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FAQ: Can a home buyer negotiate credits or repairs during escrow, for example after the home inspection?

December 26, 2008

Ripped from the headlines or rather the Trulia Question and Answer section, the question is:

Can a home buyer negotiate with the seller during the escrow process?

YES!

All aspects of a real estate transaction are a negotiation. However, what type of negotiation you'll enter into and how successful you'll be totally depends on both the details of your particular purchase and the attitude/competency you, your agent, the seller and the listing agent have towards the negotiating process.

Check out this flow chart describing the process for a typical real estate purchase, whether a Bernal Heights single family home or a Inner Mission condo.

In San Francisco, where many good real estate agents abound, the home buyer is likely to receive a "disclosure package" before making the offer to purchase. The "disclosure package" will contain positive and negative information about the property's condition, location, etc. Many will have a recent "Pest Inspection" and/or "General Home Inspection" from a reliable, local inspection company.

Ask your agent for their opinion of said company... (Note: Yet another reason it is so prudent to work with a local Realtor who works full-time in real estate and does enough business to be up-to-date with inspectors' reputations, not to mention has fine-tuned negotiating prowess!)

If you receive an extensive and accurate "disclosure package" you may not discover any new, material items during your own inspection period. You may find that you are happy with the property and want to move forward with your purchase. (Note: Even if you receive an inspection report, it is almost always a good idea to have an inspection contingency in your contract and to hire your own inspector for a second opinion.)

But, what if you do discover something during the inspection. What happens then?

If you have an inspection contingency in your purchase contract, you can:

  1. Cancel the contract, receive your initial deposit back and begin house-hunting again.
  2. Accept the condition of the property, remove your contingency and move forward with the purchase.
  3. Negotiate with the seller (through your agent) for repairs and/or credits.

If repairs are mutually agreed upon, typically, they are completed prior to the close of escrow. For your protection, stipulate that you want a "walk through" after completion but before the close. If the repairs require permits (and that's important to you), make sure that's in writing too. Basically, you want to be as clear as possible on what you are agreeing to....

If credits are mutually agreed to, typically, you will receive the funds towards your closing costs at the close of escrow. Sometimes, the credits are doled out directly to a local contractor. For example, I recently negotiated for my buyer clients to receive a free roof from the sellers. My buyers chose the roofer and we had the sellers pay him directly at the close. There are rules around credits so check with your mortgage broker to make sure all is kosher with the lender.

If you ask the seller for a credit or a repair, what are her or his choices?

The seller can through her/his agent:

  1. Cancel the contract and look for a new buyer.
  2. Accept your request (in writing) and move forward with the sale.
  3. Counter you with terms that are acceptable to them (and hope you will agree).

In my opinion, a home buyer should enter into escrow with "good faith." You like the property. Your intention is to buy it. You do your best to make an offer that you find acceptable based on the information available to you (disclosure package, comparable sales, etc). Unless something new and material emerges, you are happy to move forward and make the property your new home. Nothing is perfect. Not your house, not your job, not your marriage and not even a brand-new construction condo! 😉

That said, negotiation plays a crucial role in the real estate process and there are many occasions in which you will want to negotiate for a credit or repair. In today's market, the home buyer has more power. These days, I am able to get my clients credits or repairs.

The playing field is more level and savvy buyers should take full advantage and get the best deal they can.

The key, however, is not to negotiate for negotiation's sake. Some folks just want to be confrontational and have a fight. Personally, I think this causes ulcers and ultimately, doesn't get us what we want out of life. Different strokes for different folks, of course. So, if you want a hot-head, let me know! I'll send you a list. 🙂 If you want a tough negotiator who is fair, reasonable and keeps her eye on the bigger picture (i.e. getting you the house you want with the best terms possible and keeping your money, time and sanity safe), I just might be your gal.

Well, I hope that answers the question of whether you can ask for concessions after a home inspection. If you have more questions, let me know. I am ready, willing, and able to answer them!

One last thing, here's another situation where a home buyer may negotiate while in escrow: the appraisal.

Recently, I helped first time buyers buy a house in San Francisco. They wrote an offer to purchase a house for $650,000 which was accepted. We wrote an appraisal contingency into the contract which said that the property had to appraise at no less than the purchase price.

The appraisal came in at $600,000!!!! Even though there were plenty of "comps" validating $650,000, the lender's appraisal was zip code wide instead of sub-district. This meant that a much less desirable neighborhood was included as comps for the value. (Think Zillow!)

Ultimately, I was able to negotiate with the sellers and have the purchase price reduced. This, my friends, was the negotiation to end them all. It was a proud moment for me, let me tell you! Kinda like when your Dad tells the story of his winning touch down from 30 years ago...well, that'll be me on this one. My buyers got a sweet deal. Often times, the calm, friendly yet tough negotiator gets the bird. And, without one hissy fit if you can believe it.

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View Full Street Address SAN FRANCISCO, CA 94114 (415) 528-7355 ©2008 VIVRE REAL ESTATE. ALL MATERIAL PRESENTED HEREIN IS INTENDED FOR INFORMATION PURPOSES ONLY. WHILE THIS INFORMATION IS BELIEVED TO BE CORRECT, IT IS REPRESENTED SUBJECT TO ERRORS, OMISSIONS, CHANGES, OR WITHDRAWAL WITHOUT NOTICE. ALL PROPERTY INFORMATION, INCLUDING, BUT NOT LIMITED TO SQUARE FOOTAGE, ROOM COUNT, NUMBER OF BEDROOMS, AND THE SCHOOL DISTRICT IN PROPERTY LISTINGS SHOULD BE VERIFIED BY YOUR OWN ATTORNEY, ARCHITECT, OR ZONING EXPERT. IF YOUR PROPERTY IS CURRENTLY LISTED WITH ANOTHER REAL ESTATE BROKER, PLEASE DISREGARD THIS OFFER. IT IS NOT OUR INTENTION TO SOLICIT THE OFFERINGS OF OTHER REAL ESTATE BROKERS. WE COOPERATE WITH THEM FULLY. EQUAL HOUSING OPPORTUNITY. ALL INFORMATION DEEMED RELIABLE BUT NOT GUARANTEED AND SHOULD BE INDEPENDENTLY REVIEWED AND VERIFIED.
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