Repair Negotiations: A Deep Dive

We hope you're enjoying this beautiful fall! Here's your Portland real estate market update, a deeper dive into repair negotiations, and a look at what we've been up to. 

How's the market?

Our long run of a sellers market is shifting towards a neutral / buyers market. More inventory and homes sitting longer on market has pushed active listings up 15% over last year. While prices have been resilient, home shoppers are taking their time and bringing big repair requests to the table once they're under contract. 

With that in mind, we're going to do a deep dive on what happens during a buyers inspection period, what repair negotiations look like, and how home sellers can position themselves best for these negotiations. Feel free to skip ahead if this deep dive is not your cup of tea! 

What do repair negotiations look like?

Just about every transaction has a second round of negotiating while under contract to account for issues that came up while under contract. Even a lot of “sold as-is” transactions still end up trying to negotiate repairs or credits for major issues found during inspections.

When we first sit down with sellers, we tell them to anticipate and set aside around 1% of the sales price for buyer repair negotiations from inspections. Every home is different, but it’s a good rule of thumb. More expensive homes have larger and more complicated systems that cost more to fix and vice versa. 

Let's look at the process from the perspective of a seller. Typically a buyer has 10 business days to do all of their inspections, follow-up appointments, and come to terms with the seller on any repairs or credits (money) for inspection issues. 

What inspections do buyers do?

General home inspection: what everyone thinks about when they think of home inspections. An inspector will look at all the main systems of the home from top to bottom to let the buyer know what's working, what's not, and what might need to be addressed soon. 

Radon test: Radon is a gas that comes out of the ground. It's everywhere, but can collect in homes in high levels that aren't healthy. Portland is a bit of a hot spot for radon, so we always recommend this test. The fix for high levels of radon is typically pretty easy and costs around $2,500.

Sewer scope: Most homes in our area are connected to public sewer systems and a waste sewer line that runs from the home to cities main line can can break, get roots inside, or sag so that waste collects and clogs. Buyers typically have a video taken of the sewer line to look for issues. 

Oil tank scan: Older homes were often heated by oil between the 1930’s and early 1980’s. The tanks to hold the oil were usually in the ground in the yard or above ground in basements. The DEQ started tracking decommissioning of tanks in 2000 - so we’re often not sure if a home ever had an oil tank or if it was taken care of. An oil tank scan is a test to look for any old abandoned oil tanks in the yard. If one is found, soil samples can be done to make sure there is not soil contamination, and to look inside them to see if they were properly decommissioned with a concrete mix to fill them up.

What happens after initial inspections?

Typically a follow-up inspection or two. If buyers finds something concerning - for example water in the crawlspace and questionable electrical work, they’ll usually have a contractor to evaluate and bid the repair. 

Once the buyer has done their inspections and evaluated any concerns further, they typically ask the seller to complete specific repairs, ask for compensation for those issues, or a combination of both. 

What can your realtor do to help you be a good negotiator?

Understand all of the problems the buyer is concerned about really well. Get a good honest second opinion if it makes sense. Some issues have a much simpler and cheaper fix than a buyer gets a bid for. Your realtor should stay looped in with the buyers inspections and not get caught off guard by a big repair addendum. 

If possible and buyer allows, show up to buyers follow-up inspections. Sometimes a contractor will say something along the lines of "it's not perfect, but it's working". That makes it hard for the buyer to demand compensation for that issue. 

Be smart enough to understand the buyers mindset and what their bottom line likely is. Is this issue a genuine surprise, or should it have been expected? If it’s an old house and a buyer is pushing for money for old wiring - it should have been expected upfront and it’s a low risk they will terminate when a seller stands firm. 

Understand the market we're in. Is it a buyers or sellers market? Have interest rates gone up or down since you went under contract? Have similar homes come to market since you went under contract? Did you have multiple offers? Typically about 10% of transactions fall apart during inspection periods, mostly from disagreements from repair costs. But we go through phases where up to 30% of transactions fall apart. This happens when the market’s getting flooded with inventory, interest rates are quickly dropping, or some sort of economic issue is scaring buyers.

Negotiate credits (money) instead of repairs. Starting a repair before closing can lead to uncovering new problems and a more expensive fix than originally anticipated. Offering a credit or sales price reduction is better for the seller. 

Tackle some known issues before going to market. If there are issues that we know will come up on the inspection it might make sense to take care of them before the inspection - especially if they will boost visual and curb appeal. 

Be open to a creative solution. If a buyer is adamant about a repair or tight on cash, it could be possible to build that repair into the purchase price or look for a solution where everyone can get what they want.