed to is reflective of that so the seller doesn't have to say no later).

DEC

2006

Jonathan the education is for both sellers and buyers. You never know what you will get out of a home inspection, but you can always prepare your clients. My sellers are told to expect to have a list of bs items that aren't even covered by the home inspection clause, these items will normally end up being under $500. The seller is to expect that these items will be requested an to make the buyer feel good we will give them a far dollar amount to cover the cost of doing the repairs. Normally the amount is way less than $500 and my sellers are money ahead as they factored $500 into the net number when we negotiated the price.

They are also told to allow for some more major items. These items are ones that no matter what they will most likely have to take care of. It could be a credit or they might have to do the work. At this point we talk about the condition of the house and what will be a good ballpark number to expect. They understand that they will have to address at least some of the major items as there other option will be to kill the contract. If they kill the contract the same items will come up on the next inspection and still have to be addressed.

This process takes about 10 minutes and saves many headaches. Prepare for the worst and hope for hte best.

How about when a seller accepts a lesser offer and then refuses to da anything else, figuring they buyer is paying for the repairs with the reduction.

I always say the reason we make the big bucks is because of what goes on after we open escrow, not the process of marketing or selling a house or even helping a buyer find their dream - no the real work is after the paperwork is signed and holding it together till the end.

John Occhi, Hemet Realtor
www.JohnOcchi.Com

I almost forgot - Most of our sellers offer a 1-2 year home warranty which usually appeases any inspection items. I do not know how these warranties work in other states though...

The key point here seems to be in proper education of both seller and buyer. A few well-chosen words of description to the buyer can go a long way to avoiding problems with the inspection reports. Although I must say that we all hate negotiating the dreaded reports. It's just a part of the business process that we must learn to deal with.

Mariana, I suspect your home warranties work pretty much the same way the ones in other states do.

In the case of home inspection items would not most of those things be pre-existing conditions and not covered by a warranty (unless of course yours applies retroactively) ;-).

At times you do walk a thin line since these issues can become emotional. I write a lot of VA loans where the appraisers have to be a bit picky. I tell the buyer and the agent to look hard at these issues to avoid making an offer that will be shot down by an apprasier. They can also eliminate homes that need a lot of work.

HAving sold a few houses, I have the agent I list with bring her office in before it goes on the MLS. They each get a pad and pen and I tell tehm to tell me the big ugly. They know I'll list with them so they are brutally homest. I fix and flip often and I am still surprised at some of the basic stuff that i miss from time to time.

Tired eyes, I guess.

When possible, I prefer to have the seller conduct a home inspection before placing it on the market. If not, our office provides a home warranty.

Most times, the sellers inspection provides as John wrote above "the big ugly" then allowing me enough leverage with the seller.

Another fine example of how blogging can be so educational 50% post 50% comments. I love it

Mariana - here in California our process of requesting repairs is similar to yours. Pretty formal, and forms go back and forth until there is agreement of some sort. If the purchase is contingent on a home inpseciton then the report is provided to the sellers. Buyers may decide to not request anything tbe fixed. A home warranty is also provided, paid by the seller, and is negotiable in the amount as part of the initial offer to purchase negotiations.

Jonathan - Great post! I believe you have inspired another post on the same topic - which I will draft later this morning. Update: Here is a link to my post - in which there are two links back to your post here. Hope that's OK with you! If not - then "edit" me!

Johnathan,

This is so true. I never have a problem with what an inspector finds. However, the manner in which the information is presented can be troubling, as you have pointed out.

Write a therapeutic post and watch it strike a chord ... I love Active Rain!

There is a home warranty on the house but, as Jim, mentioned it doesn't handle pre-existing conditions. Now there are some companies with which we have a little more pull as a result of the business we've sent them, but that usually is reserved for our buyers not the new owners.

Jeff, Mariana - Arizona doesn't have as much up and back. Buyer sends over the Buyers Inspection Notice/Seller Response form during or at the end of the 10-day inspection period. Seller has five days from date of receipt (actually the count starts the next day) to respond. If the seller isn't agreeing to all repairs, buyers has five days to accept/reject the contract. That's it. No cash credits (those these often are handled on an addendum), no further negotiations.

Suzanne - link away! And while you're at it, don't forget about Arrowhead Ranch Living and Westbrook Village Real Estate. Tobey's looking a little thin ...

Washington state is similar to Colorado and California. We have a formal inspection addendum. It is a structrual and mechanical inspection report. Occasionaly you will get cosmetic items, but our MLS has done a pretty good job of stating that it is not for cosmetic items. There are formal time periods in which Buyers & Seller must respond. When the inspection addendum is sent over by the Buyers they include the corresponding page of the insection report as backup documentation (proof). Repairs can be made, or not, or cash can be credited ILO repairs.

Hey Jonathan,

Sorry it took me so long to get back here. Our contract states that the seller is responsible for structural/mechanical repairs up to a certain amount and WDO repairs up to a certain amount. Depending on what contract we use it is either 3% or 1.5% percent of the purchase price for each. Normally lower limitations are negotiate. It states that the repairs will be done prior to closing OR the funds will be escrowed. During repair negotiations is when we suggest the cash credit in lieu of and this goes on a separate addendum. In my market where buyers rarely have any money they prefer the credit unless it is something very major or a lender required repair that would have to be done prior to closing. Usually a lender required repair is related to WDO.

Great discussion you started here. Good job.

BB, are you saying your listing agreement requires sellers to do that or your standard purchase and sale contract?

Gabriel, The purchase contract. Also, inspections are not mandatory.

DEC

2006

Our bigger job is to NOT let the seller get ticked off about simple fixes. I would bring the plastic light plate and a screw drive with me and put it on when we came to that item. I'd cross it off and say ONE DOWN!!

JAN

2007

This is an incredibly "touchy" subject and we try to councel our customers on how to address such inspections before they even happen. We have had several issues in our farm area of Miami Shores because homes are from the 20's to the 50's and inspectors come out and find all kind of building code violations to 2006 standards. These homes are over 50 years old (the GFCI outlet is a perfect example). The building code has changed and the buyers need to know that most of these homes are not up to today's code. Thanks for the post Jonathan.

Ines

JUL

Just curious about Washington State, if seller does not respond to inspection will it void the contract?

Thanks for your help

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