In most states that use a standardized purchase contract like Florida, the home inspection is done after the contract is signed and before the expiration of the inspection period, typically 10 or 15 days. If the buyer decides to back out during the inspection period, the buyer may do so for any reason.
In contrast, in the unique NYC market home inspections are typically done prior to contract signing so that buyers go into a binding contract “with eyes wide open.” Since the buyer is the one who pays for the cost of the inspection, the NYC model is clearly more advantageous to the seller.
As you can imagine under either model, the buyer will be tempted to try to re-negotiate the deal should the home inspector find defects that the buyer was previously unaware of.
We’ll discuss strategies for how to counter offer after a home inspection, what’s reasonable, and how to legally execute any concessions from the seller.
A good home inspector will always include an estimate for fixing or replacing a defect that he or she finds, along with a total figure for all repairs. You will typically find these figures towards the end of your home inspection report.
However, it’s up to you to determine whether the figures that are quoted are reasonable or not. It is possible that a home inspector may have inflated the cost figures in an effort to please you, so that you’ll have more ammunition when you try to re-negotiate your deal.
On the other hand, you’ll have to also watch out for unreasonably low estimates if an inspector assumes you want the deal to happen.
Examples of repair costs that are unreasonable
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Pull the NW toilet and replace the wax ring. The toilet is leaking at the base. Thermal scanning shows the area to be wet. $50 (more likely closer to $200)
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Repair damaged cabinet drawer at the North side of the master bath. Drawer does not close correctly. $1,000 (more likely closer to $100)
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The valve at the master tub starts to leak at the tub spout when switching from cold to hot water. I also notice that the spout does not fully extend over the tub so the spout needs to be moved inward. $150 (more likely closer to $600)
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Your strategy for how to counter offer after a home inspection ultimately depends on the competitive dynamic. Who has the power in the relationship, the buyer or the seller?
If the seller has multiple back-up offers and other buyers chomping at the bit to buy the property, then the buyer probably doesn’t have much bargaining power when it comes to re-negotiating after the home inspection. In this situation, any attempt to re-negotiate will be rejected, and the seller will call the buyer’s bluff on walking away from the contract.
If on the other hand the seller doesn’t have any other interested parties, and this is apparent to the buyer, then the buyer may credibly be able to threaten to walk away from the contract if the seller doesn’t agree to the buyer’s re-negotiated offer.
However, buyers will need to be careful about actually cancelling a contract if they intend to try again in the near future.
That’s because cancelling the contract means the seller will be able to take the listing out of contract and start showing it again, which can be a bad thing for the buyer if he or she thinks the purchase price is a bargain.
Furthermore, putting a listing back on the market means that new interested bidders might appear and completely alter the competitive dynamics, especially if the buyer has his or her heart set on the property.
Pro Tip: Sellers will have an information advantage over buyers on how many competing potential buyers and offers there actually are. Buyers typically have no way of verifying how active listings actually are, and the validity of other supposed offers. As a result, just a listing agent mentioning that they had another showing the day you submitted your offer can alter a buyer’s mindset.
Has the real estate and stock market gone up or gone down since the contract was signed? Although the real estate market is unlikely to have changed significantly during the 10 or 15 days of the typical inspection period, the stock market is likely to have changed somewhat due to its higher volatility.
If you’re in a seller’s market, and inventory continues to tighten with no relief in sight, then it’s less likely that the seller will agree to any fixes or credits you demand as a result of the inspection.
If the stock market is up after you’ve signed the contract, then you’re in a good spot assuming you haven’t sold equities yet to fund your purchase.
The seller in this case will also be less likely to accept any re-negotiations as they know that other potential buyers now can afford to pay more.
On the other hand, if the stock market crashes after the contract is signed, then you may very well be warranted to re-negotiate hard, or pull out entirely regardless of what the seller comes back with.
If the stock market really crashes hard and you’ve already sold equities beforehand, or have cash on hand, then it may make much more sense to put that money back into the stock market instead of your current deal.
Furthermore, if you pull out, it’s much less likely that the seller will be able to find another buyer in a stock market crash. In the best scenario, you’d be able to deploy your idle cash into the market, hope for a swift recovery, and swoop back in later for a reduced contract price.
Pro Tip: Hindsight is 20/20, and it’s nice to dream about making decisions at the optimal time. We recommend taking a level-headed approach and remembering that no one can foresee the future, and timing the market is generally a fool’s errand. Remember per our disclaimer below that this is not financial advice. Please consult your financial advisor.
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Realtors will often push for the buyers and sellers to agree to a monetary credit in lieu of the seller actually fixing any defects found during the home inspection.
This is reasonable because a credit against the buyer’s closing costs or purchase price is much easier, and won’t risk delaying closing if the repairs take longer than expected.
Furthermore, having the seller make repairs generally doesn’t make sense for most people unless the seller is a general contractor or a very handy individual.
Even if the seller finds contractors to make the repairs, it can take a lot of time, effort and hassle. Repairs might require permits which might add unexpected delays to the closing process. Generally speaking, Realtors aren’t wrong to push for a monetary credit vs actual repairs prior to closing.
Pro Tip: If the buyer intends to do any renovations after closing, then it makes even more sense for the buyer’s contractor to handle the repairs all at once. It’s just much easier this way.
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Once the buyer and seller has agreed on a dollar figure for a credit at closing, it’s time to memorialize the agreement in a binding contract. Fortunately, there’s no need to sign a whole new contract as the Florida Association of Realtors uses a standard Addendum to Contract that’s quite short.
We’ve included a sample Addendum to Contract below. Note that the section in all capital letters is not part of the form, and is part of the input field that can be customized.
Addendum to Contract
Addendum No. ____ to the Contract dated ____ between ____ (Seller) and ____ (Buyer) concerning the property described as: ____ (the “Contract”). Buyer and Seller make the following terms and conditions part of the Contract:
BUYER AND SELLER AGREE THAT AT THE TIME OF CLOSING SELLER WILL GIVE BUYER A CREDIT IN THE AMOUNT OF $25,000 TOWARDS THE BUYER’S CLOSING COSTS AND/OR PREPAID ITEMS.
ALL OTHER TERMS AND CONDITIONS OF THE CONTRACT SHALL REMAIN THE SAME AND IN FULL FORCE AND EFFECT.
Date: ____ Buyer: ____
Date: ____ Buyer: ____
Date: ____ Seller: ____
Date: ____ Seller: ____
