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from Local Attorney, Michael H. Wasserman

Thursday, May 21, 2009

NEGOTIATING A BETTER CONTRACT - SELLER CONSIDERATIONS



These days, it (still) is really very hard to find Buyers who are willing to submit a written purchase offer.
and perhaps a somewhat less obvious truth:
That's just half the battle.
Its just as hard (harder?) to get contracts to close. Doubt me on that one? Ask any realtor or real estate lawyer, mortgage broker or loan officer. Ask at the title companies too. They will all likely sigh heavy and confirm it. A great many contract are taken that never close. Even the contracts that can and do close have their problems.

However, with care and caution, savvy Sellers, and the real estate agents & attorneys that represent them, can minimize the risks of delay, and the disappointment of failed closings.

This series explores some steps proactive sellers can take to improve the odds

Tip #3
INSPECTIONS CONTINGENCIES ARE NOT FOR THE FAINT OF HEART

No buyer should go forward on a contract without a professional home inspection. That inspection give Buyers re-assurance that the home they are interested in is free of material defects and life-safety hazards - or at least lets them know just what hazards and defects are apparent so that they better understand what they are getting themselves into.

This is an important safeguard for Buyers. I cannot stress that enough. But be that as it may, the inspection contingency should not be allowed to give a Buyer open license to renegotiate the sale price, or demand concessions simply for the sake extracting something more from the seller.

But few Buyers seem to "get it," and Buyers routinely ask Sellers to address issues that are merely cosmetic or routine maintenance issues. Conventional wisdom (and hungry agents) suggests that a Seller must whatever it takes to appease their Buyers, which only seems to goad Buyers into taking more unreasonable positions and making more onerous demands on the Sellers.

Sellers are giving away far too much, and leave their transactions feeling "nickled and dimed" to death.

Smart Sellers avoid these losses by avoiding actively managing the inspection contingencies. There are at least two defensive plays here. First and foremost, the Seller, Seller's agent and attorney must make clear to the Buyer, at each and every opportunity that presents itself, that the house is being sold “as is.”

To be totally clear about this, the Seller should warrant that everything is safe and works fine, but that the Seller does not intend to negotiate minor repair issues. The buyers should be given free reign to conduct a home inspection with that understanding. The transaction should be framed as a take-it and love-it or a leave-it and leave-us-alone proposition. In some instances, this will avoid inspection related requests altogether. In others, it will at least set an expectation, for the buyer that he should not expect to receive concessions for any but the most significant (deal breaking) mechanical or safety issues.

I firmly believe that there are few buyers, even in this market, that will absolutely reject the condition of an otherwise acceptable property based solely on an inspection - unless there is a very serious defect. But setting the proper expectations from the start is critical to the successful negotiation. Few Buyers will accept the "as-is" concept if they hear about it for the very first time after the inspection.

A second, and perhaps more daring play is for a Seller to engage a home inspector BEFORE listing the property for sale. Pre-contract inspections serve dual purposes, both of which will maximize the profit from a sale. They frame the issues that can be topics of negotiation, and they limit the amount of time it takes to negotiate those issues to resolution.

A Seller inspection will likely alert Sellers to those easily corrected safety issues and functional problems that the Buyer's inspector will surely pick up. Things that the Seller either over-looked or ignored over the course of home-ownership. These can be corrected - or disclosed as the seller deems fit. If the Buyer is aware of these things before the offer is submitted, the price already takes that condition into consideration. Sellers has eliminated those topics from the discussion.

Depending on the overall condition of the home, a Seller may wish to take the additional step of deliberately seeking out one of the "tougher" inspection services to evaluate the home. Many of these inspectors are considered "deal-breakers," known to strike fear in their Buyer-client's hearts by pointing out all of a property's blemishes, large and small. At worst, their inspections give the seller the “worst-case” scenario evaluation of their homes. At best, these reports give even greater comfort to potential Buyers. They know that the "worst" inspector has seen the property and now know all that he/she could detect.

Controlling the inspection contingency also helps manage the contingency clock. Negotiations over repairs and repair credits frequently bog down when contractors must be called in to prepare subsequent evaluations and cost estimates. A five day inspection period can easily blow up into a three or four week process. The contract remains uncertain far too long. Sellers lose market time and opportunity.

The quicker these issues can be resolved, the sooner Sellers (and their lawyers) will be able to sleep soundly.