Credit after home inspection: Does this affect broker commission?

[MrLoco]

I have wondered about this for some time and wanted to hear how others have approached this issue.

You put your house on the market. You accept an offer brought to you by your real estate broker for $250,000. After the home inspection, buyers want $8,000 of
"problems" fixed. Some may be legit....some are cosmetic and "wish list" variety. In lieu of making repairs you agree to credit the buyers $5,000 back at closing. As this effectively reduces your sale price to $245,000....do you also ask broker to accept their 5% commission on the $245,000 number?

Granted, this saves you only $250..........$12,250 commission versus $12,500 but money is money. Is it standard to reduce broker commission by any credit given back to buyer's post home inspection? Thanks for responses.

 

[pb4uski]

Yes IMO. If you agree to make it a direct reduction of the purchase price then there would be no argument. If you do some sort of kickback at closing or agree to cover closing costs I still think it should be adjusted but there might be an argument not to.

Probably easiest to just make sure everyone is on the same page when the reduction is decided.

 

[manerac]

I have wondered about this for some time and wanted to hear how others have approached this issue.

You put your house on the market. You accept an offer brought to you by your real estate broker for $250,000. After the home inspection, buyers want $8,000 of "problems" fixed.

I don't get it. The buyer makes an offer. You accept it. Then later they want you to drop the price. In the old days you would have told them to take a hike and kept their earnest money. I'm guessing that the situation is different nowadays, with lawyers and courts putting sellers on the defensive.

 

[athena53]

I don't get it. The buyer makes an offer. You accept it. Then later they want you to drop the price.

There are some legitimate reasons to drop the price- mostly unexpected things that turn up during an inspection. I conceded $2,500 on one house I sold because the termite inspection found damage I hadn't known was there. You definitely tell them to take a hike if they want a reduction for things they knew about when they made the offer- older roof, older HVAC, cracked sidewalk, etc.

 

[bingybear]

I don't get it. The buyer makes an offer. You accept it. Then later they want you to drop the price. In the old days you would have told them to take a hike and kept their earnest money. I'm guessing that the situation is different nowadays, with lawyers and courts putting sellers on the defensive.

Many offers have contingencies... like passing a home inspection. This may or may not have a clause for doing repairs. So if the home inspection finds issues, the buyer can request repair to fix a "failing" inspection or has the right to get out of the contract.

Things haven't really changed other than more people are putting these clauses into the contracts.

 

[pb4uski]

I don't get it. The buyer makes an offer. You accept it. Then later they want you to drop the price. In the old days you would have told them to take a hike and kept their earnest money. I'm guessing that the situation is different nowadays, with lawyers and courts putting sellers on the defensive.

You are right, the current market is different from the old days, but not necessarily because of lawyers or courts... the market has just evolved. Typically, these days an offer is contingent upon a home inspection. Ideally, the contract defines that there is no adjustment as long as the remedies for any deficiencies are less than $x, but few do and most just open a minor renegotiation if the home inspection turns up significant deficiencies. Some deficiencies may be things the owner is aware of and hope will not be discovered, others may be for things the owner was unaware of or has simply forgot or overlooked.

There are normally numerous ways that a contract can be terminated without the buyer sacrificing their earnest money unless there are no contingencies at all.

 

[W2R]

Is it standard to reduce broker commission by any credit given back to buyer's post home inspection? Thanks for responses.

I'd imagine that this depends on what the contract says.

This happened when I bought my new home. The sellers agreed to do $25,000 worth of repairs, but towards the end asked if I'd rather have a $2500 reimbursement instead of getting the plumbing working in the bathroom in the detached garage. I chose the money.

The selling price specified in the contract remained the same, so the realtors got the same amount as they would have got otherwise, had the sellers not reimbursed me for the repairs.

 

[Senator]

In lieu of making repairs you agree to credit the buyers $5,000 back at closing. As this effectively reduces your sale price to $245,000....do you also ask broker to accept their 5% commission on the $245,000 number?

If you do this, you have not lowered the price, you have given up $5,000 at closing, off the $250K selling price.

If you want to save a commission, lower the selling price and do not give the buyer anything back.

The realtors commission is based on the actual selling price ($250K), not any 'effective' selling price ($245K).

All you need to do is add a Purchase Agreement Addendum that changes the purchase price to $245K.

 

[jazz4cash]

We had this experience on our the 1st home we sold. The home inspection turned up an issue with the chimney. I had no clue. The buyer wanted the chimney repaired but I suggested a credit at closing based on the average of two repair estimates I had obtained. It was my idea to offer the credit (agents were not helpful) mainly because I did not want any liability wrt the actual repair. The sales price stayed the same so no reduction in commission.

