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Ask Phyllis: Should I give a buyer a credit vs. doing the repairs?

ASK PHYLLIS SHOULD I GIVE A BUYER A CREDIT VS. DOING THE REPAIRS

Credits vs. Repairs (photo courtesy of WSJ.com)

Ask Phyllis is a blog series of frequently asked real estate questions.  Have a question about real estate?  Email us here

Dear Phyllis,

We quickly sold our La Crescenta home with more than 10 offers.  The buyers hired an inspector who nitpicked our house to death. They now want some electrical, plumbing and roof repairs made.  We are trying to pack up our house of 20+ years and I don’t want to deal with contractors right now.  Do you think we can just drop the price and they can do the work after they move in?    Larry


Dear Larry,

That will depend on the amount of their down payment and cash reserves. They may not have the funds to pay for the work themselves. Let’s assume you sold your home for $1,000,000 and the cost of the repairs is $15,000. The buyer’s down payment is 20% – $200,000.  The renegotiated purchase price is $985,000 and the 20% down payment is $197,000. In this scenario, the buyer’s only net $3,000 cash dollars, far below the $15,000 needed for repairs.

You might consider a credit to the buyer in lieu of repairs. Have your Realtor® first check with the buyer’s lender.  Lenders will only allow a certain amount of seller paid closing costs or credits (typically 3% – 6% of the selling price). Note that both a credit and price reduction will trigger a new Loan Estimate which could result in a closing delay.

It may be simpler and faster for you to pay the plumber, roofer and electrician through your sales proceeds. You will need to know the dollar amounts and escrow can simply cut a check to these vendors at closing. The buyer can be given the checks and pay the vendors when the work is completed. Have your Realtor® check with the escrow officer as this is most simply done without the involvement of the buyer’s lender.

Although, you didn’t ask, keep in mind that the buyer’s request for repairs is simply that – a request. You may be able to negotiate the buyer’s “wish list”. Or because you had so many offers, your Realtor® might check with some of the other buyers in order to determine if they would accept your home AS IS after reviewing this buyer’s inspection.

Another aspect of the credit versus repair issue is that if you opt for a credit or purchase price reduction in lieu of repairs, there is less liability over the quality of the repairs.

-Phyllis

Have a question about real estate?  Email us here and we’ll try to answer it in our next column. 

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