Renegotiating

I think it’s the suits in this pic that really gets me. It’s been so long since I’ve worn one that I forgot what it’s like…the picture seems weird to me! (Sorry if you wear suits all the time!) I think if there’s any hard and fast rules about buying a house it’s that it’s never over until it’s over. Even in multiple offer scenarios there could very well still be room to negotiate should you want to do that. 

There’s an assumption that once a buyer takes a property in As Is condition that’s it. The negotiating ends and the price and terms are locked in. Many many sellers think this way. They get property and pest inspections up front in order to ensure a clean as is sale. The thing is, on many houses there are open questions that the initial inspections open up that create an environment for renegotiation. In one example I can think of recently, a house I’m in escrow on received 6 offers and went $90,000 over asking, As Is.  The house needs work and even though there were inspections done the buyers did further investigation through an engineer that uncovered some significant drainage related issues that clearly effected the home. We went back to the seller and the price got reduced by $35,000. The weight of the new disclosures that the engineer’s report brought to the transaction put the seller in a position where they had to make a decision…if they said no to the buyer’s renegotiation and the buyer walked away from the transaction they would then have to put the property back on the market and any and all future buyers would need to see the new report. They have to ask the question, “what will that report do to the value of the place now?”  Often, the impact on the future marketability of the property by the new report will be put into serious question and it’s certainly much easier and, in the long run, profitable to work the problem out with the buyer you have in hand.

Last year I had this situation with a seller and agent in a house on the coast. The seller chose to ignore that engineers report and rejected my buyers request to pay for some necessary work. The buyers backed out and ultimately found a much better property. The first house sat for another 3 months and finally sold…for less than it would have if the seller had just taken our renegotiated price. I guess the bottom line is just be careful and don’t be afraid to get further inspections and renegotiate if need be.

Comments

  1. It works the other way also for a buyer. Buyer chooses a property inspector and instructs the inspector to be overly aggressive. The generated report is negative in tone and puts the seller in a shocked quandry. Once stunned, it sets up the stage for a nice price reduction. It’s great strategy. How do I know? I’ve used it many times. A well known real estate agent in Millbrae taught me this trick.

  2. Jim Minkey says:

    Sounds mercenary and obnoxious. In this post I’m not talking about creating work just to take advantage of a seller just for the buyer’s benefit. I’m talking about doing further inspection to discover legitimate issues missed by an initial inspection. They’re two completely different things. Also, I can’t imagine any property inspector I’ve ever worked with who would willingly be motivated to stretch the truth on a report so that the buyer has more leverage…although I have no doubt somebody like that is out there.

  3. there are plenty of property inspectors who refer the buyer to repair work that their “friends” or associates will do. These associates then kickback some money back to the property inspector as a “referral” fee. It works to the buyer’s advantage. i’m suprised you haven’t heard about it. It happens all the time in Foster City.

  4. Jim Minkey says:

    I’ve probably sold 400 homes since I’ve been doing this, I’ve never once seen an inspector refer work to a buyer. At least that’s with clients of mine, or transactions I’ve been a part of. I’ve seen engineers or other specialists creat bids but never a property inspector. Not to say it doesn’t happen…but it’s skanky, unethical and a property inspector could lose his license for doing that.

  5. Shantilal says:

    Wow, I thought this was ethical. That’s how we bought our house in FC. This is what our agent told us to do.

  6. We’ve had “inspectors” who glossed over anything he could, because we had to depend on our realtor to find an inspector, and the inspector knew he owed to the realtor rather than us.

    Find a reputable, independent realtor. Jim, any recommendations?

  7. Jim Minkey says:

    OK, I just want to make sure I’m being clear. I don’t think renegotiating is unethical at all. It’s both prudent and wise to get further inspections if you want to, and if you find something that wasn’t disclosed previously, that has a significant cost attached to it, then of course you address it.

    What’s unethical in my mind is having an inspector “create” work on a report, funnel that work to a “friend” and get a kick back from it. I don’t think there’s too many judges that would disagree with this interpretation either. Theoretically at least, a property inspector is supposed to be a nuetral third party, not a contractor who builds a job.

  8. Sorry, I meant to say “Find a reputable, independent INSPECTOR.”

    Enjoy reading your blog, agree with just about all your views, and have learned a lot!

    Thanks.

  9. Jim Minkey says:

    Thanks QG! I’ll send you a list off blog. None of them EVER asked me for any kind of graft or kickbacks either. The most I ever got was a box of chocolates at the Holidays. Maybe that was unethical, who knows.

  10. Esther Y. says:

    Thanx Jim- interesting post and comments today

    Buyers, sellers and inspectors-
    Do unto others as you would have them do….or as the ancient Hebrew Book says….

    “Love thy neighbor as they self!”

  11. When I lived in Cupertino two years ago, this “aggressive inspector” strategy was not uncommon with buyers paying well above asking price. This strategy was pointed at me, the seller. However, I countered it by “inviting” the buyer to back out of the deal. The buyer choked and wound up paying a heavy premium and loss of face. I never had to renogtiate. They were embarassed to face me when I had to turn over the house keys. This was only possible because the house was located in a very good school district and consequently got buyers falling over themselves trying to buy the house. I made a cool 150K over the asking price. Sometimes, cute strategies backfire.

  12. We put our home in the market a few years back. This very eager potential buyer wanted our home so much. So much so that when they met me by accident, the husband right away told me how much he loved my home. BUT, he wanted to change the direction of our stairs and to make the kitchen bigger. With that in mind, he wanted a 200k discount. BTW, our inspection came clean with no minor nor major issue, our home is fully remodeled and located in a community that hardly has any home for sale, we are one of the youngest home in Foster City with good size lot. I just laughed when they came with the number and the funniest of all, their agent told us he is putting in 10k of his commission. People are funny specially in the housing industry. Buyer and sellers have differences but there are ones that are just “extremely funny” and I think this buyer is one of them.

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