Jim Valentine on Real Estate
So, you are in escrow falling in love with your new home when the inspection report comes in with unexpected high-cost repairs. It isn’t the seller’s fault they didn’t know what was happening under the house, but it is their problem at this point.
It is not unusual to have a seller be as surprised as the buyer when they learn of a serious defect exposed by an inspection report. It can be anything from high arsenic in the water requiring a $5,000 filtration system to extensive dry rot in the subfloor and floor joists requiring a $25,000 repair. We’ve experienced both… and more.
When this occurs, several things come in to play. The first is to determine the extent of the deficiency and how much it will cost to fix. Then comes the question of how long it will take for the work to be completed. Can it be done within the time provided for the close of escrow?
If not, is the estimated time frame for completion workable for the parties to agree to an extension of the closing? You can credit for the repair amount if you know the costs and don’t need to fix to get your loan.
Then we circle back to the cost and the question of who will pay for it. Things can get sticky here… or not. For instance, if it needs a new roof for the lender to fund, who will pay. Roofs are one of the scenarios where buyers and sellers most often agree to split the cost one way or another. The thinking is that the roof isn’t new. If it were there would, arguably, be added value. The thinking usually goes along the line that the seller had years of use without maintenance and the buyer will have years of enjoyment with their new roof. The split is usually 50/50 but may go 40/60 or something similar.
It is very important for sellers to understand that once they learn about deficiencies, they must disclose them to any new buyer if the current transaction blows up. The SRPD (Seller’s Real Property Disclosure) must be updated to disclose the newfound information, or the seller can be exposed to the possibility of paying treble damages.
The inspection used for one transaction cannot be used for another. Read the fine print of the agreement with the inspector. If it is shared the new buyer has no recourse against anybody for its contents as it was not prepared for them.
If a lot of time has elapsed the condition of the home may have changed, but it would be highly unusual for the things to have fixed themselves. If you didn’t do or have the work done the deficient condition likely still remains and is subject to disclosure. Sometimes things fail after the close of escrow. It doesn’t always mean that the seller knew something and didn’t disclose it, rather it can simply be unfortunate timing. One never knows when the furnace, water heater or anything else will fail on a house. It can be a week after the close of escrow, or ten years, but it doesn’t mean there was any chicanery involved.
If price negotiations went too far one way or another at the outset there may be resistance to give more for unexpected repairs by the party that “gave the most.” Sellers have to live with their needs and disclose anything learned about the condition of the home to a new buyer. Buyers can walk from the escrow, but is it in their best interest?
Don’t get hung up on principle here, assess the situation and how it truly affects you in the long run. Don’t trip over nickels to save a dollar. Stay true to your wants and needs on both sides of the transaction. Sellers should always remember, “When in doubt, disclose!” There is nothing to be gained by “snookering” a buyer by hiding something, but you do put a lot of your assets and peace of mind at risk when you do. Don’t do it!
When it comes to choosing professionals to assist you with your Real Estate needs… Experience is Priceless! Jim Valentine, RE/MAX Realty Affiliates, 775-781-3704. email@example.com.