Requesting Concessions After Inspection

[Abe Alam]

Hi,

I just finished inspection on a home under contract and found some things that were not observable upon the initial walkthrough.

Im looking at requesting a slight reduction in price. How do you guys do that? Do you submit an itemized list with prices? Any ideas?

[Jake Wiley]

Abe, 

It's a pretty straightforward process.   If you are working with an agent or are using the standard real estate contract in your state there is a standard form you will use for inspection requests.   I have found that sharing the inspection report and highlighting the items you are asking for coupled with a third-party estimate to repair is the strongest method for making a case for your inspection requests.    That way they see you aren't asking for everything and you didn't pull the prices out of your hat.   

The only other point I think is worth making is potentially asking for a credit vs. a price reduction.   This really only matters if you are financing the property.   If you are financing the property, then a price reduction reduces the purchase price of the property and the bank will then base its financing off the lower number and your required down payment, however if you ask for a credit the entire amount you are asking for will be credited to you at closing and actually gives you the resources you need to make the repairs.   

A simple example, you are purchasing a house for $100k and are putting 20% or $20k down.    You find that there is $10k worth of repairs that need to be done via the inspection.   

If you ask for a price reduction:

Price is now $90k - Bank will finance $72k and your down payment is now $18k. So you have an additional $2k to make the repairs.   You'll need to come up with the remaining $8k out of your pocket.   

If you ask for a credit:

Price is still $100k - Bank will finance $80k, you now have the full $10k to make the repairs.   

Note:  This is a super simplified example - Each lender and loan type has specific limits on how much in terms of credits can be received at closing and 10% is likely over that limit, but it highlights the cashflow issue.  

Good luck -