negotiating a home purchase (price reduction v work done by seller)

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jimmy123
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Joined: Sat Jun 07, 2014 3:24 pm

negotiating a home purchase (price reduction v work done by seller)

Post by jimmy123 » Mon Oct 23, 2017 7:54 pm

Situation is this:

In the late stages of negotiation a house purchase and moving from a relatively LCOL state to a relatively HCOL state.

Will be putting 20% down on a 30 year note (could probably do the 15 year, but interest rate spread on 15 and 30 notes is small enough that I am willing to pay a premium to have some flexibility). We may have a little equity left over from sale of current home after putting down 20% plus closing costs.

Buying from a house flipper, who bought it as a distressed sale. We did an inspection and there are some basement and crawl space problems, mostly related to the age of the home and probably lack of maintenance by prior owner. On top of this a few minor electrical and plumbing items, etc, etc.

House is overall a good house, good school district and bank has appraised for about what I initially offered to buy it at. I could see it being a 'forever' home.

Seller is not interested in doing the work but willing to drop the price somewhat. In fact, I think they are not willing to put a $ more cash into the property and they need the sale.

Question is this:

Is taking a sizable (5-6%) drop in the original previously agreed price of the home a good deal for me? I would obviously have a smaller mortgage, but would have to cash flow the repairs over the next 12-36 months.

Or should I push the seller to do *some* work themselves, on the basis I could use the cash flow for other things?

Overall - what is the best tactic in this situation?

Assume: mid 30s couple, 1 kid (hope for 1 more in next 1-2 years). all other retirement and investment plans are on track, spouse has stated DB scheme, Emergency fund in place, monthly expenses < monthly income, no consumer debt outside of primary mortgage

adamthesmythe
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Re: negotiating a home purchase (price reduction v work done by seller)

Post by adamthesmythe » Mon Oct 23, 2017 7:58 pm

Financially you might like to have repairs rolled into the mortgage. The problem is that you may not know that they are done properly.

if the issues are minor and can be deferred a while then definitely take the price reduction.

ThankYouJack
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Re: negotiating a home purchase (price reduction v work done by seller)

Post by ThankYouJack » Mon Oct 23, 2017 8:05 pm

How much will the repairs cost? Also, does the flipper have a lot of experience with great previous work? If the repairs are something they don't want to or can't do, I may be concerned that the house was more than they could handle.

If cashflow is tight and you'll need money soon, I wouldn't pay closing costs. I'd either do a no cost mortgage or negotiate for the seller to cover them.

noco-hawkeye
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Re: negotiating a home purchase (price reduction v work done by seller)

Post by noco-hawkeye » Mon Oct 23, 2017 8:07 pm

This is exactly what we did with our current home - we took on improvements in exchange for a lower price.

The question / issue that would bother me would be - are the current issues something that are going to be contained and something you are comfortable taking on? You mentioned basement issues, which can become large and expensive in scope. Do you have a very good handle on what work will be needed, and how likely this might be to grow in complexity?

In our case, it was paint everywhere, new flooring everywhere, landscaping, and minor plumbing fixes. It was a chunk of money, but stayed within our original budget and was not likely to double in price.

You mentioned the seller does not want to do this, which means it's a great spot to possibly come out ahead financially. That is, unless the seller knows there are huge problems that they don't want to fix and might be passing off on you.

If you had a good grasp on the scope of the work - I think it's a great opportunity.
:sharebeer

noco-hawkeye
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Re: negotiating a home purchase (price reduction v work done by seller)

Post by noco-hawkeye » Mon Oct 23, 2017 8:09 pm

The other advantage you get by doing it yourself - you get to make sure it turns out how you like it. The seller just wants to make sure things are "good enough".

avalpert
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Re: negotiating a home purchase (price reduction v work done by seller)

Post by avalpert » Mon Oct 23, 2017 8:11 pm

Depending on your state it can also reduce your mortgage recording tax costs and if you are both using realtors it reduces their commission - which means the seller gets more in his pocket per dollar of reduction and may be willing to share that gain with you in the form of additional reduction or cash at closing.

You can always use a HELOC down the line if you want to finance the repairs.

jimmy123
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Joined: Sat Jun 07, 2014 3:24 pm

Re: negotiating a home purchase (price reduction v work done by seller)

Post by jimmy123 » Mon Oct 23, 2017 8:18 pm

This is great advice above!

I think I will work on getting price of house down (smaller mortgage = better cashflow). I think the seller may not be in a position to do any $$ work, so that will help me negotiation.

I will also see if they can throw some money towards my closing costs from their equity.

Excellent point on reducing taxes/fees on closing - had not considered that. Or the effect on realtors commissions.

I am not totally closed to the idea of a HELOC, but my plan would be to use cashflow for most things but it is certainly an option....

cheesepep
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Re: negotiating a home purchase (price reduction v work done by seller)

Post by cheesepep » Mon Oct 23, 2017 8:32 pm

Having sold some houses in AS IS condition regardless of condition of house or repairs needed or wanted, I am unwilling to do any repairs before selling. I’m ok dropping the price to account for some repairs (definitely not all) but will not do the repairs myself. Buyer will probably have better quality finding an independent person to do the work instead of seller also as seller will do it for the cheapest possible price and way.

Easy Rhino
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Location: San Diego

Re: negotiating a home purchase (price reduction v work done by seller)

Post by Easy Rhino » Tue Oct 24, 2017 6:47 pm

about 4 years ago we got our house from a flipper here in california.

inspection turned up serious issues, crawlspace problems, HVAC didn't work, there was literally no way to get into the attic for an inspection (they had sealed over the entrance), etc.

Realtor said it was customary to list the fix list and submit to the seller. and then when they balk, haggle on price. Surprisingly, the seller agreed to almost everything. They were obviously using lowest bidder, so Serious safety stuff (the foundation repair) required signoff from engineer, and other items required reinspections to ensure they worked. The HVAC took three tries.

And even then, a year later we learned that a the full tiled-floor showers had the drain pan installed incorrectly, and so leaked water into the walls :(

unstartable
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Re: negotiating a home purchase (price reduction v work done by seller)

Post by unstartable » Tue Oct 24, 2017 7:03 pm

House flipper? It would have to be an amazing deal. I would be surprised if any of the repairs and updates have been done correctly.

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