Retroactive permits and other issues

[Lovehound]

Originally Posted by MikePRU

There's no such thing as a BINSR here in MA. Personally, I advise my clients to seek price reductions or even better closing cost credits when there are inspection issues. Trusting the seller to fix something can be a dangerous endeavor. Typically, they just fix it in the cheapest manner possible and go on their merry way leaving you to re-repair the issue a couple of years later.

Sounds to me like you accomplish the same end result by other means.

I would rather have a price reduction, but obviously that also cuts both agents' commissions -- and my property taxes.

Three times out of 4 my seller gave me a closing cost credit, the 4th time they fixed all my beefs.

[MikePRU]

Originally Posted by Lovehound

Sounds to me like you accomplish the same end result by other means.

I would rather have a price reduction, but obviously that also cuts both agents' commissions -- and my property taxes.

Three times out of 4 my seller gave me a closing cost credit, the 4th time they fixed all my beefs.

We get the job done. We just don't use a form to do it.

A price reduction at first blush sounds great and it certainly works for some people, but I find most people prefer the closing cost credit.

As an agent, it makes little difference to me which road my client chooses to take. Around here, the most common co-broke fee is 2.5% and after I split with my broker for every $10,000 you get off the price it only changes my commission by $100 or so. I'm not going to mislead my clients over what amounts to the dinner bill at a decent restaurant. As for property taxes, we don't assess in this state based on what your house sold for. I bought my house two years ago and it's been assessed for at least $30K more than what I paid for it since the day I bought it. The town has refused my requests for an abatement as they do for most people.

The beauty of a closing cost credit is that it actually puts money in your pocket to make the repair. Here's an example:

Let's say you're buying a house for $800K and you've negotiated that repairs required to the house have a value of $5K. Your closing costs are $10K and you're putting 20% down and financing 80%. This is a pretty common scenario around here.

If you take a $5K price reduction, the principal balance of your loan goes from $640K to $636K which monthly will save about $19 on your mortgage payment (assuming a 4% interest rate and in reality you could probably do better than 4% right now further reducing the differential). Your down payment goes from $160K to $159K and your closing costs are still $10K. So, by reducing the price your check at the closing table goes from $170K to $169K putting a whopping $1K in your pocket to actually pay for the repair. After about 18 years, the $20/month you save by reducing your mortgage payment will cover the remaining $4K you spent on the repair.

If you take a $5K closing cost credit instead, the principal balance of your loan remains $640K. Your down payment stays $160K but your closing costs go from $10K to $5K and the check you bring to the closing goes from $170K to $165K essentially putting $5K in your pocket to actually perform the repair. You'll pay an additional $19/month for your mortgage but if I recall my ECON101 there's something called the time value of money which states $1 now is worth more than $1 later. I like to call it the Whimpy Principal (for a hamburger today I'll gladly pay you next Tuesday).

But what do I know? I'm just a real estate agent. I don't get paid to think of these details on behalf of my clients.

[NilaJones]

Post #10 is excellent advice.

What is the exterior of the house made of? Ask your inspector, or your contractor if you have one, whether it would be possible to open up the walls and look at the plumbing and electricity for the kitchen, and anywhere else you are concerned about.

If so, write in your revised offer that it's contingent on you opening those walls and liking what you see. Get a plumber and an electrician to look. You don't have to open every wall, just a representative sample. It's reasonable to assume that all the kitchen wiring, for example, was done by the same person and either they knew what they were doing or they did not. But the porch may have been someone else.

I have done this, opened up walls, on a building I was making an offer on, that had similar illegal additions. It's unusual, but not against any rules of real estate .

Your inspector, if he/she is worth their salt, can tell you all the parts of the house that have been added on or remodeled, and approximate years.

[399083453]

Originally Posted by MikePRU

You're not going to bribe any of these guys in my town.

Everyone has a price. Happens all the time. The ball busters are usually the guys taking the most money.