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Credits Versus Repairs
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,
Whether you offer a credit or make the repairs depends largely on the buyer’s down payment and available cash reserves. The buyer may not have enough funds to complete the repairs after closing.
For example, let’s say you sell your home for $1,000,000 and the repairs will cost $15,000. If the buyer puts 20% down, they will bring $200,000 to closing. If you reduce the purchase price to $985,000 instead, the buyer’s 20% down payment drops to $197,000. In this scenario, the buyer saves only $3,000 in cash—far less than the $15,000 needed to complete the repairs.
You may want to offer the buyer a credit instead of making the repairs. Before doing so, ask your Realtor to check with the buyer’s lender. Most lenders limit seller-paid closing costs and credits to a percentage of the purchase price, typically between 3% and 6%. Also, keep in mind that both a price reduction and a seller credit require the lender to issue a new Loan Estimate, which could delay closing.
In many cases, the simplest and fastest solution is for you to pay the plumber, roofer, or electrician directly from your sale proceeds. Once you obtain written estimates, escrow can issue checks to the vendors at closing. The buyer can then hold the checks and pay the vendors after the work is completed.
Have your Realtor discuss this option with the escrow officer. Escrow can often handle these arrangements more efficiently when the buyer’s lender does not need to become involved.
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 place of repairs, there is less liability over the quality of the repairs.
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