By Ken Yee
During the course of due diligence (which I have discussed in my previous article), a Buyer will very likely uncover issues related to the property that requires repair. The issues can be minor or major depending on the nature of it. One would expect that the Seller will address those issues uncovered by the home inspector, but that may not necessarily be the case. As I mentioned previously, the Seller is not obligated to do any repairs, unless the purchase contract specifically noted that the Seller is required to address those repairs. So, if the Seller refuse to entertain your repair request, shall you back out of the purchase contract? Well, let’s explore a few different scenarios before you decide if you should back out of the contract.
Scenario 1: Will the Seller consider giving you a credit in lieu of repairs? This is typically the direction we advise our Buyer clients to pursue. It creates convenience to both the Buyer and the Seller. Make sure your real estate agent has a good grasp of the nature of the repair so the magnitude of the problems and the cost can be accurately determined for the repair credit. If a satisfactory repair credit can be worked out between the Buyer and the Seller then there is no reason for the Buyer to back out of the contract.
Scenario 2: What is the approximate cost of the repair? If it’s a $200 problem, then I’d say it is not a big enough issue to cause the contract termination. However, if it is a $20,000 problem, then you will most likely want to re-consider your offer and see if it still makes sense for the sale to move forward. If the repair items are minimal and Seller refuses to address those items, ask if the Seller is willing to provide you a home warranty to help absorb some of those potential repair cost after the purchase.
Scenario 3: If you are on the fence with the repair costs then what shall you do? Well, in this scenario, I would advise you to do a reality check. Let’s review the deal from a factual perspective by asking yourself the following questions: Is it the Seller’s market, or is it the Buyer’s market? What are the other options out there if you were to back out of the purchase contract? How much do you really like the house? Are the repairs critical or are they optional? How will things impact you financially if you were to pay for the repairs yourself after closing? What are the consequential costs you will incur if you were to back out of this purchase contract? Will the consequential costs be higher than the cost to repair those deficiencies? Once you have these key questions answered, you should pretty much have an answer to help you determine the direction you need go with the purchase contract.
My name is Ken and my wife is Bee. I’m a Civil Engineer turned real estate investor and my wife is an IT Professional turned Realtor. Feel free to drop us your real estate questions at gat@gaiantimes.com.
DISCLAIMER: This article is written based on our personal and professional opinions. We are not certified financial advisors and are not qualified to provide financial or legal advice.
