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2019-01-21 07:04:27
Why Buyers Should Always Handle Repairs

The inspector in your transaction calls out issues with the roof. Do you try to handle the repairs before the transaction closes, or do you issue the buyers a credit and let them handle it?

For over two decades I have actively sold properties and I have learned it is always best to give the buyer a credit for the repairs whenever possible.

Here is an actual situation that illustrates why this is frequently the best possible choice.

Of all the places to leak

A home was sold to an attorney client who had a small baby. The inspector called out a roof leak on the inspection report. The parties agreed that the seller would handle the roof repair.

In the first big rain after the closing, there was a leak — right on top of the baby’s head while she was ing in her crib. Needless to say, the buyer was seething. She immediately hired a roofer to repair the leak. Once she had the repairs completed and the bills in hand, she also sued the seller in small claims court to recoup her costs.

On the day of the trial, the seller brought the roofer who had done the repairs. The seller’s contention was that he wasn’t liable since he didn’t do the work.

The judge disagreed and ruled that the seller was responsible for repairing the roof. He then ordered the seller to pay the buyer damages plus the court fees.

 

When the seller objected, the judge responded: “If the person you hired did substandard work, you have to work it out with him. The dispute is between the two of you. It was your responsibility as per the terms of the contract to make sure that the roof was repaired.”

As a Seller, do you really want to deal with this?

Dealing with nit-picky physical inspection reports

Picky inspectors are a fact of life as are buyers who ask the sellers to take care of all repairs on the report, no matter how unreasonable they are. This typically results in a great deal of additional negotiation as everyone works through the list point-by-point.

Giving the buyers a credit to cover all the work on the inspection report is one of the easiest ways to avoid an often difficult negotiation over what should and should not be fixed.

Issues with buyer credits

Although it might be a good idea to give the buyers a credit toward doing the work, depending on the amount of the credit, it can create problems with the lender.

Loan processors often view credits for work to be completed as a reduction in how much the buyer is placing down. The result is that a loan with 20 percent down that didn’t require private mortgage insurance (PMI), might be treated as a loan with less than 20 percent down. This could force the borrower to obtain PMI as well as requiring a higher interest rate.

 

 

 

Moreover, if it takes longer for the seller to complete the work through no fault of their own or if the rates increase on the buyer’s loan and the buyers no longer qualify, then the whole deal can fall apart. 

One solution is to have the closing agent escrow the funds for repairs and then release them when the buyer presents documentation that the work has been completed.

If you must do major repairs before closing …

Sometimes major repairs must be handled prior to closing. When this is the case, search for competent professionals to handle the work, make sure the seller has the receipts, and if at all possible, make sure there is a warranty that will transfer to the buyers when the transaction closes.

 

*Thanks to Bernice Ross for original content for this article.



 
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