Real Estate Matters: Negotiating After Home Inspections

Many people have different grasps on what the concept of “reasonable” means when it comes to home repair negotiations. Basically, my concept of reasonable is, “what would an ordinary buyer AND seller consider reasonable, and what is fair to BOTH parties?”

In Illinois, 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 the purchase price and the closing date. But that is not the end of the negotiation process. The contract must also survive home inspections before it is a “hard” contract. That means, in most cases, a second negotiation.

The second, final negotiation is completed after the buyer has a home inspection performed. The buyer may then seek remedy or compensation for hidden defects or repairs that were unknown or undisclosed at the time of the initial contract. 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”. Or the buyer may choose to waive any repairs requests or credits and proceed to closing.

Sellers in Illinois have no contractual obligation to make any repairs whatsoever. 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 price. Sellers 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. So, those tree damaged roof shingles, leaking boiler or A/C, 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 or it might take months before a new buyer comes along.

So unless the buyer is completely unreasonable, absurd and unwarranted in the requests being made (as often 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 there is a limit.
This would be a lot easier if all buyers and sellers 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 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. This isn’t a good outcome for either side.

So what do I consider reasonable?

FOR SELLERS:
f you are selling a home and in your contract 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 completely reasonable of the buyer to request that the home be delivered at closing as it was represented at the time of the initial contract. This, to me, is reasonable.

So, if the inspection reveals that the sprinkler system has multiple leaks and broken heads, it is reasonable 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. If you stated in the Seller Disclosure it was working, this would be a misrepresentation of fact. You should fix it or pay the cost of fixing it to the buyer at closing.

If you represented any items in the contract or disclosure notices as being in good working order, the buyer did not factor in these potential expenses when she agreed to the purchase price. It is, therefore, 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 do not get to keep the money you thought you saved by not properly maintaining your home. Unfortunately, you must spend it now.

When presented with a repair amendment based on this logic, you should not become angry or insulted. There is nothing unreasonable or insulting about a buyer’s 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 home inspection period is intended to be the time when you can inspect and verify that the home does not have any major hidden defects which could not have been anticipated or assumed when you visited the home yourself. You want to make sure that the home is without any huge mechanical repairs, which may affect you financially in the near future, and which you were not aware of when you first signed the contract.

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 $20,000 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 $10,000 to repair/replace failing HVAC equipment. All of these items must be mentally added to the purchase price, and you must make sure you understand the TOTAL cost of purchasing and owning the home.

It is perfectly reasonable, as a buyer, to seek remedy or price adjustments for these 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 home. Thus, do not let the seller tell you “the Home Warranty will replace that after closing.” It will not. It must 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?
It is highly unreasonable to expect a seller to cure minor, petty repair items. No home is perfect, and any home you buy will have small defects and problems. Even newer homes have small problems and defects. The older the home is, the more problems you should expect there to be and, accordingly, must prepare to accept these minor items without protest.

It is unreasonable to expect sellers to cure code items in older homes, when those items were not required at the time the home was built. A buyer purchasing a home built in the 1980s who sends the seller a laundry list of requested repairs which essentially represents a remodel and code upgrade of the entire home to present day standards is absolutely outrageous. The seller will, of course, refuse and the buyers will miss out on a great home which someone else will quickly purchase with no hassle.

Yes, the inspector may flag things on the inspection report 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 purchase your home), but that is 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 these minor items.

Buyers and sellers must be reasonable throughout the process. In most cases, sellers should mentally be prepared to give up at least $500 in repair concessions if asked and justified, before accepting the initial offer. It simply keeps the deal moving along.
Likewise, buyers must be willing and prepared to accept at least $500 in needed repairs that a seller may not be willing to cure, plus the smaller trivial items and code upgrade items. If buyers factor that into the price, they will not have to get stressed out when the seller resists or counter-offers their repair request items.

Finally, there can be exceptions. If the buyer has absolutely hammered 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, expect to be a bit more flexible on the repairs, as the buyer will want the full price home to be in “tip-top 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 ignite and derail what could otherwise be a win/win, smooth transaction.

For more information on real estate matters, contact Attorney Kathy E. Bojczuk at (773) 580-1122.

 

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