You’ve survived the arduous process of negotiating price and gone under contract. Although your client might think they are home-free, you know better. There are so many ways that a deal can go south based on a tough home inspection or a low appraisal.
As a real estate agent on either side of the deal, it is up to you to fulfill your duty to your clients while also trying to manage emotions and hold the deal together, if possible. Here are some proven strategies in the event of bad news during the contract period.
What to do in the event of a contentious home repair negotiation
No matter which side you’re on, your best bet to head off a problematic post-inspection negotiation is to be present at the home inspection. Understanding how thorough the inspection was, seeing identified problems in person, and hearing questions and answers throughout the inspection can help you better evaluate the legitimacy of the inspection process and strengthen your arguments on behalf of your client.
Buyer’s agent
Many buyers want to move into a perfectly pristine home and are unwilling to accept any unrepaired items. It is important for you to manage your buyer clients’ expectations throughout the home search and ensure that they understand that they are unlikely to walk away from their purchase 100 percent satisfied.
Help your clients focus their attention on a category of repairs that they want to see completed or to prioritize their repair list from most to least urgent or expensive or time-consuming. Reach out to your network of contractors and handymen for pricing and relevant information in order to better answer their questions and concerns.
Obtain your own bids to submit with the request for repairs along with the home inspection. Chimneys, sewers, and roofs can be big ticket items with different recommendations from different vendors.
Listing agent
Begin discussing the need for obvious repairs early in the listing process in order to help your seller clients ensure a smoother home inspection. In the case of deferred maintenance, consider whether it makes more sense to list the property as is — and adjust the price accordingly — in order to avoid a contentious second negotiation, especially if your sellers do not seem open to the idea of making repairs.
As the listing agent, you don’t want to let the question of repairs rest on the post-home inspection negotiation process. At that point, the buyer’s agent holds all of the cards and your clients have a lot to lose. Don’t let them get too far into the process — and thus, too committed — and make concessions when they normally would not.
The home inspection process is often particularly painful for sellers since any criticism of their home can feel like a personal attack. Much of your job will entail helping them to manage their expectations and emotions and prevent them from personalizing the buyers’ concerns.
Help your sellers evaluate their options, including a buyer credit for repairs at closing. This can be especially desirable in the event that buyers want to choose their own contractor or add needed repairs into an already planned update or renovation.
Get second estimates for major repair items from a contractor you trust rather than relying on the valuation provided by the buyer’s agent or on the first estimate you receive.
What to do in the event of a low appraisal
While home repairs can create tension, a low appraisal can create doubts in the buyer’s mind about the wisdom of purchasing the house at all. Your pricing expertise, market knowledge, and comparative property analysis will be a vital component as you move forward after a low appraisal.
Buyer’s agent
While your duty is to your client, it is important for you to manage their fears and emotions after a low appraisal. Be sure to review the comps that were used by the appraiser in determining his valuation. Find out if the appraiser lacked experience in the particular market or in the industry.
There may be times when it is worth it to your clients to pay the difference and move forward even with a legitimate low appraisal. This is very common in areas where property values are rising rapidly and there is a great deal of competition for each new listing. If the market is gaining value quickly, keeping the deal together might be the best move. It may still be worth getting a second or third opinion, however, in order to ensure that the appraiser is keeping up with the market conditions.
Listing agent
As the expert on the subject property, it is vital that you attend the appraisal in order to ensure that the listing is evaluated properly. You may have information on the comps that the appraiser is using that can materially affect the accuracy of the appraisal. You may know of features or upgrades that are incorrectly listed or omitted on the appraiser’s information.
Offense is the best defense, so show up to the appraisal with comps and a list of improvements or upgrades that make your listing superior to the comps. Appraisers don’t like to bring a home in below value, but sometimes they have a hard time seeing what an agent or buyers see.
Keep in mind that appraisers aren’t always local to the area and they don’t always know the relevant submarkets or neighborhoods. Some floor plans sell better, and sometimes a two-story isn’t the most desirable option. Do different condo buildings have different values? Yes. Do different floors? Yes.
Remember, there is a difference between C2 (No deferred maintenance) and C3 (Well-maintained) conditions on an appraisal report. The appraiser must take that difference into consideration and the more you can argue C3 by pointing out updates, the better.
In the event of a low appraisal, you can always ask for the property to be re-evaluated, either by submitting new information or by scheduling a second or third opinion. Mounting a vigorous defense of your pricing is an important element of adding value for your clients through your expertise.
Whether you are representing the buyer or the seller, the most important thing you can do is help them to avoid the trap of viewing the negotiation as a winner-take-all exercise. If you can help your clients manage their expectations, keep in mind their own objectives without personalizing the process, and help them see the value in a win-win negotiation strategy, you can ensure a smooth path to closing no matter what obstacles appear.
Troy Palmquist is the founder and broker of The Address in Southern California. Follow him on Facebook, or connect with him on LinkedIn.
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