Get a few Realtors together, and the talk inevitably turns to how difficult it is to hold deals together and get them to a closing. I like these 'hiccup' chats, because they hehlp us get a handle on the rough spots, and pick up suggestions on how to smooth them out.
The big 'rough spot' in deals that a lot of my colleagues are talking about is not what you think. It's largely not the appraisal and financing, which a lot of folks think is the problem area. It's the home inspection. I've had a couple of deals this year fall apart at this point in the process, and so have a lot of other Realtors I've talked with. And if a deal does hold together, more ill will between buyers and sellers results from the inspection than any other point in the process.
So why has this step, which used to be fairly routine, become so treacherous? The reasons rest on both the buyer and seller side. On the buyer side, they're very focussed on value, and zero in on the least expensive properties in any given category. So if there are, say, 4 lakefront houses between $250K and $350K, it's the lowest priced ones that grab their interest. But the lowest priced houses in any category often have more problems and issues than higher priced ones. In the push-pull between 'good deal' and 'good house', good deal usually wins out.
The problem arises when buyers substitute "and" for "or" in the good deal/good house equation. Buyers are negotiating hard and tough to land the deal at a rock bottom price. But in many cases, after the inspection, they're coming back to the seller with a list, sometimes a long list, of items to be repaired, or a price adjustment made.
Experienced Realtors here have a pretty good grasp of what will and won't float in post inspection negotiations over repair items. Unless a house is marketed in handyman condition, or clearly "as is", there is widespread agreement that there are five items that fall into the seller's ballpark to repair or mitigate — failure of a well water test, elevated radon levels, an observable septic failure, evidence of wood destroying inspects, and presence of an underground oil tank (although this last one can be the subject of fights that would make even Virginia Wolff wince.) But then you get into gray areas, particularly major systems that are close to but not quite at the end of their useful life, like boilers, water heaters, roofs or septic tanks that haven't failed but will likely need to be replaced in the next two or three years. Then there's usually a laundry list of more minor items, like clogged gutters, non working GFI circuits, inadequate grading away from the foundation, double tapped circuits in an electrical panel or the lack of an exterior vent for a clothes dryer. Lastly, there are often recommended upgrade items, like basement insulation, gutters or more electrical outlets in a kitchen.
The 'rough spot' usually don't result from the items generally seen as a seller responsibility, but rather from the rest. Sellers largely feel they've been beaten into submission on price, are "giving their house away". Instead of being grateful that they have a deal on their house that may have been on the market for a year or two are more, are resentful. It doesn't matter what comes up during the inspection, they're digging in their heels and aren't willing to give another inch.
Buyers, on the other hand, don't feel they're stealing the house. They feel that they're paying a fair market price in this market, and expect the same give and take over major repair items that buyers in a more robust market did. A related factor is that at moderate price points, buyers are usually younger (under 40) first time home buyers with more limited resources. When an inspection turns up a major item that will need replacement in the next year or two, like a roof (which can run upwards of $6,000), it causes them concern because they didn't anticipate or budget for that kind of major outlay when they made their offer. In a lot of cases, they just don't have it.
As a result, we can end up in a stalemate between buyers and sellers at the inspection point. Sometimes it's just not possible to break that stalemate. I had a situation a few months ago where the buyers and sellers developed such animosity towards each other over what amounted to a few thousand dollars in repair requests (on a house with a deal price upwards of $350K), that they buyers just walked.
Some of the responsibility for these stalemates or deal failrures does rest on us, the Realtors, for not setting expectations. On the seller side, the agent should make sure that the seller leaves a little on the table when agreeing to a price. If their 'bottom line' doesn't have some give in it for inspection concessions, say 2% of the asking price, the deal could fall apart. Buyers probably need to be better counseled that they're buying a 'used' house, and should be prepared, when making their offer, to anticipate 2% of the purchase price in 'deferred maintenance' over the next year or two. That would give us a 4% spread to work with, or $10,000 on a $250,000 house. Anything that comes up during inspection that would be way outside of that cushion would be something that needs to be addressed, particularly if it's a major systems issue that was not disclosed by the seller prior to the buyers making an offer.
On both sides, the agents involved need to anticipate the inspection earlier in the process, and not have our head in the sand that there won't be a round of post inspection negotiations.
