First Purchase - Buy and Hold - Raw Deal?

Question

So I am purchasing my first property. I plan on living in it for a year, then refinancing and renting it out. The neighborhood is great, the property seems good, but the negotiations are making me feel uneasy.

After reviewing the general inspection results, I submitted the issues I wanted fixed before I'd agree to buying the property to which I offered full asking price. Sellers countered with a $3k limit to all fixes including the 1% obligation($3.3k). The 1% obligation covers the buyer if during appraisal walkthrough the house is found to be uninhabitable (AC Failure/Termite infestation/etc) the seller will obliged to 1% of the property value to make the house habitable - they want to combine the issue I found after the in-depth inspection with the extra protection (which is understandable). I countered that I be in-charge of the order $3k would be used to fix the issues I found priority and be responsible for any other costs for the list of issues discussed, but I still expected the protection from the clause that would allow me to walk away from the deal if the house was found to be uninhabitable (AC Failure/Termite Infestation/Mold/Low Water Pressure). I feel the clause is necessary protection for me and my family in the unlikely case after spending Sellers $3k and what ever costs we'd put towards repairs, the home was still found to have major defects that could not be found during walkthrough and or inspection.

Why would a seller bully out a clause that basically says, "if the property is uninhabitable you can walk away." We agreed that we will only use 3K of sellers money to correct the defects already found and that we'd be responsible for any other costs, BUT if we find there's some kind of defect that is REDICULOUS we reserve the right to walk. That leads me to believe there's foul play, but me being new I know I can just be paranoid.

I would love some advice from buyer and sellers perspectives on deals like this. Thanks ahead of time!

Thomas S. · Answer

Counter their offer by removing all your monetary conditions and hold on to your option to walk based on the in-depth inspection. You do not need anything more than that. This will place you in the strongest possible position to renegotiate the offer price or walk following the inspection. There is no reasonable expectation for you to hold the seller responsible for anything your inspector misses that may come up after closing. That falls on you.If you are serious then this is your best option to close the deal and protect yourself. You can not have your cake and eat it to.

James Mc Ree · Answer

This is a negotiation. Seller wants highest price. You want best value. Negotiate and don't be afraid to show the seller your willingness to walk away. A reasonable and minimally-motivated seller will not let a $330k deal fall apart over a small amount, especially on a full asking price deal.

John J. · Answer

@Kenneth CroisetiereJust so you see it, I'll repost my response to you:I have not gotten my own estimates on the requested repairs yet. I'm moving slower than I'd like, but I'm not sure I'm moving slower than a novice is expected. We're looking into estimates now, so we can know the cold hard cash value of what we're requesting and or what we'd be left to spend if we incur the defects ourselves.

John J. · Answer

Thank you! Sound advice. Just one clarification, the protection clause is an Appraisal Contingency (Just learned this term doing a lot of googling.) it has nothing to do with AFTER closing issues. Still, I think your advice is sound and something I will take into consideration@Kenneth CroisetiereI have not gotten my own estimates on the requested repairs yet. I'm moving slower than I'd like, but I'm not sure I'm moving slower than a novice is expected. We're looking into estimates now, so we can know the cold hard cash value of what we're requesting and or what we'd be left to spend if we incur the defects ourselves.

Charlie MacPherson · Answer

If I were representing the seller, I'd tell him not to accept that clause. If I were representing you as the buyer's agent, I'd discourage you from writing it as it's fairly likely to blow up the deal.One of the biggest reasons is that the seller is most likely committed to moving to his next home / investment and needs to be sure that the sale will close on time.Further, you've already had a home inspection, so major issues should already have been uncovered there.I *assume* that VA law is similar to MA where I practice, in that the property must be delivered in the same condition in which it was shown. So that means that if the roof caves in after inspection but before closing, the seller would be obligated to fix it.When we write a P&S in MA, there are normally two contingencies that allow a buyer to get out of the deal and get their deposit back - this are home inspection (normally 10 days from the offer date) and financing (commitment or "clear to close" within 2 weeks of closing. Those two should be sufficient, unless VA law has some zingers in there that I'm net aware of. Your agent and attorney should be helpful in figuring this out.

Kenneth Croisetiere · Answer

I just re-read your post and noticed that 1% equates to 3.3k. How much will it cost to correct the items that were discovered during the inspection? How much money will be left over after these repairs have been performed?

Kenneth Croisetiere · Answer

The obligation should be enough to cover anything that would randomly break or fail from the date of the inspection up through the date of the final walk through ( which is typically around 30 days). Unless you used a sub-par inspection company, I couldn't imagine you discovering anything major which the inspection company did not catch during their inspection. It is absolutely possible that a hot water heater could fail or a HVAC or a/c compressor could suddenly stop working during this time period, but the 1% obligation should be sufficient funds to cover these items should they fail ( depending on the sale price of the house. If you are buying a $50k house, then 1% will cover the hot water heater but not the a/c system). I am by no means an expert and I'm sure others will chime in, but I have a hard time seeing an appraiser catch something the inspector missed. The big capital expenditure items (roof, windows, siding, structural, etc) does not fail during such a short time period. Again, just my gut instinct, but I'm sure other BPers will lend their opinion as well. Good luck on your first deal( we are closing on our first deal at the end of this month).