Adjusting an Offer/Price following a thorough Home Inspection

[Nir]

Hi All,

An offer I put to purchase a triplex was accepted at $6,000 below asking price of around $200,000.

However it is subject to home inspection satisfactory to the buyer.

Home inspection revealed many issues but nothing too severe. However, total estimated repair cost within 5 years is around $15,000-$20,000(!) main issues are 30 years old furnace ($4,500), replace part of roof within 5 years ($3,000), Cost to replace main water supply IF galvanized ($3,000) and gutters for entire house ($1,800). Estimates provided by the home inspector.

I was told/recommended I should waive the conditions if I want to adjust the accepted price and put a new offer.

My question is what would your final offer be following such an inspection?

- No change in price (6K below asking)?
- Additional $5K below accepted price (11K below asking)?
- Additional $10K below accepted price (16K below asking)?
- Other?

THANKS!

 

[MonteDobson]

I love these types of situations. You now have the upper hand and have a great negotiation point with the seller, especially if they are motivated.

You can either submit a new offer or amend the current offer. The key here is to clearly state your position in a detailed cover letter, or even a copy of the home inspection report, the reasons why you now would like the lower price. Go as low as you think you will need to make the numbers work. Do you think the repairs are necessary today, or can they be held off for a few years?

Worst they can say is no and then it is up to you to either walk, or accept the offer.

 

[RedlineBrett]

This is a great opportunity for you to negotiate some more $$ off. You will now get to see how smart/shrewd the listing agent and seller are! Hopefully your agent is a good negotiator as this will be critical here.

I would recommend you do up a cover letter that outlines the inspectors findings and communicates to the seller that, given the new information that you didn`t have before, you need an amended price to offset the new expenses.

I would then list all of the things the inspector found and then ask for a number. An aggressive position would be to ask them to pay for everything. A more even-handed approach would be to ask them to meet you in the middle of the inspector`s estimate.

Another tip - have your inspector re-draft his report and include hot-button words like "SAFETY HAZARD" and "SERIOUS HEALTH RISK" to the findings. that does worlds of good for your negotiating position. Also make sure your agent reminds the listing agent that if they don`t deal with you they will just end up with the same problem when the next potential buyer has the place inspected!

Good luck!

QUOTE (investmart @ Oct 7 2008, 10:13 PM) Hi All,

An offer I put to purchase a triplex was accepted at $6,000 below asking price of around $200,000.

However it is subject to home inspection satisfactory to the buyer.

Home inspection revealed many issues but nothing too severe. However, total estimated repair cost within 5 years is around $15,000-$20,000(!) main issues are 30 years old furnace ($4,500), replace part of roof within 5 years ($3,000), Cost to replace main water supply IF galvanized ($3,000) and gutters for entire house ($1,800). Estimates provided by the home inspector.

I was told/recommended I should waive the conditions if I want to adjust the accepted price and put a new offer.

My question is what would your final offer be following such an inspection?

- No change in price (6K below asking)?
- Additional $5K below accepted price (11K below asking)?
- Additional $10K below accepted price (16K below asking)?
- Other?

THANKS!

 

[Thomas Beyer]

QUOTE (investmart @ Oct 7 2008, 10:13 PM) My question is what would your final offer be following such an inspection?

..

$s have to make sense to you and seller. Whatever is agreeable. depends on seller motivation, buyer motivation, market, Dow Jones drop of that day, the weather or the amount of alcohol you or he may have consumed the night before. I`d say at least $20,000 .. maybe $45,000 .. a defective house is worth FAR LESS than one fixed up. So if it costs X to fix, at least ask for 2X for headaches, delays, inconvenience .. maybe 3X or 4X.


I would not do a new offer. You have one .. amend it. Here is what works best:

You type up a page that states:

Contract Condition Removal and Amendment to contract _______________ dated _____________

The condition stated in paragraph x.y.z is hereby waived.

The purchase price is hereby reduced by $__________________

The 2nd deposit will be forwarded within __ business days as per contract section a.b.c.

All other terms remain the same.

This is now a final contract when signed by both parties.




____________________ ________________________

your name his name

dates


................

You do NOT sign it. You fax it or deliver it. You have him (the seller) sign it first. You may find that if he is immediately accepting your counter, which means that likely your discount was not high enough. Or he might whine and change your figure, and then you decide if you like it or not.

Then you have the option to let the contract expire, or send a 2nd sheet like the first, with a higher discount.

If he signs it, and you like it, you sign.

 

[Nir]

Thank You Thomas, Brett and Monte for the Great advice!

The letter I am preparing is based on your feedback!

Brett, the "SAFETY HAZARDS" list is an EXCELLENT idea as well as asking the realtor to "remind the listing agent that if they don`t deal with me they will just end up with the same problem when the next potential buyer has the place inspected!".

Thomas, The only thing I`m a little concerned about is NOT signing the letter as you suggest as I don`t want to anger the seller too much who has already agreed to a reduction ($6K as mentioned).

