The home inspection is the major inflection point for just about every home sale. When the report comes back with a less than perfect record–that’s your opportunity. Negotiating after a home inspection takes preparation and a level head if you want to come out on top.
You also need to go into the negotiation armed with strategies and a framework so you can close the deal on the house you want without having to shell out a ton of money for repairs.
Without further ado, let’s dive into what exactly happens during a home inspection so you can be prepared when you get the report.
Afterwards, we’ll arm you with a framework to open negotiations, weigh alternatives, and build rapport with the seller.
What is a home inspection and what happens during it
Typically you’ve made an offer to buy the house with some contingencies–the most common being “contingent on home inspection.”
The home inspection is something that needs to be done to make sure there are no hidden defects that would affect the value of the house.
Often, small items can come up in the report. Sometimes huge issues turn up.
When you make an offer contingent upon a satisfactory home inspection, you get to make the decision on what you consider “satisfactory.” Any issue or comment from the report can be your out and the deal can be called off.
What the inspector is looking for
The home inspector always has an eye toward water and water penetration. Is water coming in through the roof, could there be seepage from the walls, is water draining back into the house because of slope?
Water is a house’s worst enemy and you better believe that water issues will come up on an inspector’s report.
Major water catastrophes aren’t the only things that come up though.
Inspectors will also check the inside of the home, underneath sinks, bathrooms–just about every square inch of a home. They even turn on all the appliances and every light to make sure they all work.
With this level of detail, things are very likely going to come up that are in need of repair or replacing.
Sometimes you have smaller items, or areas of grey where you will have to make a choice to either walk, negotiate with the seller, or accept the problem and continue with the deal.
Broken appliances, electrical system issues, heating and cooling system problems are all areas for negotiation. Even a bad roof can be figured out without completely torching a deal.
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Opening the Negotiations
In a negotiation, perceptions have an enormous affect. Perceptions start before anyone makes the first move–perception is the arena in which the game is played.
A Harvard Business school study found that participants were much more likely to to be affected by the name of the negotiating game than they were by any of their personal dispositions.
When they named the game “Community game” participants were way more willing to compromise than when they called it “Wall Street game.”
Framing is important.
On both sides of sale, buyers and sellers would be wise to frame the issues that come up during the inspection as investment opportunities.
As the buyer, you can get ahead of objections if you frame the concessions from the seller as an investment in the deal itself.
If they make the repair, they are investing in a successful deal, which is the outcome they want to have happen.
Spend some time to get to know the seller personally and try to find some common ground on shared interests or life experiences.
Remember that every deal is not a deal, it is a person. It is a person with a range of emotions and concerns.
It’s helpful to take a deeper look at the role of emotions in a negotiation.
Harvard researchers Daniel Shapiro and Melissa Orlov have come with 5 “core concerns” of negotiation through their years of negotiation research. Their focus is on negotiation within a marriage, but the lessons can be applied to your negotiation after the home inspection. They are:
The main takeaway with these five “core concerns” is that you want to elevate the other side of the negotiation to your level. So often people make the mistake that they have to use whatever leverage they have to beat the other side into submission.
That almost never works. Not in marriage, business, or home sales.
As you start out the negotiating process make sure you are always elevating the other side and creating a sense of partnership. It’ll give you the best chance at success.
Negotiation Strategies to Come out Ahead
Don’t Trade Dollars for Pennies
There is a saying in negotiation, “trading pennies for dollars.” If you come to the seller with a laundry list of items–some big and some small, you are giving the seller the opportunity to trade pennies for dollars.
Let me explain.
Let’s say you have three items; a cabinet door that won’t close fully, a missing doorknob and a busted hot water heater. The first two items are cheap and easy fixes, the third is expensive.
The seller can cherry pick the small stuff, and come back to you saying “I’ve already agreed to fix so many things, and made so many concessions I can’t do any more.”
Technically, that might be true–they’ve fixed a large number of things but not the important things.
Just leave those small items off the list. They’re not important and you might annoy the seller–which is the last thing you want to do.
