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You’ve got a willing buyer for your home, but it’s not 100 percent “clean.” This buyer wants you to complete repairs as part of the deal. Should you make repairs when selling a home?
- Most real estate contracts include home inspections, and repairs may be part of the deal
- If an inspector finds a major issue, you can choose to repair the problem, renegotiate the price, or kill the deal
- If a buyer wants specific repairs in the offer (maybe they hate your cracked fixtures), that’s up for negotiation.
Whether you make repairs depends on how good the offer otherwise is, if you can afford to make the repairs, and how reasonable the request is.
To repair or not? That’s the question
Whether to make repairs when selling a home is a market-driven question. In a super-heated area such as Palo Alto, repairs may be unnecessary. If you live in a typical American market, the answer is likely to be very different.
Figures from the National Association of Realtors (NAR) show that in the second quarter, existing home prices rose in 161 of 178 metro areas. That’s good news for a lot of sellers. It also tells us a lot about the repair issue.
Repairs when selling
The usual idea is to market a home in “show” condition to hopefully maximize the price and speed the sale. This means taking several essential steps.
- The property must be thoroughly cleaned
- All systems and appliances must be in good working condition
- Areas must be painted as required
- Items not being moved must be donated, sold, or thrown out to create a sense of greater space
- Exterior areas must be cleaned, painted, and landscaped as required
Even with homes in show condition, many buyers still require the use of professional home inspectors. Why? Because homes are complex collections of wires and pipes. They can easily be decades old and in some ways out-of-date.
But, most importantly, there is a simple reality at work. Buyers are typically not engineers. They don’t know about construction. Houses are expensive. For an extra few hundred dollars, they can get professional assistance.
Professional home inspections
Professional home inspections are entirely common with residential sales. Every buyer wants to avoid surprise costs, failing systems, and deferred maintenance. The result is that purchase offers routinely come with home inspection requirements.
Both buyers and sellers need to look at inspection clauses with great care. What does the wording really say?
First, some clauses simply give the buyer a right to inspect the property. They do not impose any repair requirement on the seller. They do not create grounds for the buyers to back out of the deal and keep their deposit.
Second, a stronger clause gives the buyer the right to have the property inspected. If material defects are found, the seller is obligated to make repairs up to a given amount, say x percent of the purchase price or a certain dollar amount.
If the seller does not want to make the repairs, the deal is off and the buyer gets back the deposit. Alternatively, if the repairs are above a certain amount, the buyer can exercise the right to withdraw without penalty.
There are endless home inspection points and counter-points. Brokers and real estate attorneys can provide specific advice regarding how they work and how they should be written. In addition to how they’re worded, a big question concerns marketplace leverage — and who has it.
Hot and cold markets
If you have a market where multiple offers are common, “coming soon” sales are routine, and properties are snapped up as soon as they’re listed, then sellers have leverage. A buyer with a lot of inspection and repair demands can be ignored. The seller can instead just wait for a better offer.
While there are hot markets – think of Palo Alto, San Francisco, and Brooklyn at this writing – there’s a need to look at market trends with care.
The fact that home prices are generally rising in a metro area does not mean that they’re rising in every neighborhood. Some areas may be in greater demand than others.
Demand can also differ according to the type of property involved. It may be that local condo demand is stronger than the interest in single-family homes. Or vice versa.
Health, safety, and disclosure
It does happen that sellers often believe in good faith that their homes are in good condition. A home inspection showing a significant problem is then a shock. For example, approximately two million homes were equipped with aluminum wiring between 1965 and 1974, according to the U.S. Consumer Product Safety Commission (CPSC).
“A national survey conducted by Franklin Research Institute for CPSC,” said the government, “showed that homes built before 1972, and wired with aluminum, are 55 times more likely to have one or more wire connections at outlets reach “Fire Hazard Conditions” than homes wired with copper.”
Today, when aluminum wiring is found with circuits inside the home, buyers often demand a replacement. They do this because they fear higher property insurance rates or an inability to get coverage at all. Mortgage contracts, of course, require that property insurance must be maintained. So, no property insurance, no mortgage, no sale.
Rock and hard place
For sellers, the response is difficult. To repair or replace aluminum wiring is expensive. Depending on the home, this repair can cost thousands of dollars.
However, if the seller refuses to make the repair and rejects the buyer’s demand, a new problem arises. When the property is again placed on the market, the aluminum wiring must be disclosed. The issue is likely to come up again.
What can sellers do? They may need to replace the wiring to close the sale. However, if the house is in demand, it may be possible to raise the sale price. This higher price may cover some or all of the new cost.
If a seller encounters a “must-fix” and doesn’t have the money to fix it, a home improvement loan, 401(k) loan, personal loan, or credit card may get the funds needed. The good thing is that with the home in escrow, the sale proceeds should available to repay the new loan quickly.
If the buyer can’t make this happen, and the seller really, really wants the property (remember those hot markets?), he or she might be able to negotiate a lower price and cover the repairs. Or even use an FHA or Fannie Mae rehab loan to purchase and repair the property.