 

[Which Roger]

Many offers have contingencies... like passing a home inspection. This may or may not have a clause for doing repairs. So if the home inspection finds issues, the buyer can request repair to fix a "failing" inspection or has the right to get out of the contract.

Things haven't really changed other than more people are putting these clauses into the contracts.

I thought the home inspection clause was pretty standard. It was in the standard contract when I bought a house 25 years ago, and also when I bought another 2 years ago. The realtor put it this way: "If you have the home inspected, you can get out of the contract if they find a bent nail". More precisely, I can ask the seller to fix the bent nail. If seller refuses, I can get out of the contract.

 

[Texas Proud]

I don't get it. The buyer makes an offer. You accept it. Then later they want you to drop the price. In the old days you would have told them to take a hike and kept their earnest money. I'm guessing that the situation is different nowadays, with lawyers and courts putting sellers on the defensive.

I thought the home inspection clause was pretty standard. It was in the standard contract when I bought a house 25 years ago, and also when I bought another 2 years ago. The realtor put it this way: "If you have the home inspected, you can get out of the contract if they find a bent nail". More precisely, I can ask the seller to fix the bent nail. If seller refuses, I can get out of the contract.

+1 on what Roger said...

My first house had an inspection and I asked for a few things to be fixed... they fixed them...

When I sold it, the buyer asked for a discount instead of me fixing the problems... I gave them the discount...

On my current house... I had two contingencies.... one was passing the inspection and a second was to lower the price $5K if the roof or AC were over 10 years old... both were older, so the price went down... but, the inspection found a bad electrical panel and a few other items... the seller did not want to lower the price anymore and fixed the items...


There is no take a hike and keep the money... the money was contingent and the seller has to fix that contingency if asked... now, buyer can just say 'no deal' if it is too bad and just walk away with their money...

 

[Amethyst]

I cannot imagine buying a used house without an inspection contingency. A million things go wrong with houses, and the owner may not even know about some of them. It's even more important if you are buying out of state, and may only have had a couple quick visits to the house before making an offer and heading home.

 

[Senator]

If you do this, you have not lowered the price, you have given up $5,000 at closing, off the $250K selling price.

If you want to save a commission, lower the selling price and do not give the buyer anything back.

The realtors commission is based on the actual selling price ($250K), not any 'effective' selling price ($245K).

All you need to do is add a Purchase Agreement Addendum that changes the purchase price to $245K.

Another point. Most banks will not loan money on a $250K home with more than 3% cash back to the buyer. If you are already paying 3% for closing costs, you cannot give another $5K back. That would kill the deal.

In the 'old days', this was common practice. Banks would loan $300K, and the buyer would get $50K back at closing for 'fix ups' that were never completed.

 

[pb4uski]

Sounds like it would be easiest to just agree to lower the price by $5k then there is no question that the commission would be lower.

 

[Texas Proud]

Another point. Most banks will not loan money on a $250K home with more than 3% cash back to the buyer. If you are already paying 3% for closing costs, you cannot give another $5K back. That would kill the deal.

In the 'old days', this was common practice. Banks would loan $300K, and the buyer would get $50K back at closing for 'fix ups' that were never completed.

I did it a bit different... I negotiated that they put money into an escrow for me to fix things that were wrong.... and they would get back any money not spent... needless to say, I spent it all.... but, who knows for sure if today is different than when this happened many years ago....

 

[MrLoco]

I am the OP. Just wanted to say thanks to all those who responded. Really happy I found this forum. Seems like the easiest thing to do is just rewrite the Purchase and Sales Agreement at the lower price thus locking in the commission at that price. Thanks again!

 

[pb4uski]

No need to rewrite the P&S, just a simple one page amendment changing the purchase price will do. If the inspection is complete then the amendment can nullify that as well.

 

[RetireBy90]

I sold my house in 2007, when it was not easy for realtor. Ended up with good sales piece, but comp'd $5K for closing costs. It didn't change purchase price or commission and I'm good with that. No need to throw $$ away, I spent too much time saving what we have. On the other hand, remember you are talking about $250K, so I don't want to get hung up on relatively small percentage of the total deal. My agent spent out of pocket to advertise, get pics by a pro, $250 for sign out front. Just remember you aren't doing a $50 deal for a couch. Commission saved on $8K is what $480 ? Everyone should leave table happy but not too happy.

 

[Debinnov a]

I'm in the process of selling a home and I'm in a similar situation. The buyers added $$$$ to the price of the house because VA loan requires seller to pay a minimum % of their closings costs. We agreed and I'm not sure if it was because of my "retirement brain" or what, but I didn't think about the fact that we are paying a higher commission because of the inflated sales price, but are netting less. Realtor did not bring it up and settlement is less than two weeks away so I guess its too late to do anything now. I think it will only be about $500 additional in commission compared to paying commission on the net. I should have caught it sooner.

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