What buyers and sellers should know about credits
You agreed on a price, the earnest money has been paid, and the contracts have been signed; congratulations, you are officially in escrow!
Unfortunately, negotiations may not be over yet.
Many buyers and sellers wind up in a second round of last-minute negotiations after the home inspection. When this occurs, buyers often ask the sellers to credit them a specific amount at closing to defray costs, cover repairs, or help with expenses. The following are six things buyers and sellers need to know about credits.
- Offering credits can attract buyers
In a tough market, offering credits as part of the contract can help attract buyers. For example, homeowners may offer a $2,000 credit towards new paint or a $5,000 credit towards landscaping. Offering these types of home repairs credits may help sellers stay closer to their asking price – while giving buyers the chance to upgrade the home to their tastes.
- Sellers should have an inspection done before listing their property.
To minimize negotiations once a home is under contract, sellers should consider having an inspection done before listing their property. This can minimize the risk of any unpleasant surprises being found in escrow, giving sellers time to make repairs – or be upfront about the condition of the home. Adding an “as is” clause to the contract, for example, may help prevent them from asking for credit towards repairs.
- Buyers may ask for credits based on property inspections.
Real estate inspections are typically done after a property has entered escrow. In addition to a standard inspection, special inspections for the pool, fireplace, roof, or septic system may be requested. For sellers, this means that many issues may not be discovered until after a selling price has been agreed on. Instead of renegotiating the price, buyers may ask for credits to offset the cost of repairs or upgrades that need to be made.
- Sellers can avoid credits by having work done during escrow
If repairs need to be made, sellers can avoid credits by having repairs done before escrow closes. This can be done by giving payment directly to a contractor for the amount of the specific repairs; this prevents buyers from using credits to offset closing costs or using the money for another purpose.
- Buyers asking for credits may be taking a chance
Buyers may concede on the asking price of a home with the idea that they can ask for credits after the inspections are completed. However, this can backfire – especially in a seller’s market. Sellers may call your bluff and walk away from the contract; buyers may be taking a chance at losing their dream home over a few dollars.
- Sellers should expect buyers to ask for credits
Buyers will almost always ask for credits, whether it is to share closing costs – or to pay for them entirely – or to cover a specific repair. Because of this, sellers should leave room for additional negotiation while in escrow. This minimizes the chance of the deal falling through over minor repair work or higher percentage of closing costs.