Credits versus Repairs (photo courtesy of WSJ.com)
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Should I give a buyer a credit versus doing the repairs?
Dear Phyllis,
We quickly sold our La Crescenta home with more than 10 offers. The buyers hired an inspector who nitpicked our house to death. They now want some electrical, plumbing, and roof repairs made. We are trying to pack up our house of 20+ years, and I don’t want to deal with contractors right now. Do you think we can just drop the price and they can do the work after they move in? Larry
Dear Larry,
Buyer credits versus repairs come up often. Ultimately, the outcome depends on the buyer’s down payment and cash reserves, since those determine how much cash the buyer can actually access for repairs.
For example, assume you sell your home for $1,000,000, and the repairs cost $15,000. The buyer puts down 20%, or $200,000. If you reduce the purchase price to $985,000, then the 20% down payment drops to $197,000. In this case, the buyer only gains $3,000 in additional cash, which still falls far short of the $15,000 needed for repairs.
Therefore, you may want to offer a buyer credit instead of completing repairs. However, have your Realtor® first confirm allowance limits with the buyer’s lender, since lenders typically cap seller-paid credits at about 3%–6% of the purchase price. In addition, note that both a credit and a price reduction trigger a new Loan Estimate, which can delay closing.
Alternatively, you may find it faster and simpler to pay the plumber, roofer, and electrician directly from your sale proceeds. Once you know the costs, escrow can issue checks to the vendors at closing. Then, the buyer can hold those checks and pay the vendors once they complete the work. For best results, have your Realtor® coordinate with the escrow officer, since this approach usually avoids lender involvement.
Although you did not ask, remember that the buyer only makes a request for repairs. As a result, you can negotiate that request or decline it. Furthermore, if you received multiple offers, your Realtor can also contact other buyers to see if they will accept the home as-is after reviewing the inspection report.
Finally, keep in mind that a credit or price reduction reduces your liability for repair quality, since you no longer control the work once you step away from the process.
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