Let’s pretend there’s been a return to Before Times standards and buyers are no longer vapidly waiving pre-purchase home inspections. A person or couple accepts an offer for their home and the home inspector finds some repair work that either the buyers or their lender insist are non-negotiable, and the repairs are going to be done before the house closes.
So how does the current owner typically pay for the agreed upon repairs? Does the money come out of the sale price? Or does the current owner need to have a pile of cash already at their disposal to pay for the repairs?
When I sold a home in 2004, the buyers inspector found some minor termite damage, not active, and two damaged electrical receptacles. Cost to repair was about $400 which I paid. I was getting my asking price and a reasonably quick closing, so I didn’t feel badly hurt.
Back in 1976 when I sold my 1st home the inspection turned up a few problems. I made the repairs before the escrow closed.
in 2021 When I went to sell my home, I had the inspection done before putting the house on the market. !st I had the inspector correct his mistakes, Then I made a few minor repairs. Then we put the house on the market. A smart seller has the house inspected 1st, that way there is no surprises.
And again in 2021 when I purchased a new home, the inspection turned up a lot of discrepancies that the seller had not disclosed before the sale. We asked for a $17,000 credit to repair the discrepancies after closing. Seller went ballistic and refused any credit. We canceled the sale. Over night he came to his senses and ask our agent if there was any way the sale could be completed. Would we make any adjustments to the credit. I told our agent we would drop the required credit to $15,000, my wife and I had talked. But I also told my agent this is not a negoation, it is a yes or no deal. The buyer accepted the offer.
Anyone who buys a house without an inspection had better plan on spending a lot of money making repairs after purchasing the home.
And a smart seller has the inspection done before putting the house on the market.
I’m not experienced in this area, I’ve only owned one home in my life and I’m still living in it. However: for large, costly repairs I believe most real estate brokers have funds they can lend you to make necessary repairs, at a “nominal” rate of short-term interest, and they will take it back out of the sales price. This is in their interest because a fully repaired home will command a higher price and therefore increase their commission.
You could also apply for a short-term loan from any lending institution, using your equity as collateral. That would also be repaid directly out of the sales price, as it would constitute a lien on your house.
When I bought my house in 2003, the seller and his agent were also there at the inspection. The seller grumbled under his breath the whole time about having to make the small repairs. It was annoying but I didn’t hold it against him. He had owned the house for 50 years and kept it in wonderful condition, which has served me very well. The repairs were done before we closed.
This is essentially two separate scenarios. In the “before times”, one scenario would be that the seller would agree to remedy the repairs themselves. How they fund it is also…more or less their deal. Financing (short term) is an option, maybe the seller also just has enough cash to resolve it themselves, maybe the seller is a handyman and can do most/all of the repair work themselves etc. The specifics don’t matter much for the deal other than–the seller gets the repairs done. In this scenario the sale price is not going to be affected at all.
Another scenario is that the seller declines to make the repairs for various reasons, but says essentially that they recognize the need for the repairs detracts from the value of the home, so they make what is called a “concession” on the sale price. Meaning let’s say they accepted an offer at $275,000, your home inspector found repairs that market cost is around $10,000 to perform. The seller does not want to perform the repairs, but is willing to offer a $10,000 concession on the sale of the home to make it right.
Note that sort of the typical “flow” in a “typical” non-hypermarket era of real estate is:
Prospective buyers tour a home
Prospective buyers find a home they like, and decide to put in an offer.
The sellers decide to accept the offer, at this time it is typical for an “earnest money” deposit to be required. This is money that is held in escrow, put in by the buyer, that the seller keeps if the buyer withdraws for a non-contingent reason after that point.
A home inspection is now typically performed. Remember the contingent reasons the buyer is allowed to withdraw? The purchase contract almost always would contain language saying if basically anything was found by the home inspector, the buyer can now back out and keep their earnest money.
Everything related to the home inspection is actually a negotiation at the end of the day. In the before times market, many sellers would decline to make concessions on repairs, and the buyer was left with a take it or leave it scenario, often times they’d leave it. Not every seller in a normal market needs to move the house in days or weeks, in some markets it was common for homes to take 4-6 months to sell. Depending on the severity of the repairs, the damage could affect the value of the home and cause issues with the mortgage financing, but that will depend on the financial particulars of the buyer and a bunch of other factors specific to the transaction.
I live in the UK.
I bought my first property in 1986 and naturally had it surveyed before ever making an offer (so your ‘Before Times’ must be long ago!)
In 1988 I was offered a great job elsewhere, so sold the first property and started looking for one near my new job.
Having found a suitable property, I got a survey. The report said the house was in good condition, except that the damp-proofing in one room needed replacing. A local damp-proofing firm quoted a reasonable price and the seller effectively paid it (by knocking the charge off the cost of the house.
I have bought four houses (in three states), helped my parents buy and sell over a dozen properties and I am married to a real estate agent. I have never heard of any such thing.
When I put my house on the market, I’d done a few necessary repairs first, and had money set aside for anticipated things the inspection would find.
