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Wednesday, December 12, 2012

Inspection Issues Bring Second Round of Negotiation Between Buyer & Seller

[Published Dec. 13, 2012, in the Denver Post and in four Jefferson County weekly newspapers]

Getting a home under contract is only the beginning of the negotiation process between buyer and seller. After the buyer has had the home professionally inspected, a whole new round of negotiations can begin.

Ideally, the seller will acknowledge the problems identified by the buyer and agree to fix them, but often that is not the case.

Like most active real estate agents, I have been on both sides of this drama, and it really helps if the agent for the other party — whether buyer or seller — is also experienced at negotiating inspection issues. Why?  Because the buyer and seller in any transaction need guidance on what is and is not a reasonable inspection demand.

Health and safety issues top the list of items that the seller should be expected to address. Examples could be anything electrical; gas leaks; radon levels over 4 pCi/L; clogged sewer lines; plumbing leaks; dirty or faulty forced air furnaces; hot water heaters that are obviously beyond their rated life span; rotted or cracked trusses or joists (such as on a deck); or certain foundation issues.

The professional inspector, who charged the buyer $300-400 for his report (plus $100 for radon testing and another $100 for a sewer scope when appropriate), wants the buyer to think that this was the best money he has spent because of the value of the repairs that his report might produce for the buyer. The defects listed can be very long.

Only once have I seen a buyer’s agent write in the inspection notice that “Seller shall correct all the items in the attached inspection report.”  That is simply not reasonable.  The buyer’s agent should work with the buyer to identify only those issues which are particularly important and ignore the ones that the buyer can take care of after closing.

The seller, upon receiving the Notice to Correct, can do one of several things: 1) accept all demands; 2) accept some and refuse others; 3) offer a price reduction or monetary concession in lieu of making certain repairs; or 4) refuse the buyer’s demands altogether.  The last response could signal that the seller has a back-up offer and is trying to get the buyer to terminate the contract, which the seller cannot do. The buyer's only options at this point are to let the contract die (and get earnest money back) or withdraw the Notice to Correct and proceed with the contract.  Choices 2,3 and 4 will be expressed in what’s called a “Seller’s Alternative Resolution.”  At this point, the buyer can accept seller’s response or begin negotiation. If the two parties don’t reach agreement, the contract terminates and the buyer gets his earnest money back. It is in this process that an agent’s negotiating skills are put to the greatest test.  Personally, I enjoy that part of my job.

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