Negotiating after the home inspection.
If you are selling a home in Sarasota, FL in most cases the contract will contain a home inspection contingency. The home inspection is important because it often times sets up a second negotiation. The home inspector will thoroughly go through the home and come up with a report. The buyer will get the report and then review it. It usually occurs one to two weeks after a signed contract. What happens next, depends on the report and the contract used.
The as-is with right to inspect FAR/BAR contract allows the buyer to cancel the contract after the home inspection, if the inspection isn't agreeable to them. If the regular FAR/BAR contract is used, then there is a dollar amount or percentage of the sales price that the seller commits themselves to contributing toward general repairs, excluding cosmetic. The home inspection repair list can trigger a second negotiation.
The As-Is with right to inspect FAR/BAR Contract home inspection negotiation.
As I mentioned before the buyer can cancel the contract after the home inspection with the home inspection contingency. Every house has something wrong with it. Sometimes it's something minor and sometimes it's major. After the buyer reviews the home inspection report they will either accept it or will ask the seller to make repairs, offer a credit toward the purchase price, or just cancel the contract. Often times the buyer wants the home and will just accept it, there will be no further discussion. However, if the buyer does ask for something, this is where the second negotiation takes place.
The second negotiation can sometimes bring up bad feelings between the parties. The seller is typically under the impression that because it is an "As-Is" contract the buyer will either go forward with the contract or walk away.
The seller can become upset that the buyer would ask for repairs or a credit to the sales price. The buyer is sometimes upset because they feel that the seller may have known about the problems and didn't disclose it. In many cases it is just a misunderstanding. The buyer may have had every intention of going through with the contract without asking for repairs or a credit, but finds what they feel are major problems during the home inspection. The buyer then decides that they are going to cancel the contract, but they have a smart Realtor who asks what will it take to continue with the sale. The buyer responds that it will take a certain dollar amount, or have the seller make certain repairs. The buyer's agent then puts together a letter asking for repairs or a credit to the sales price and sends it to the listing agent. This begins the second negotiation. It helps to have experienced Realtors representing both the seller and buyer to ensure that the deal stays in place.
This negotiation can have a lot more back and forth between the parties than the sale price negotiation even though less dollars are at stake.
The regular FAR/BAR contract.
When the regular FAR/BAR contract is used, some of the most contentious negotiations can take place. I still remember the deal I had over 17 years ago when I was first getting started in the business. If the regular FAR/BAR contract is used, then there is a dollar amount or percentage of the sales price (1.5% if left blank in the contract) that the seller commits themselves to contributing toward general repairs, excluding cosmetic. The buyer through their agent and I on behalf of my seller argued until the end on what the seller was obligated to repair. I learned a lesson, and ever since then I always point out to the sellers to read that part of the contract carefully before signing the contract. That clause in the contract is neither bad or good it is just something the seller needs to be aware of. The clause might put the buyer at ease, knowing that if something does go wrong during the home inspection it will be fixed. The seller should only be concerned about the net proceeds, so if using the regular FAR/BAR contract results in a higher sales prices, the seller should be ok with it. It is just something to be aware of, and account for it during sales price negotiations.
How to prepare for the home inspection as a seller.
Now that I have given you an overview of the home inspection negotiation. I will tell you how to possibly avoid the negotiation in the first place. As a seller you put yourself in the best position to negotiate after the home inspection by preparing beforehand.
You know that there will be a home inspection before you even put your house on the market.
The best thing to do is prepare before the home inspection by trying to fix all the little things that could go wrong.
While it may seem obvious to fix things before putting the house on the market. Sellers who haven't sold many homes or are doing it for the first time are not aware of the home inspection. It definitely pays to go though the house or hire someone to go through the house and check everything out. Before the home inspection, if you find something wrong, you can use the person of your choice to fix it. After the home inspection, you may be required to use a buyer approved contractor to do the work, or provide a repair credit.
What if you can't or don't want to fix items
Sellers just don't realize that it is better to disclose than not. The buyer is going to find out about it anyway. I will give you an example, I had a seller who had something wrong with their air conditioner. They were not sure what the problem was so they felt that they didn't need to disclose. I convinced them to disclose it on the sellers disclosure. During the home inspection the A/C failed the inspection, but the buyer never asked for anything. If it wasn't disclosed the buyer definitely would have asked for it to be repaired.
If you disclose the problems upfront you will not have to worry about the home inspection. This is better for everybody. A lot of times I feel that the seller is afraid to disclose defects, because they feel the buyer will offer less money for their home. I find the opposite to be true, buyers appreciate knowing upfront what is wrong with the house. It puts them at ease. Also, from a negotiation standpoint it puts you in a stronger position, when you disclose upfront. There is nothing more powerful than saying here is a list of things wrong with the house, do you want the house or not? It can be a scary thing to do, but it works.
Another opportunity to prepare for the inspection is after the contract but before the inspection. Depending on how long the house has been on the market, items may have gone into disrepair. Or the house may need to be cleaned. You have to remember that the buyer will be there looking at the house again and possibly this time much more closely than before. You don't want the buyer to change their minds about the home. It is also psychological, a clean home will appear to be in better shape than a disheveled home. Maintenance items are good to take care of before the home inspection. If one thing is wrong it makes people think what else maybe wrong.
I find particularly on vacant houses, it is a great idea to go through the house, check the plumbing, appliances, walk around outside, check the roof for missing tile, make sure the A/C works. Taking the extra time here will save you time and money in the future.
It is important to know that there will be a home inspection and what to expect. There could be a negotiation over the the home inspection repairs, but as long as you know about it and prepare for it, there is nothing to worry about. Problems can arise when defects aren't fixed or disclosed.
If you are thinking about putting your home on the market and you want advice on what should be fixed or how to prepare for it, you can contact me.
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