Bernice Ross

The inspector in your transaction calls out issues with the roof. Do you try to persuade the sellers to handle the repairs before the transaction closes or do you issue the buyers a credit and let them handle it?  

I remember selling a home to an attorney client who had a small baby. The inspector called out a roof leak on the inspection report. The parties agreed that the seller would handle the roof repair.  

In the first big rain after the closing, there was a leak – right on top of the baby’s head while she was sleeping in her crib. Needless to say, my buyer was seething. She immediately hired a roofer to repair the leak. Once she had the repairs and the bills in hand, she also sued the seller in small claims court to recoup her costs.  

On the day of the trial, the seller brought the roofer who had done the repairs. The seller’s contention was that he wasn’t liable since he didn’t do the work.  

The judge disagreed and ruled that the seller was responsible for repairing the roof. He then ordered the seller to pay the buyer damages plus the court fees.  

When the seller objected, the judge responded: “If the person you hired did substandard work, you have to work it out with him. The dispute is between the two of you. It was your responsibility as per the terms of the contract to make sure that the roof was repaired.” 

Do You Want Your Sellers to Deal with This? 

Using a roof repair or replacement as an example, if the seller was charged with making the repairs, here are just a few of the challenges they’d have to tackle: 

• Find the right contractor. 
• Choose a brand of shingles. 
• Decide how to handle cost overruns, which can increase the cost of the job by as much as 33-50 percent.  
• Decide if the buyer gets a say in the color and type of product used. 
• Figure out if the warranty or repair on the roof transferable to the new buyer. 

This is a lot to accomplish when you’re attempting to close a deal in 30 to 60 days.  

 I’m in the midst of handling some long-needed repairs to my brother’s home in Southern California, including replacing the roof. Even with a competent contractor, however, things can go wrong.  

For example, we picked out a highly rated shingle, but it didn’t meet city environmental requirements. That cost an extra $1,200 more than our best bid.  

At the first inspection, the inspector decided that we had to install an additional six vents plus doing additional work where the addition joined the main house – work that had passed inspection in 2007 when the addition was completed. That was another $1,500.  

After all that, the city didn’t inform us until we called for the final inspection that we needed a carbon monoxide detector in the hall of the house. That delayed the final inspection another week.  

Issues Exist with Buyer Credits 

Picky inspectors are a fact of life, as are buyers who ask the sellers to take care of all repairs on the report, no matter how unreasonable they are. This typically results in a great deal of additional negotiation as everyone works through the list point-by-point.  

Giving the buyers a credit to cover all the work on the inspection report is one of the easiest ways to avoid an often-difficult negotiation over what should and should not be fixed.  

While it may be a good idea to give the buyers a credit towards doing the work, it can create problems with the lender.  

Loan processors often view credits for work to be completed as a reduction in how much the buyer is placing down. The result is a loan with 20 percent down that didn’t require private mortgage insurance (PMI) and may be treated as a loan with less that 20 percent down. This could force the borrower to obtain PMI as well as requiring a higher interest rate.  

Moreover, if it takes longer for the seller to complete the work through no fault of their own, or if the rates increase on the buyers’ loan and the buyers no longer qualify, then the whole deal can fall apart.   

One solution is to have the closing agent escrow the funds for repairs and then release them when the buyer presents documentation that the work has been completed.  

Sometimes major repairs must be handled prior to closing. When this is the case, search for competent professionals to handle the work, make sure the seller has the receipts and, if at all possible, make sure there is a warranty that will transfer to the buyers when the transaction closes.  

Bernice Ross is a nationally syndicated columnist, author, trainer and speaker on real estate topics. She can be reached at bernice@realestatecoach.com.