Builders Report Blues. Run or Renegotiate? A Guide for First Home Buyers…

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Have the Builders Report Blues just brought your first home victory dance to an abrupt halt? Where do you go from here? Do you run or renegotiate?

Check out my 6 step guide to renegotiation for First Home Buyers…


The Scenario

House-hunting has been full on but you’ve finally secured a property subject to a few conditions – one being a Builders Report. You may have even trumped a couple of other parties in a multi-offer process. You’re winning and feeling p-r-e-t-t-y sweet. Your email alert chimes…and yes! Your $800 Builders Report has just come through. Paying for that was a bit painful but better safe than sorry. Great!

Uh oh…

Not. Great. At. All.

A quick scan of the Builders Report and your fantasy about moving into your new home and reclaiming your weekends is evaporating!!


If you are not buying a new home the above is a common scenario. Aspects of dealing with a less-than-ideal Builders Report can be terrifying, particularly if you are a First Home Buyer. Do you renegotiate or run? If you opt to renegotiate, how do you start and how do you achieve a fair outcome?


1

Accept that, unless you are buying brand new, a flawless home is as common as this Unicorn…

You will likely find flaws, upcoming and deferred maintenance in every home you consider.

2

Sort the issues identified into three categories.

  • A) Acceptable issues
  • B) Potentially acceptable issues
  • C) Deal-breakers

Note: Bear in mind the difference between maintenance and improvement.

3

Establish the cost of resolution.

Have a chat with the building inspector. Ask him about items in categories B and C.

  • How severe are the problems?
  • How soon do they need to be fixed?
  • Does your inspector know roughly how much you need to budget for repairs or who you need to speak to for an estimate?

IMPORTANT: Attend your inspection. If you have not had your building inspection yet then I would strongly recommend that you accompany your builder. If you attend the inspection you will usually get initial feedback on the spot from the builder, have the opportunity to ask questions and look at areas of concern during your discussion.

NOTE: On estimating the cost of repairs. Building inspectors will often, quite rightly, be cautious in providing estimates of the cost of work they do not carry out and may exaggerate cost to cover off their uncertainty. Ask the building inspector what type of tradesperson attends to the type of remedial work required and call a couple of appropriate businesses for an estimate.

4

Decide on how much you are going to ask for…

…but be smart about it.

Once you’ve established an approximate cost for lists B and C it’s a good idea to take a realistic look at the strength of your position compared to the strength of the sellers.

Think about the following:

How long has the property been on the market?

A seller who has been trying to sell for an extended period of time may be willing (but not always) to concede ground that a new seller to the market just wouldn’t consider.

Is the market rising, softening or falling?

In a softening or falling market, the cost to a seller of spending more time finding another buyer may exceed the cost of conceding and reaching a compromise with you. You can rest assured that the agent will be pointing this out to them even though they won’t be discussing it with you.

In a rising market, however, first home buyers who are chasing an unrealistically perfect dream can find that the market rapidly outpaces their ability to save meaning that the quality of the home they can afford diminishes throughout their extended search.

How much competition did you have for the property?

This is a really helpful indicator. Why? Because some homes are crazy popular regardless of whether the market is rising or falling. And different sectors of the market move faster at different times. If the seller has six other options your position is not crash hot and I suggest you focus on your deal-breakers only.

No competition? Then good for you! There’s no reason not to dream big. The concession you ask for could cover both your B and C categories. The seller might say no. But they might not. You might be able to meet in the middle. But consider one last thing before you act…

NOTE: For when you know the seller has multiple options. At the risk of giving you a headache from information overload I would also recommend you think carefully about whether your deal-breakers would be deal-breakers for other people. It can be tricky to evaluate your own objectivity. Ask a friend or co-worker you know will be honest with you. If your deal-breaker is something that most other buyers find trivial then consider ditching it. The likelihood of facing a similar request from another buyer will absolutely be a consideration for the seller when evaluating their options and may determine whether or not they concede anything at all.

How quickly are you likely to find a similar home if you walk away?

Before you get too excited and ask for something that will give the poor seller cold sweats also consider how likely you are to find a home with the combination of features that attracted you to this one. Also think about how long that process might take you.

If finding a home within your budget with similar qualities is going to be a lengthy and time-consuming process then you may want to focus on your deal-breakers only.

What if your position is strong?

Is there any good reason not go for the lot?

It’s worth considering that in a negotiation, it is in your best interests, to consider the ‘worst case scenario’ should your request be poorly received by the other party.

Sometimes a request for a large concession or price reduction can offend a seller enough that they simply refuse to negotiate. We see this at times when a seller is presented with a low ball offer and indignantly counters above the list price.

By asking for too much compromise you can end up with none at all.

If this property is unusually well suited to your needs and your deal-breakers are absolute you may want to rethink a winner takes all approach and try to find a win-win instead.

5

DON’T just fire your request for a huge concession through on email/fax via your solicitor.

Why?

A solicitors primary role is to advise and protect their client. Not to diplomatically negotiate a solution – which, in this situation, is what you are after.

The seller will likely feel blindsided when they get the call from their solicitor. They may (initially) be upset with you and probably with their agent too for not being the one to break it to them gently.

But you don’t know the seller or the agent. Why should you care?

Because people who are upset can be very hard to negotiate with. And if the seller is temporarily offside with the agent the agent won’t be in a very strong position to help you reach a fair outcome.

Keep your solicitor in the loop but don’t use them to convey your initial request to the vendor.

6

Talk to the agent about your proposal and ask them to discuss with the seller.

Outline the issues, offer them a copy of the Builders Report to share with the seller. Transparency goes a long way in building good will.

If the seller agrees to your proposal, or some variation of it, there are two ways this can be actioned:

  • As a price reduction to cover the cost of unforeseen problems.
  • The seller agrees to fix issues of concern prior to settlement.

A price reduction is more straight-forward and rarely causes conflict between unconditional and settlement. While it can feel nice to move into a home that is already ‘fixed’, disputes can and do arise over the tradesmen engaged, the methodology used to attend to repairs, and the quality of the work.

Final tips for renegotiating your agreement.

  • Ask for more than you want. Give the seller room to take your request back a notch or two. 
  • Provided it is safe, offer to go unconditional immediately upon the seller accepting your terms and pay your deposit promptly.
  • Consider offering the seller a concession not related to price. Do they want a quick settlement? Or a longer one? Ask the agent if there is anything you can do to make it easier for the seller to say yes to your request.

Happy renegotiating!


More posts for buyers.

Asbestos And Property. Where Is It And Can You Avoid It?
Buyer beAware: How To Spot Weatherside…
RV’s (or CV’s). Are They Reliable Indicators Of Market Value?


Have feedback for me? Or a question? I’d love to hear from you. Give me a call on 021 454694 or email me here.

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The Author

Maria is a veteran Auckland realtor, rookie blogger and long time resident of the West and Nor'west. Maria markets and sells residential and lifestyle property across Auckland and is based at Harcourts Northwest Realty Limited - Licensed REAA 2008

2 Comments

  1. Pingback: Asbestos and property. Where is it and can you avoid it? | Insight

  2. Pingback: RV's (or CV's) - Are They Reliable Indicators of Market Value? | Insight

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