The buyer who agreed to my asking price wanted to closed asap. In exchange for rushing the closing (which I really had no part in) he agreed to forego a home inspection and signed paperwork to that effect.
It’s whatever is agreed upon between the seller and buyer.
When my wife and I were buying our house in 2006, a radon check revealed a basement level above the EPA’s action limit. We asked the seller to pay for and install a radon mitigation system, about $750 at the time. She hadn’t yielded very much on her asking price in the first place, so she was willing to pay out of her pocket for the radon system. It was a bit of a seller’s market at the time, but since she was so close to completing the sale, she figured it was better to accommodate us than to let us go and wait for another buyer (especially since a new buyer would probably have the same concerns).
She (or more probably her late husband) had also done some questionable home improvements, one of which was the miswiring of a bathroom outlet, somehow feeding it from two different breakers. When our home inspector reset the GFCI outlet, there was a phase-to-phase short (POW!). We insisted she call in a professional electrician to sort things out. Don’t know how much it cost her, but she paid.
When we bought this house the numbers from the quotes for some minor repairs of stuff from the inspection were included in the sales contract as the seller’s costs and deducted from what we paid them. The actual repairs were made after closing.
The way the purchase went, we had a substantial non-refundable down payment in our offer, they could have just said “that’s not our problem, break the contract if you want”, but they were nice people. I find US real estate practices nuts. North Carolina practices doubly so.
Seller always has the option to tell the buyer to go pound sand. Of course the buyer can back out at that point but if the market is hot and the seller feels the sale price was fair as an as-is transaction they can tell the buyer to take it or leave it.
It’s funny you should post this; I literally just this morning had our first meeting with our realtor to get our house listed for sale.
Our realtor has a program that offers 0% short term loans to cover any moving costs: inspections, repairs, staging, moving, storage…a very long and broad list. The seller just mades a sweeping estimate of those costs and gets a debit card in that amount. The realtor takes the money back at closing, out of the profits from the sale.
Let’s say during the sale, the inspector says “the house needs the shingles replaced - they’re all curled and leak.”
Now, let’s say the owner has no intention of selling, but discovers “Damn! The roof leaks a bit, the shingles are past their rated lifetime! Time to re-shingle.”
Same thing only different. The owner has to find the funding to pay for the repairs to the house they own. Savings? Personal loan from bank (or others)? Remortgage? Second mortgage? Rich uncle Bob? One way or another the owner has to acquire money to pay for the repairs. The only extra option a person selling their house has, as others mention, is to knock a bit off the price and let the buyer handle the repairs.
Note the word “mortgage” implies a lien on the property recoverable at sale or repossession, whereas a loan does not.
Of course, if the owner owes so much on the home that she could not be approved for a loan or remortgage, then they probably are equally screwed if they lower their selling price below what they owe the bank.
Then we would move on to the OP asking a different question - “What if you can’t sell the house for what you owe the bank?” (Glub, glub…) If the bank wouldn’t give the owner a personal loan, why would they allow the sale of the property effectively converting the difference into a personal loan with no mortgage lien attached to any property? At this point the bank is the one who is screwed. They are better off floating a loan or remortgage to avoid further deterioration of the property. Or the owner walks away and lets the bank repossess and deal with it.
Yep, our realtor did too. I’d be surprised at any realtor who didn’t have that kind of thing available these days. We didn’t need it, but a realtor would be crazy to let a few thousand dollars of float for a few months get in the way of a close.
I’m going to make a wild-ass guess this involves the realtor having an arrangement with a bank? Plus one way or another, the loan is tied to the property (like a workman’s lien?) So the deal is pretty safe and secure for the realtor.
I think that guess is probably on the mark, but I don’t have any info about it since we never did it and I never saw the paperwork. I doubt the realtor is taking the financial risk here.
When we bought our house in 1990, it was empty, and before closing, we had some work done via a “decorating agreement”. Part of that included fixing a couple of things that were on the seller. One of those was that the inspector noticed a broken shutter; when our guy when to fix it, he found they were ALL falling apart, so he fixed them all. The agreement said “shutters”, so when we got to closing, we presented the entire bill.
Seller was a Realtor who had bought the house on a guaranteed sale 9 months before, had overpriced it then, and had been gradually lowering the price since, until it was reasonable and we bought it. So he’d been paying ~2K/month in mortgage, was generally not happy.
He went ballistic about the $900 for the repairs. I looked at my wife, shrugged, and stood up. Our Realtor blanched, said “Step outside for a minute, I’ll straighten this out”. When he retrieved us, he said “It’s handled”, and it was. He told us later that he told the owner/Realtor “Do you want to carry this house for another six months over a few hundred bucks? Be serious!” and the guy caved.
I imagine the market being a wee bit different now would mean this would not go down the same way.
Meanwhile, we had spent thousands on paint, carpet, and other upgrades–if he’d stood fast, we would have been the ones going “gosh, can we afford to walk away?”
One of the rare times I’ve thought of the right thing to do in the moment–no Treppenwitz that day!
That’s why there are courts, and contracts. Here in Canada, the loser pay’s the winner’s lawyer bill - an incentive to be reasonable and write contracts carefully.