Apologies Can Help
In 2013, criticism of Apple’s iPhone was mounting in China. Consumers were upset over the lousy one year warranty and expensive repair costs when something broke. Celebrities, state-run news agencies and the public were coming down hard on the company.
Chin’s Industry and Commerce agency even called for “stronger supervision” of Apple’s activities in China.
With his back against the wall, Apple CEO Tim Cook pulled out the trump card in negotiation and conflict resolution: the apology.
When Cook issued the public apology, it took the wind right out of the sails of the Apple opponents that were calling the company arrogant and unsympathetic to consumers.
The apology got Apple right back on track in China, where the company earns over $20b per year in revenue.
The lesson here is that apologies work when you use them at the right time.
Simply put, BATNA stands for “best alternative to a negotiated agreement.” This term is thrown around a lot in negotiation theory, but it can be hard to nail down exactly what your alternatives really are.
A critical mistake you can make as the buyer is miscalculating your BATNA.
Sure, you want to take into account raw cost of the house, and the cost for any potential repairs–but don’t forget about soft factors that make the house more or less valuable to you personally.
A good strategy is to quantify your soft factors by assigning them a dollar amount. For example, this house could be in the perfect location for work, saving you 20 minutes per day on your commute. Figure out how much you will save because of that and add in some more for saved time and the overall quality of life increase.
You might find that a house has a particular charm to you. Maybe you like the fireplace. Find a way to quantify everything. Doing this helps you truly evaluate the deal in front of you.
The worst thing in the world is bailing from a deal to realize later on that you gave up on the house you really wanted because you didn’t give enough weight to the soft factors.
Remember, this isn’t like buying a car. You have to live in this thing.
Let the seller pay for the repairs with escrow money after the closing
A lot of sellers out there may not have the cash on hand to make a repair prior to closing. No matter how good you are at negotiations, you can’t wring out a dry rag.
It may be a big repair, but that doesn’t mean you have to automatically walk from the deal.
In the contract, you can make the sale contingent upon the seller setting money aside from the proceeds of the sale for the repairs.
This setup can be a huge win-win for everyone. You get the repair made without having to pay for it, and the seller gets to sell the house and make the repair without spending any up-front money.
This is a situation where you can compromise and come out with the home you wanted and no expensive repairs to go along with it.
When to Walk from the Deal
Despite your best efforts, sometimes a deal can not be salvaged. If you find yourself in a seller’s market, the seller may not give an inch on any of your requests for repairs to be made. Even if you love the house, if you don’t have enough cash available to make the purchase with a down payment and make the repair, you can’t pull the trigger.
Even if it’s cutting it close, you should remember something: that first year you are probably going to have to budget in 1-4% of the home’s value for repairs as it is.
When you factor in the repairs you are going to have to make on day 1, it’s not worth it.
The worst thing you can do is put yourself in a situation where your new house is sucking every last dime out of you.
In that case, your best alternative is to walk and find a house without so many needs.
When you should stop negotiating
Assuming you haven’t piled on too many demands on the seller, it will probably only be one or two items on the list that you really want to be addressed.
Once your original “list” has been agreed on, the last thing you should do is try to pile on more afterwards.
Remember, your goal is to get the house you want, not “win” on every line item. You could be putting your deal in jeopardy over small items that are meaningless in the scheme of 5,10, or 20+ years of owning a home.
When the big ticket items are settled you, it’s time to stop negotiating and go for the close.
Congratulations. You just bought a house!
Negotiating after a home inspection can be a super stressful time for everyone involved. You were hoping for a clean bill of health, but the home inspector came back with bad news.
Remember to bring the seller to your level during the negotiations and don’t try to beat them over the head with the repairs. If you frame it as a partnership and the repairs as an “investment” in the deal, you’ll have a much higher rate of success.
Make sure you quantify the soft factors that make the house valuable to you–such as its location, proximity to your workplace etc. Assigning a dollar amount to those things can make assessing the overall deal much easier. You may find that the soft factors are valuable enough for you to bite the bullet and make the repairs.
Don’t let small, petty items derail the deal. Focus on the main items, get it settled up with the seller and close the deal on the house.
Do you have any experience with negotiating after a home inspection? Share you knowledge and insights in the comments section!
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