With the overheated seller’s market fading in the rearview mirror in many regions of the country, transaction protocols are morphing to meet the new realities. In our market, a significant percentage of deals over the past eight years have been “as-is” — buyers were typically told to accept the current property condition or not bother writing an offer.
As the market cools, buyers, realizing they have newfound leverage, are no longer willing to accept someone else’s issues carte blanche. They now pour through inspection reports and, in many cases, come up with lengthy lists of items they want rectified. Sellers, confronted with their demands, are pushing back with the result that increasing numbers of transactions are beginning to implode.
The question emerging with the shifting market is simple: “What are the acceptable guidelines for requests for repairs?”
It’s a timely question not only for buyers. I recently called our MLS to get data for an article and discovered a shocking fact: One-third of local Realtors received their licenses after the market began its upturn in 2011. Loosely translated, a large percentage of local agents have never written a request for repairs and have no idea what constitutes reasonable requests.
Case in point: We just received an email about a 1950s home in contract that demanded that the electrical system be upgraded to current codes; the galvanized water supply lines be replaced with copper; the interior of the garage be sheet rocked, taped and textured; the driveway be repaved and a toilet with a loose seal be replaced with a new fixture – all of which was not written on the accepted contractual form. The email went on to suggest that the buyer, in lieu of repairs, would be happy to accept a $50,000 price reduction. The seller had a suggestion or two of his own, and the transaction tanked.
What constitutes as “reasonable” when it comes to making repair requests? Here are my top seven guidelines:
1. Use qualified, reasonable inspectors
As a Realtor and licensed general contractor, I understand what I am reading in inspection reports. I am flabbergasted by inspectors trumping up minor issues to “validate” their competence. I’ve seen inflammatory reports needlessly blow up transactions. Research the inspectors you plan to use to ensure their reports are thorough and accurate but sensible.
2. Focus on the primary systems
It is entirely realistic to ask that plumbing, electrical, HVAC, roof, foundation and other primary systems be in safe operating condition. You need to be able to live without getting shocked, should have no leaks in the plumbing, be able to use all fixtures and appliances proficiently and stay dry when it rains. The heater should safely heat (no CO emissions;) the air conditioner should cool; foundations should be sturdy and all windows and doors should open, close and lock and the like.
Everything is regionally specific: Some municipalities have point-of-sale ordinances requiring that sewer laterals be in working condition, others have septic standards, there may be regulations governing wells and more. If the region dictates specific conditions be met for the sale, the seller should be responsible for the remedy. Remember that some loan programs (VA, FHA) may add specific requirements of their own.
3. Ask that pests and resultant damage be remedied
Whether termites, boring beetles, carpenter ants, wasps, rodents or other damage-inducing pests, it is reasonable to ask that the instigators be eradicated and any resultant structural damage be repaired. This also applies to water-related fungus damage.
4. Ensure health and safety items are corrected
A buyer has the right to request that any item deemed to be a health and safety issue be rectified. Some states mandate that hot water tanks be secured with seismic straps, smoke, carbon monoxide and/or radon detectors be installed, gas meters have auto-shutoff valves and other specific items.
It is important to note, however, that there can be disagreement over what constitutes a fixable issue. As an example, an inspector may call out a door that swings out over steps as “unsafe.” However, because this is a part of the home as built, the buyer should not be asking that the home’s structure be changed, even if declared less than ideal.
5. Avoid asking for system upgrades
In most areas, it is understood that homes are sold with the applicable building codes of the day it was built or the day any permitted upgrades were constructed and signed off by the local building department.
As an example, older homes may have an electrical system that is no longer in compliance with current electrical codes. Homes prior to the mid-20th century did not require electrical systems to be grounded. As time progressed, increasing consumer protection advocates instituted better building codes.
Currents codes (IBC) now mandate ground-fault circuit interrupter (GFCI) and arc-fault circuit interrupter (AFCI) outlets. Although it would be good to have these in older homes, if they are not present at the time of sale, in most areas they are considered an upgrade.
Although it’s OK to ask the seller to ensure that the existing electrical system is working correctly for the date it was built, it is usually not acceptable to request that the electrical system be upgraded to current codes.
Although it might be reasonable to ask for GFCI outlets, because the cost is relatively low, any buyer thinking that adding a GFCI outlet to an ungrounded system will remedy the grounding issue would be misinformed.
The same applies to other systems as well: You should not be asking sellers to upgrade galvanized pipes to copper or PEX, install new furnaces if the old ones are still working safely (even if they are old), seismically retrofit foundations, replace single-pane windows with dual pane products, install insulation, provide a new roof when the old one is watertight, fix cracks in sidewalks, reverse grading, French drains and more.
Some inspectors add fuel to the fire by using comments such as “near the end of its useful life” (frequently seen for furnaces) or “recommend replacement.” Buyers need to understand that if the item in question is still working correctly, the seller should not be required to provide an upgrade.
There is a caveat here: In some parts of the country, insurance companies demand upgrades be done to guarantee insurability, including replacing roofs that are past a certain age, removing specific items from electrical systems (i.e. electrical panels deemed defective) and so on. Practices vary from region to region.
6. Avoid asking for abatement
Older homes may have materials deemed hazardous, especially asbestos (ventilation or furnace ducting, acoustic ceiling texture, sheetrock mud, floor tiles, fireproofing materials, roofing, siding, some textured paints and more) and lead-based paint.
Buyers can order inspections to ascertain levels and locations of such materials if they choose. However it is generally accepted in most parts of the country that the seller will not be required to abate these items.
7. Avoid asking for cosmetic changes
Expect seller’s responses to be less than congenial when asked to make cosmetic changes to a home. I’ve seen buyers insist that houses be repainted, carpets be replaced and wood floors be refinished.
On the extreme end, buyers have demanded that pools be removed, air conditioning be installed, extensive landscaping or hardscape be provided and more. In 100 percent of the cases I have seen, these requests were not only refused, they alienated the seller in the process.
The goal of requests for repairs is to ensure that the home being bought is in safe, livable condition. While buyers have a right to ask for repairs, sellers also have the right to say “no.”
Buyers who produce a laundry list of non-critical items run the risk of alienating a seller and ending up with little or nothing. Although it’s important to get the best possible terms for the buyer, there is often a fine line between reasonable and not.
Whether you are asking for actual repairs to be made or a credit or price reduction, I’ve learned from experience that the more realistic you keep the negotiations, the better the chances of win-win solutions.
Carl Medford is the CEO of The Medford Team.