Inspections & Expectations

Negotiating a home purchase generally has two obstacles: 1) Negotiating the price. 2) Negotiating repairs. Agents often spend a great deal of time and energy #1 and are then frustrated when #2 proves difficult. It's important to remember and understand that most buyers have little experience negotiating repairs and many have zero experience negotiating repairs. So, it shouldn't be surprised when buyers don't have reasonable expectations if you haven't helped set their expectations for the repairs negotiation process.

Setting Expectations

As a buyer's agent, you have ample opportunity to help your clients understand the process from start to finish. House shopping is (usually) fun for your clients, so it's fun and easy to focus on that. However, it's important for you to discuss the entire process. We've found that most buyers don't want a formal meeting where you go over the entire process. If your clients request a meeting like that, then you should absolutely oblige. However, you can still educate your buyer clients & set their expectations while house shopping.

What do you guys know about the buying process?

This magical question opens up a conversation that allows you to educate your clients & set their expectations. Ask this question after you've developed a great rapport with them and at a laid-back time when it's appropriate. After they've viewed a house that they didn't really like (if they like the house, you're discussing that house) or while you're driving your clients around are both great times to ask this question. This allows you to discuss how they'll make offers on homes & what the inspection process looks like.

What should your buyer clients expect?

What is our goal?: Our goal is to get our buyer clients as many repairs or as much repair credit as we can. In order to do this, we need to understand the psychology of most sellers.
New construction: If a home is brand new, they should expect a brand new home. We always recommend they have a third-party inspection, and we can generally hand the inspection to the listing agent. The sellers will generally fix 90% or more of what's listed on the report. Often, an inspector will inject his/her opinion into the report and call out items that are not actually code. When/if this happens, a seller will often push back.
What does an inspector inspect?: An inspector writes the report using current code. Code changes and is tightened every year. So, if you inspect a 10-year-old home, there will be deficiencies written into the report that was not deficient when the home was built. Sellers will usually not update to current code simply for code's sake. Why? They don't have to. Most buyers only care about functional deficiencies.
What was advertised?: If a home is 70 years old, has never been updated, and is marketed as "as-is", then your buyers should expect a trainwreck of an inspection report. If a home is 2 years old, then the inspection report will be relatively clean. There are lots of gray in between.
What will a seller fix?: A seller will usually fix the minimum needed to get the deal closed. They will usually fix or credit an amount that they feel another reasonable buyer would ask for. They will almost always ask themselves, "Is it easier to make these repairs or give this credit than go back on the market?"
Why not ask for everything?: If you ask for too many repairs, most sellers will simply not counter. If a home is 20 years old and you ask for all listed deficiencies, the seller & agent will make the immediate judgment that it would be easier to simply go back on the market and sell to someone else, rather than negotiate with someone that they think is unreasonable.
What should we ask for?: We want to present an amendment that the seller thinks is reasonable, but where we have some wiggle room. The reason we include wiggle room is simply for negotiation. Most people negotiate, so we want to make sure we have room to.
What if we find things that we didn't expect?: If a home has more deficiencies than we expected, then we should ask for more repairs or credits than we typically would. If a home has a 10-year-old roof and the inspector discovers that it has major storm damage, then we will likely ask the seller for a new roof. It's important to understand the concept of depreciation. You expected a 10-year-old roof, not a new roof, so you might compromise for a credit that is 2/3 of the cost of a roof (a roof generally lasts 30 years, so you're asking for the missing 20 years.)
What if there are too many repairs?: We will terminate the contract and find a better house.
What if the seller is unreasonable and we can't agree on repairs?: We will terminate the contract and find a better house.

The Importance of the Seller's Disclosure Notice (SDN)

Sellers disclose information about the home on the SDN. It's important that your clients read this and understand it prior to making an offer. If they disclose that their roof is 25 years old, and the inspector calls out the roof at the end of its life, it will be difficult to negotiate a new roof, since the old age of the roof was disclosed prior to you making an offer. As a great buyer's agent, you need to be able to quickly read an SDN and advise your client on any major concerns.

The Importance of the Inspection Walk Through

Always encourage your clients to attend the inspection walk-through. This will take roughly an hour after the inspector is done inspecting the house. If your clients are out of town, then you should attend it for them and call them while you talk with the inspector. Always attend the inspection walk-through with your clients. You will save far more time by attending the walk-through than you will lose by spending an hour there. Your goal when attending the walk-through is to help your clients understand the condition of the house and that they understand context. When you're there, always ask the inspector these questions:

How are the roof, HVAC systems, & foundation? These are usually the most expensive systems in the house and are of primary concern if there are any deficiencies.
How does this home compare with other homes in the area? This will provide context. It will help your clients understand what they would expect to find if they walk away from this deal.
If this were your home, what would you fix? Take notes when your inspector responds! This will help your clients prioritize what is actually important.

After the walk-through is over, hang out with your clients after the inspector leaves. Talk with them about the inspection and reiterate how the inspector responded to these three questions. Establish with your clients that you'll wait for the inspection report to come through that evening and that you should try to have a repairs amendment decided by the following day (this isn't always possible if there are many repairs to consider.)

Call the Listing Agent to Set Expectations

Bad news doesn't age well and any amendment where you ask for any credit or repairs is bad news to some degree. Tell the listing agent that you'll have an amendment to them later (you've likely established when with your clients.) Tell them at the high level if the inspection went well or if there was anything of major concern. This will allow the listing agent to start preparing his/her clients so that their clients aren't surprised by bad news.

Understand & Estimate Repairs

Your long-term goal is to understand construction & repairs in depth. After 100+ inspection reports, you should know what 99% of any report means and a rough estimate on 99% of any repair. There are 99 reports before you get to 100, though, so this is a goal.

Common Problems w/ Homes by Age: If you can explain common problems by age of the home to your clients before they put something under contract, even better!

Repairs vs Repair Credits

Negotiating a credit in lieu of repairs takes more work, but is almost always in your client's best interest. If a repair needs to be made, a seller will want it to be done as cheaply as possible, while a buyer will want it done as well as possible. If you negotiate a repair credit, your client can choose who/how the repair is made later, and a seller usually likes that they don't have to worry about making any repair. If you negotiate a repair credit, your job is also done with regard to repairs. You don't have to worry about following up to make sure the repair is done and that it's done right.

Edge Cases & Gray Areas

As with most things in life, there are lots of edge cases & lots of gray areas. Always defer to "Act in My Client's Best Interest" and lean on the collective experience of our brokerage. Call anyone who can help. Every time you have a hard repairs negotiation, just know that you've become a better and more experienced agent.