Investors: Don't Negotiate Until You Know the Home's Condition

This isn’t our first discussion about home inspections—I know. I wrote 5 Reasons To Wait To Negotiate Until After the Home Inspection in order to relay a strategy that I personally have had much success with over the past three years. I find it much easier to negotiate once you have an inspection. I do advise a buyer to use a home inspection checklist at a minimum, and ideally pay for professional home inspection, but not until you have a bound contract. While some people disagreed, hopefully this update will clarify my position.

With an inspection in hand, you actually know the condition of the property and the function, or dysfunction, of the major systems. In my opinion, this is the only reasonable time to negotiate. If you try to negotiate at any other time, you are doing so from a point of emotion and unknowns.

1. Real estate is a people business.

I believe in putting people first, always. That said, asking for an inspection should not offend a seller, or in any way be considered disrespectful to a seller. It is a buyer’s right, a right that I think all buyers should exercise if the situation allows.

It is not malicious or unethical for a buyer to ask for an inspection and then ask for the things that come back on that inspection to be rectified, especially when it is a property that the seller is asking market value for.

If a seller does not want to allow for an inspection, then they should simply not accept an offer with an inspection contingency.

2. You should know what to expect.

An inspection allows a buyer to see what issues the property currently has, or might have in the future, and provides a great opportunity to ensure the buyer knows what they are getting into.

If the inspection turns up major issues, particularly structural, safety, or with the major systems, I encourage a buyer to ask for those issues to be rectified, in one way or another, before closing. That said, each buyer is different and has different priorities. I encourage buyers to only negotiate on the things that are of the utmost importance to them.

3. Time is of the essence.

This is true in almost every real estate contract. Even if it is not explicitly stated in a contract, no one—buyer or seller—should aim to extend any part of the process.

If you are a buyer, do not go past your inspection and resolution timelines. In extenuating circumstances, or when a specialist is required to investigate an issue on a property, ensure that the seller is on board with an extension and maintain open communication throughout the entire process. If a seller is unwilling to allow for such an extension, they can simply deny it, or terminate the contract.

How this works in practice

I have been investing now for almost three years, and currently own 38 doors. I have also done more than a dozen flips and have been a buyer and seller in numerous transactions. While I know that my success so far is somewhat limited, and I am just getting started, I have served as both a seller and a buyer in multiple situations both on the MLS and off-market.

I have never once entered into a contract I did not intend to close. I have never once delayed a closing. I have never once gone past the inspection period, or resolution period, that the seller and I agreed to. I have never once made an offer on a property that I did not intend to buy.

I have closed on all but one contract in almost three years. The seller chose to cancel the contract, and willingly gave me back the earnest money after two different foundation specialists confirmed that the property needed over $44,000 worth of work. I was the fourth buyer to make an offer on this house, and the fourth buyer to ask for the same repairs. The seller was not willing to help at all, and the house still sits on the market, at a price it will likely not appraise for. I am grateful I did not inherit that problem.

I believe that we are only as good as our word, and reputation absolutely is everything. When I ask for an inspection, I treat the seller with respect by moving through the due diligence process as quickly as I can (and always within agreed-upon timelines). I always give the seller options on how we can work together to rectify any issues so that I can close and we can all move forward.

The highest concession I’ve ever negotiated was $12,000, and that was on a 10-unit property that needed hundreds of thousands of dollars worth of work. The average concession on a single-family home I’ve purchased is $2,500. In every case, the seller is the one who offered that dollar amount.

Since every transaction in which I have exercised this strategy had me and the seller walk away happy from an on-time closing, I would call it a win-win. This strategy is not about taking advantage of anyone.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.