This is a continuation of my previous post What To Do When A Buyer Wants To Renegotiate The Sale. Here are four out of several renegotiating milestones sellers may encounter and how they can minimize risk:
1) Seller Disclosure Statement
The seller disclosure is a list of basic facts of the home as well as any material defects. Generally buyers will have an opportunity to review and approve the disclosure prior to closing as a condition of sale. Per Washington State law, the buyer can disapprove the disclosure within 3 days of receipt, terminate the agreement and get their deposit refunded. A “get out of jail free card” like this could invite a buyer to attempt a renegotiation. There is little a seller can do during these three days to prevent a buyer from walking because of the law. The best tactic to minimize seller risk is to deliver the disclosure as early as possible in the sale process.
2) Preliminary Title Reports
The title report lists potential defects with the seller’s ownership of the property. It also lists covenants, conditions, restrictions, liens and other items that may affect the property. Buyers typically have a contingency that enables them to terminate the agreement if the title shows a problem that interferes with the sale of the property. Usually the seller has a time period to cure the problem before the termination. Like the seller disclosure, prevention is the best medicine. Review the title of the property before offers are received. Cure any problems that show up early. If they can’t be cured, or there are unusual conditions, disclose to the buyer upfront when receiving an offer.
3) Inspection Reports
The inspection phase by nature contains a renegotiating process. This is the most common place renegotiation happens. Inspectors are hired by buyers to ensure that the home they are purchasing doesn’t have any hidden problems that even the seller may be unaware of. A negative inspection report can give a buyer an opportunity withdraw or renegotiate. To avoid surprises, consider a pre-inspection of the home. By dealing with any negative issues in advance, the home will have a cleaner bill of health for the buyer. Or, the seller and their real estate agent can pre-plan a negotiating strategy for what the buyer may ask for and what the seller will agree to. Be aware that any issues discovered during a pre-inspection will likely need to be disclosed to a buyer whether the items are fixed or not.
Over 90% of buyers will utilize financing to purchase and that will likely involve an appraisal. In today’s market, appraisers and banks are very cautious when assigning fair market value to a home. The result is an appraisal can come in lower than the agreed upon price. If this happens, the buyer will likely demand the price adjusted downward to appraised value. To minimize seller risk, price the home correctly in the first place. Use the same common criteria that appraisers use in their reports. Appraisers commonly use criteria such as closed sale prices within 90 days, close proximity, similar condition, room counts, size, etc. Second, have the real estate agent prepared to provide the appraiser with the comparable sales that were used as a basis for the listing price, as well as notes on any improvements that have been done to the home that would not necessarily be obvious.