Thanks again everyone, I learned a lot from your comments on the topic today and yesterday.

Regards,
Neil

 

[TommyK]

QUOTE (thomasbeyer2000 @ Oct 8 2008, 02:35 PM) I would not do a new offer. You have one .. amend it. Here is what works best:

You type up a page that states:

Contract Condition Removal and Amendment to contract _______________ dated _____________

The condition stated in paragraph x.y.z is hereby waived.

The purchase price is hereby reduced by $__________________

The 2nd deposit will be forwarded within __ business days as per contract section a.b.c.

All other terms remain the same.

This is now a final contract when signed by both parties.




____________________ ________________________

your name his name

dates


................

You do NOT sign it. You fax it or deliver it. You have him (the seller) sign it first. You may find that if he is immediately accepting your counter, which means that likely your discount was not high enough. Or he might whine and change your figure, and then you decide if you like it or not.

Then you have the option to let the contract expire, or send a 2nd sheet like the first, with a higher discount.

If he signs it, and you like it, you sign.

Thomas,

One question. So I would just type up a page with the wordings you suggested? I don`t need to use a realtor`s form? like amendment form etc?

What does "The condition stated in paragraph x.y.z is hereby waived." refer to? You mean all other conditions like financing etc is hereby waived?



Thank you.
Regards,
Tommy

 

[MikeMcCrae]

After an inspection I usually end up with a discount. However I usually deal with the same realtor and am very concerned about my position as an "expert" real estate investor. So after getting the inspection report I never try to negotiate down because of things I should see. For example an old furnace should have been noticed by you and that discount should have been in your original offer. But if the inspector finds a cracked heat exchanger then you have something that would be reasonable to discount. Or if the house has an unsatisfactory amount or type of insulation you could ask for a discount. My plan is to be in this business a long time and reputation as being fair, honest and professional by far out weighs the few extra bucks that could be made by re-negotiating when many of the problems should have been a part of the first offer.

 

[GarthChapman]

QUOTE (MikeMcCrae @ Oct 9 2008, 10:00 AM) After an inspection I usually end up with a discount. However I usually deal with the same realtor and am very concerned about my position as an "expert" real estate investor. So after getting the inspection report I never try to negotiate down because of things I should see. For example an old furnace should have been noticed by you and that discount should have been in your original offer. But if the inspector finds a cracked heat exchanger then you have something that would be reasonable to discount. Or if the house has an unsatisfactory amount or type of insulation you could ask for a discount. My plan is to be in this business a long time and reputation as being fair, honest and professional by far out weighs the few extra bucks that could be made by re-negotiating when many of the problems should have been a part of the first offer.


Well said Mike. The results of the Inspection should not be seen as an opportunistic avenue to drive the price down, but as how the Buyer gets an informed understanding of what they would not be expected to know when they placed the offer.

 

[Nir]

Thanks Mike, Good point!

Distinguishing between what you are supposed to know before the inspection and the inspection report, for negotiation purposes.

In this specific case I had no access to one of the units so could not view the furnace prior to inspection or view the roof the same way (I walked on the roof with the inspector )

However, gutters and perhaps a few other issues I probably shouldn`t include.

Regards,
Neil

 

[Thomas Beyer]

QUOTE (TommyK @ Oct 8 2008, 10:38 PM) Thomas,

One question. So I would just type up a page with the wordings you suggested? I don`t need to use a realtor`s form? like amendment form etc?

What does "The condition stated in paragraph x.y.z is hereby waived." refer to? You mean all other conditions like financing etc is hereby waived?



Thank you.
Regards,
Tommy

correct .. you do not need a realtor form, for offer or amendment. You can certainly ask him to provide you one.

You can write an offer on a napkin as long as it has consideration and is clear enough.

$6,000 discount is peanuts. Ask for whatever YOU think is reasonable. You can sign it. But, if he signs, then it is legal. You may wish to retain some wiggle room until it is final. This is your call.

With the current financing crisis a buyer with cash and a mortgage is in the driver`s seat ! This is a VERY different market than even 2 weeks ago !!!

Remember the golden rule: He who has the gold, makes the rules !

 

[Nir]

Thanks Thomas,

Regardless of the topic (home inspection...), as a buyer during times of uncertainty that`s exactly the encouragement I needed "With the current financing crisis a buyer with cash and a mortgage is in the driver`s seat!". I guess you need a little more confidence now just to be a buyer

Regards,
Neil

 

[Thomas Beyer]

QUOTE (investmart @ Oct 9 2008, 07:30 PM) Thanks Thomas,

Regardless of the topic (home inspection...), as a buyer during times of uncertainty that`s exactly the encouragement I needed "With the current financing crisis a buyer with cash and a mortgage is in the driver`s seat!". I guess you need a little more confidence now just to be a buyer

Regards,
Neil
right ! Cash is king !

banks sit on their hands .. and so do many buyers ... so a good time to buy .. at the right price only though !!!