It is an all-too-common scenario; you have found the right property, in the right location and the buyer simply wants to get a property inspection to verify what they are buying before they own it. No problem, right? Well, most of the time that is right, every property inspection will turn up some small repairs or cosmetic issues, often most of which the buyer knew about during the showing(s). However, occasionally, the home inspection turns up something more serious that wasn’t or couldn’t have been discovered without the expertise of a professional home inspector, and now it needs to be dealt with if the transaction is to move forward successfully. A professional REALTOR® will know there are two good options to handle this in the transaction when both the buyer and seller agree to move forward.
The first, and often easiest option is to simply negotiate with the seller for a price adjustment which would be equal to the amount of work to be done. This option allows the work to be completed by the buyer, at their speed, to their standards and using their professionals. The downside of this option is that although the price would be lower to compensate the buyer for the repairs, the buyer would not physically get the cash to do the work. If the buyer does not have the money to do the repairs apart from the money they need to buy the home, then you need a different option.
The second option is to negotiate a hold-back term in the contract, especially useful when the buyer doesn’t have the money to do the necessary repair. When framing a holdback term remember ‘W5H’. Answer the questions Who, What, When, Where, Whoops, and How to ensure you have covered all your bases.
Who will be doing the work?
What specific work needs to be done?
When does the work need to be done?
Where will the money be held in trust?
Whoops, it didn’t get done so what happens to the money?
How will the parties determine what qualifies as completion?
Here is a sample term that handles these aspects:
The seller, at the seller’s expense, will repair [detail what needs to be done], before [time and date when repairs need to be done]
The repairs will be done by [who will do the work, professional contractor of the seller or buyer’s choice, a named contractor, even the seller themselves] with materials and quality of workmanship equal to or better than the surrounding construction. The seller and buyer agree that [How will the buyer and seller determine when the work is complete. Ie. A paid receipt detailing the completed work is evidence of completion of this term.]
The [where hold back funds will be held. Ie. “buyer will instruct the buyer’s lawyer to hold back $________ from the payment of the Purchase Price] until [evidence of completion. Ie. “the receipt is provided.”] If [Whoops, the evidence of completion] is not received by the agreed date, [then what happens to the holdback funds. Ie. “the holdback funds will be paid to the buyer.”]
In conclusion, a significant problem discovered in a home inspection does not have to kill the dream of owning that perfect property. If you think through the requirements to move forward, all parties are in agreement, and you have the right term to ensure all parties act as agreed upon.
Provincial Practice Advisor
Bryan has many years of experience in the real estate industry including over 10 years as a former broker in the Edmonton Region.
Email: firstname.lastname@example.orgPhone: 403-209-3619