As your real estate agent I will make sure that every offer to buy a home contains a repair contingency, a clause that states both the buyer and seller's options if repair issues are discovered during the home inspections. It's critical to understand the repair contingency; because once an offer is signed it becomes a contract that's legally binding for everyone whose signature appears. If you do not understand any aspect of an offer, ask me to explain it to you.
If possible, buyers should delay as many expenses as possible until you know what kind of repair or improvements you want to make. I will work with you to make sure you get your inspections out of the way early. This will give us time to decide how to negotiate repair issues and give us time to resolve them before closing.
It is important to remember that buyers have the advantage when it comes to negotiating repair issues. Unless the buyer makes unrealistic demands, it is usually in the seller's best interests to make repairs. Why? Because once a problem is known, it becomes a material fact that must be disclosed to all future potential buyers. Problems that are noted on an appraisal might throw up a red flag to lenders, causing them to ask for a structural inspection to verify that there are no problems with the house. The bank might refuse to lend until repairs are made
If the seller elects to make repairs before closing, take your home inspector back for a recheck as soon as you receive word that repairs are complete. Do not wait for the final walk through. You don't want to find out on the day of closing that repairs have not been made, or have been made poorly.
If possible make repairs before closing. However, there are a few basic scenarios for repairs made after closing:
- The seller can give you a lump sum at closing to cover the cost of repairs.
- The seller can prepay a repairperson to do the work.
- A portion of the seller's proceeds can be held in trust after closing and used to pay for repairs. A signed agreement should be in place to ensure that repairs are made.
The method you use depends on the complexity of the repairs. Simple items, where you feel the estimate you've received is sufficient, could probably be paid as a lump sum. Extensive repairs often uncover more issues as they progress and nearly always cost more than anticipated.
Buyers should consult with an attorney to make sure their interests are protected before agreeing to make repairs after closing.
Whether you are a buyer or a seller, save receipts and records for all improvements you make to your home, such as landscaping, storm windows, and fencing. Buyers can’t deduct these expenses now, but when they sell their home the cost of the improvements is added to the purchase price of the home to determine the cost basis in their home. This serves to reduce any potential taxable gain that may come from the sale of the home.
