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Home inspection requires list of repairs, should seller lower cost of home sale price, problems include wood rot, broken window thermal seals, leaky roof, electrical and plumbing repairs, and front yard drainage problems
Do you expect for a home seller to adjust the price of their home accordingly when inspections turn up a list of repairs that are needed immediately? (i.e. roof, furnace, wood rot around windows & doors, etc....
After going back and forth several times, we finally have a contract on the table for a bank owned property that has been vacant for some time. This house looks nice on the inside but is in dire need of work on the outside since it has been neglected for quite a while.
The inspector discovered.....
1. A significant amount of wood rot around every single door and window
2. Broken thermal seals on several windows
3. A couple leaks in the roof which has reached the end of it's useful life and needs immediate replacement.
4. Various smaller but needed repairs to electric and plumbing.
5. Drainage problems that require re-grading in the front yard
A contractor quoted a repair cost between $10,000 and 12,000 for repairs. These do not include cosmetic fixes and upgrades.
Is it reasonable to expect the seller to either make the needed repairs or lower the sale price?
An answer immediately came to mind, and then I read the words "bank owned property". Usually it is very up front that the bank will NOT make repairs. Read the contract (there is most likely a very extensive addendum to the contract itself that the bank sent you that you were required to sign that will spell this out - in my experience, the addendum is much longer than the contract).
Usually, the sales price is determined before the contract goes into effect. Then, there's the option period or inspection period during which the buyer does their due diligence. During that period, if repairs are found to be needed, depending on how the contract is worded and how sharp each agent is, repairs can be negotiated, but NOT the sales price. You can negotiate that a certain amount of money be credited for repairs rather than having the repairs done by the seller, but that doesn't change the official sales price. What usually happens in those cases is the title company holds the credited funds in escrow and releases them as invoices for the repairs that have been done are presented by the buyer. After all the repairs are done, whatever's left is released to the seller.
This is in Texas, by the way. Real estate law and practice and custom varies from state to state.
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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You might also try an FHA 203K loan which would include the repairs to FHA standards. You would be on the hook for the repairs, but at least they would be part of the financing.
We have never purchased a foreclosure before and this is all new to us. We DID expect to spend some money on basic repair work but weren't quite expecting the long list of items the inspector came back with.
Every home DH and I have purchased or sold were such easy, cut-n-dry transactions that we were in for a rude awakening with this one. **sigh**
Depending on the type of loan you have...the house may not qualify for financing. If the roof is bad, the appraiser will note that on his report and if it is FHA or VA, they won't lend. I had buyers a few months ago purchase a "good bones" bank property that needed a lot of work. The conventional lender almost didn't lend on it because the appraiser wrote the home was in good condition, but then later commented about the wear of the house.
If the roof was dubious, you should have planned to replace that as part of your original offer with the bank. I do really thorough walkthroughs with clients on bank properties, because I have only had one bank in the past five years agree to make repairs.
There is also a conventional loan product called a renovation loan which you can use to built remodeling money into the mortgage. It's similar to the FHA rehab loan mentioned above. If the home is a Fannie Mae home, they also have their HomePath program which is only 5% down with no PMI so you could save your cash for remodeling.
When I was able to negotiate the repairs it was because the bank lending to the buyers refused to lend if those items were not corrected. So...give a copy of the inspection report to your lender/broker and have them write a document about what needs to be repaired to be lendable. Then present that along with your request for repairs to the bank.
The bank will either repair them, or you will have to terminate. At which point the bank will look for a cash buyer.
We have never purchased a foreclosure before and this is all new to us. We DID expect to spend some money on basic repair work but weren't quite expecting the long list of items the inspector came back with.
Every home DH and I have purchased or sold were such easy, cut-n-dry transactions that we were in for a rude awakening with this one. **sigh**
Does your contract state that you agreed to buy it as is, regardless of wht the inspection revealed? If it does, that's your answer, but, if it doesn't.....Check the contract, see what it says about inspections and repairs. Of course, most contracts give you the right to ask for repair or credit, and then give the seller the right to give you what you want or terminate the contract. Again, check the writing.
If these items were undisclosed, and you didn't see them before you made your offer, it's entirely reasonable to assume that the bank who owns the property didn't know of them. Now that they do, they will understand that ALL potential buyers will need to deal with them in some manner. They may be inclined to give at least some, just to complete the transaction. It's not like you agreed to one thing and then tried to change the agreement just because you thought you could. The property is not what you thought it was. So it doesn't hurt to ask. (I don't think it hurts to ask, based on what I know. If there are 4 others waiting in line for this property, and if one or more of them doesn't need the repairs done or paid for, well, that changes things.) Once you know what you will or will not be getting from the current owner, and what it will cost to make th repairs, evaluate it again. Does it still make sense to buy this property?
Does your contract state that you agreed to buy it as is, regardless of wht the inspection revealed? If it does, that's your answer, but, if it doesn't.....Check the contract, see what it says about inspections and repairs. Of course, most contracts give you the right to ask for repair or credit, and then give the seller the right to give you what you want or terminate the contract. Again, check the writing. If these items were undisclosed, and you didn't see them before you made your offer, it's entirely reasonable to assume that the bank who owns the property didn't know of them. Now that they do, they will understand that ALL potential buyers will need to deal with them in some manner. They may be inclined to give at least some, just to complete the transaction. It's not like you agreed to one thing and then tried to change the agreement just because you thought you could. The property is not what you thought it was. So it doesn't hurt to ask. (I don't think it hurts to ask, based on what I know. If there are 4 others waiting in line for this property, and if one or more of them doesn't need the repairs done or paid for, well, that changes things.) Once you know what you will or will not be getting from the current owner, and what it will cost to make th repairs, evaluate it again. Does it still make sense to buy this property?
1. It was an "As Is" property but there is a clause in the contract that allows for inspections and the right to terminate if there are "Any Material Defects."
2. Their disclosure form stated that the house had not been lived in by the seller and that they were unaware of any defects.
We did notice the windows with broken thermal seals and suspected the roof would need replacing in about 5 years. The house is on a hill and is a 2 story so we couldn't inspect the exterior frames of the windows w/o a 24' ladder.
Although we expected to have to do some things, we weren't aware of so many issues. Our offer was with the expectation that the house was in a little better condition than it appears to be.
My agent has not been encouraging when I said that I thought we should ask the bank to cover part of the expense to make repairs. I thought that was reasonable to at least ask but he seems to have reservations. Since this is a foreclosure, I just wasn't sure what would constitute a reasonable expectation.
I bought a bank owned property w/ and FHA loan. There were numerous things wrong with the house, and of course the bank didn't budge on repairs. A new experience for me, as well, but once I realized how good of a bargain it was, 10k in repairs didn't seem so bad after all.
The main repair that was needed was my roof, which had an active leak in various parts. I didn't have any problem obtaining the FHA loan even though the roof needed replacing. I had to provide proof of deposit for the roof repair, however. Good luck!
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