In most states, home inspections are performed after the contract of sale has been signed, typically 10-15 days after the signing. By contrast, in NYC, home inspections are done before contract signing. This way, the buyer goes into a fully binding contract while fully aware of the home’s condition. The process tends to be more advantageous for the seller, as the buyer has to pay for the inspection. Either way, it will tempt most buyers to renegotiate the selling price if the home inspection turns up defects that the seller may be unaware of.
In this article, we’ll be covering how to make a counteroffer after the home inspection. In some cases, it can be a worthwhile endeavor. But as you’ll soon see, there are other cases where it might work against you.
The Home InspectionThe Home Inspection
As mentioned, home inspections are done differently here in NYC. Across the bridge, in New Jersey, you go entirely into a contract and then conduct the home inspection. In NYC, the inspection occurs after an accepted offer but during the due diligence period before signing the contract. As a buyer, it is vitally important that you get the inspection done as quickly as possible. Since a contract here is none-binding until both parties have signed, the seller is free to go with a different offer if one comes along.
Ideally, the inspection should be scheduled and conducted 1-2 days after your offer is accepted. It usually takes another 1-2 days before you receive the inspector’s report. Although, it can sometimes take up to a week if you go with a less expensive (but inexperienced) inspector. Speaking of cost, the average price in NYC for a standard home inspection is $300 to $500. Keep in mind that any law does not regulate inspector fees. Some inspectors will charge based on the square footage of the home, which can be about $800 for a 4,000 sq ft. home on the high end. You can also expect to pay extra if you want a more specialized inspection that checks for things like asbestos, termites, and radon. Consult your buyer’s agent and ask for references before choosing an inspector.
Once the inspection is completed and you’ve received the report, you can choose to either move ahead with the purchase or renegotiate the deal if you find some issues.
Considerations Before Making a CounterofferConsiderations Before Making a Counteroffer
If any significant issues are mentioned in the inspector’s report, it is entirely reasonable for both the buyers and sellers to expect some renegotiation to occur. That said, there are still some considerations a buyer should make before hitting the seller right away with a new offer price.
1. Are the Inspector’s Cost Estimates Accurate?1. Are the Inspector’s Cost Estimates Accurate?
When you receive your inspection report, it will list all the issues found and, at times, and can estimate what it will cost to remedy them. However, there’s no guarantee that the inspector’s cost estimates are accurate. It may even be that they have inflated these costs to give you more ammunition for renegotiations. They could also underestimate them if the inspector believes you want to make the deal happen. Conduct your investigations and get a consultation from a contractor to see if the estimated figures are accurate.
2. Are there Any Competing Offers?2. Are there Any Competing Offers?
In New York City, if you think you’ve found a great home at a fair price, then you can be almost certain that other buyers also have eyes on it. Your chances of getting the sellers to accept a new offer will depend on how many other offers are waiting. If the sellers have many interested buyers whose offers are as good or better than yours, they will be less likely to accept a renegotiated offer. But if they don’t have many other offers, which is apparent to the buyer, the sellers will have far less bargaining power. It would be best to delicately handle this as you don’t want to antagonize the sellers by making unreasonable demands. Another buyer could always show up and shift the competitive dynamic back in the seller’s favor.
3. Has the Market Shifted Since Contract Signing?3. Has the Market Shifted Since Contract Signing?
While it is doubtful that the real estate market has shifted much in the 10-15 days since the contract signing, the stock market may have gone through some changes. Any sudden rise in the stock market will be good for you, assuming you haven’t sold any equities to fund your purchase. However, it may make the sellers less likely to accept a renegotiated offer as they now know other potential buyers could be right around the corner.
Suppose the stock market experiences a sudden drop that puts the buyer in a strong position to renegotiate a better deal. You could even threaten to walk away if a better agreement is not reached, as the seller may have fewer options. But if the market crashes hard and you’ve already sold some equities, then it might make more sense to back out of the deal and put your money into the stock market again.
Of course, none of this should be taken as financial advice. Your situation could be radically different and require a unique approach. Consult your financial advisor and buyer’s agent on this to understand your options thoroughly.
How to Make a CounterofferHow to Make a Counteroffer
Once you have taken the above considerations into account and are confident that you want to renegotiate the offer, there are several ways things can go from here.
1. A Sales Price Reduction1. A Sales Price Reduction
For buyers, this is likely to be the first thing you’ll seek to change. In light of repairs needed, a lower offer price might be acceptable to the sellers if they don’t have any other offers to choose from. They may make a counteroffer that is in-between your new offer and the original one. But they could also dig their heels in and refuse to budge on price. In that case, there are still other options the buyers can take to get a better deal.
2. Ask for Closing Credits2. Ask for Closing Credits
The most common approach in these negotiations is to ask for closing credits to cover the costs of repairs. This tends to be a much better option as it rarely makes sense to ask the sellers to oversee repairs. They may not hire the best contractors, and making the closing contingent on the repairs completed will likely delay the closing. For buyers planning to make some renovations after closing, it makes even more sense to ask for credits. It’s just far easier for everyone involved.
3. Seek Other Changes to the contract3. Seek Other Changes to the contract
Depending on how much bargaining power you have, you may be able to renegotiate for a more favorable contract. The selling price, while important, isn’t everything. Contingencies are also essential and could be more in line with what your priorities are. For instance, buyers trying to sell and buy simultaneously could benefit a lot from including a home sale contingency in the contract. You could also ask for a change to the closing date if that’s important to you. Please note A contingency on selling your current home is not typical in NYC and will usually get in the way of a deal.
It depends on how much bargaining power you have and what your priorities are. Buyers who are in a solid position to dictate terms might be able to walk away with closing credits and a more favorable contract. However, it would be best if you were careful about not getting too greedy. The seller can still pull out or accept another offer if one comes along. Remember, until both sides have signed the purchasing contract, nothing is legally binding.
Whatever agreement you come to, they will formalize any amendments to the original purchase contract. There is rarely any need to draft a new contract, as most contract amendments are pretty short.
Final ThoughtsFinal Thoughts
Counteroffers post-home inspection are very common in NYC real estate. So long as both parties remain reasonable in their demands, there is no reason to think you cannot get to a win-win deal. On the other hand, if one party refuses to be reasonable and fair or if both parties reach an impasse, then the sale will likely fall apart. Discuss the situation in depth with your buyer’s agent to find what the best approach is. Sometimes it will be better to walk away, and other times, worth fighting tooth-and-nail.