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Does a Seller Need to Negotiate In Response to a Building and Pest Report?

The chain of events has almost become predictable at this point: A seller puts their property on the market, a round of negotiations ensue and a willing buyer enters into a contract on fairly standard conditions.

One of those conditions is, of course, that a building and pest inspection be undertaken for the buyer within a certain time.

The buyer arranges the inspections and…unsurprisingly, one day before the time expires the seller’s solicitors receive a letter outlining all the issues the inspection found with the property accompanied by a request for either rectification or re-negotiation of the purchase price.

But as a seller, do you need to do give such a request any thought?

Well, there are two ways to approach the question: the simple legal answer, and the more nuanced practical answers.

The Simple Legal Answer

Does a seller need to entertain a negotiation request after the buyer’s building and pest inspection? No.

At least… not usually.

In most cases, the one and only remedy that a buyer has if they do not receive a satisfactory building and/or pest report from an inspector is to terminate the contract.

Of course, there are some requirements for the buyer there too, but we’re not going to talk about those in this article.

There are, however, a few more nuanced answers to the question that are worth discussing.

Exceptions to the Simple Answer

It’s important to get legal advice before simply ignoring a buyer’s request in response to a building and pest inspection.

While most building issues are at the buyer’s risk, there are some items that you as the seller had to warrant or deal with as part of the contract in the first place.

So, for example, if you said there was a safety switch and there wasn’t, then that could be something you need to attend to. Likewise, if you haven’t installed compliant smoke alarms but said you had then that’s an issue too.

Similarly, there are certain specific requirements for pool safety that fall outside the normal building and pest regime to consider too.

But those kinds of specific things (there are a few more) aside, we’re really talking about here some more generic commentary that comes up during the building and pest inspection.

In that case, you might need to consider things from a slightly different perspective, and ask yourself some different questions before deciding to renegotiate or ignore the buyer’s requests.

The Unanswerable Question: Is it a bit of a Try On?

Literally all of us would save a few bucks if we could.

And the financial pressures of buying a house and land are considerable.

So any buyer is going to take an opportunity to try and knock a bit more off the purchase price if they can.

The hard part to know for sure is: are they just testing the waters, or would they seriously consider terminating if you don’t come to the party and renegotiate the price you already negotiated a couple of weeks earlier?

That’s a hard question to answer. Your seller’s agent might possibly be able to get a bit of insight, but that’s not always the case.

As often as not you are left guessing, which means that you’re going to need to think about a few other areas to decide how to respond.

What’s the Market Like?

If you listed your house for $1,000,000 on agent’s advice and within 24 hours you had a contract on it for $1,250,000 then you’re doing pretty well so far.

But what if the buyer asks for a $300,000 reduction in the purchase price based on the outcome of their building and pest inspection, because the inspector didn’t think the foundations were up to muster?

You could, probably rationally, reject that request and be comfortable with your ability to get another contract pretty quickly. With your own knowledge of the property you would be likely unaware of any such issues, and so you’re probably inclined to reject it as not being a genuine concern.

But what if the NEW buyer has the same issue? What if it’s a legitimate concern that you just didn’t know about?

That leads to…

Did you Get a Seller’s Building and Pest Inspection?

While it’s not particularly common, as a seller it is entirely possible for you to get a building and pest inspection of your own before putting the house on the market.

That way, by and large, you should have something like a report very similar to the one the buyer is going to get.

Did it identify this as a potential issue?

If so, then you can be confident it’s going to come up.

If not, then it could be in the “difference of opinion” category, or perhaps it’s something your inspector didn’t check. You could try to contact them and ask if possible.

Was it Already Priced In?

There is a considerable difference between:

1.      The inspector found some rot in timbers that were otherwise hidden and nobody knew about; and

2.      The inspector identified the paint around the front door was flaking a bit.

The first is something that you plausibly had no idea about, offers a potentially real concern, and which could potentially be costly to repair.

The second is something that every single buyer should be aware of already, because it’s bleeding obvious to everyone who walks in.

The overall visible condition of the property has almost certainly been priced into the negotiated contract amount already. If some areas are dilapidated or run down, needing paintwork or repair, then by and large the market has already taken these things into account when negotiating the original price.

The fact that a building inspector mentions them as well shouldn’t necessarily be legitimate grounds for renegotiation if the contract price represents the fair market value of the property.

What’s your Timeline?

Sometimes sales are casual and you have all the time you might need to secure a deal on the terms you can live with.

Other times, you just need to get the place sold so you can close that chapter of your story.

If time is urgent, then for the sake of not having to put the property back on the market and continue inspections (with all the associated upkeep, cleaning and staging) then you might give the buyer some kind of reasonable adjustment based on the concerns raised in order to keep things moving along.

In short – if time has value to you, then you can translate that directly into a contract price adjustment if you prefer.

What Price Bracket are you In?

If you are seller a premium property for premium prices to high ticket buyers – then they are going to have higher expectations around the overall hidden property condition, and will naturally expect a high percentage of the property to be in good working order and also good condition aligned with the property price.

If you are in a lower price bracket, then expectations will probably be adjusted accordingly (or, at least, should reasonably be adjusted accordingly).

So it’s worth taking into account the expectations of the market you are in, if you didn’t do that earlier when preparing the place for sale.

So What’s the Answer?

It’s not a one-size-fits-all answer.

Some will reject any further negotiations out of hand. Otherwise will be happy to negotiate a bit more in the interests of keeping the contract on foot and progressing the sale.

Ultimately, it’s a good time to take some quick advice from both your lawyers and your agent, determine your most reasonable course of action, and go from there.

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