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Renegotiating Price After Building Inspection
163 Plays1 year ago
Found your dream home only to get a disappointing building and pest report? Don't panic! This episode turns a potential disaster into a bargaining chip. We'll cover how to renegotiate the price, request repairs, or even walk away if it's just not worth it. Plus, the real-life story of Sarah and Ben who saved $15k using these strategies!
Want expert help navigating the inspection process? Visit us at huntergalloway.com.au for personalised support.
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Transcript
Journey to Buy a House
00:00:00
Speaker
After countless inspections and maybe a few heartbreaks, you've finally found the one. You make an offer, hold your breath, and it's accepted. But before you start planning the housewarming, here comes the building pest report. A building inspection can be a real eye opener. And while you might be hoping for a clean bill of health, sometimes it reveals problems you hadn't even considered. Cracks in the foundation, pest infestations, or maybe something a little less dramatic, but still costly. And this is where things get really tricky.
00:00:26
Speaker
Should you walk away, possibly missing out on your dream home? Or can you use the new knowledge from your billing and pest report to your advantage and renegotiate the price? Well today, we're gonna step through this exact situation and show you how you can turn the tables and use the billing and pest report to your advantage. The reality is knowing options can save you thousands and ensure you're making the best decision of your financial life. Like some of our clients, Sarah and Ben, who managed to save $15,000 from their purchase price after they did the pest inspection. We'll check in with them how they did it later.
Introduction to the Podcast
00:00:54
Speaker
Welcome to the Buying Your First Home Podcast, your personal guide through the Australian housing market. Here we tackle the big questions and the small details that come up when buying your first home. From financial prep to finding the right neighbourhood, we're here to ensure that you've got all the knowledge at your fingertips.
Leveraging Inspections for Price Negotiations
00:01:10
Speaker
So let's take the first step towards unlocking the door to your new home.
00:01:19
Speaker
All right, so let's get into it. Why would you renegotiate after a pest inspection? The reality is finding out your dream home has flaws can be a real bummer. But before you panic and think that those months of research have come to nothing, there is a bit of a silver lining. A building inspection gives you a powerful tool, leverage. Think of it this way.
00:01:36
Speaker
As a buyer, you made your initial offer based on the assumption that the property was in a certain condition. If the inspection reveals hidden problems, it changes that equation. The issues that you've identified can directly impact the property value. And here's where the renegotiation comes in. It protects you from overpaying. You shouldn't have to pay top dollar for a house that needs significant repairs.
00:01:54
Speaker
Re-negotiating lets you adjust the price to reflect the true value of the property. Secondly, you can address future costs. Issues like termite damage or a leaky roof won't just fix themselves. Addressing them now through a renegotiated price can save you even bigger headaches and expenses down the road. And the third reason is just fairness.
00:02:10
Speaker
Re-negotiating ensures you get a fair deal and at the end of the day, you deserve to know what you're really buying into. Building inspection isn't just about finding problems. It's really just empowering you to make the best financial decisions for your future house. So now I've covered that, let's go into the more practical stuff.
Effective Negotiation Strategies
00:02:24
Speaker
I'll walk you through the main options to renegotiate after you've had a building and pest inspection. Option one, a price reduction.
00:02:30
Speaker
Let's say the inspection reveals some legitimate concerns and fixing them is going to cost a huge chunk of cash. This is where you might want to renegotiate a price reduction. Here's how to approach this. Firstly, understand the issues. Don't just skim through the report, take time to read it, understand the problems identified, even give the billion-pest inspector a call.
00:02:45
Speaker
Are they major structural concerns or just something cosmetic or something in between? Second, get your estimates. All right, time to grab your calculator. You want to get quotes from qualified tradespeople to get a realistic understanding of how much the repairs are going to cost. Having legitimate quotes is going to be your biggest bargaining chip, but you can always try and get an estimate over the phone to understand what it's going to cost you. Thirdly, seek professional advice. If you're dealing with serious issues, it's wise to consult a qualified builder or your mortgage broker to see if these repairs are going to impact the way the banks then value the property.
00:03:13
Speaker
And lastly, time to negotiate with the seller. This is where the real conversation begins. You'll probably negotiate by the seller's agent. If you don't feel comfortable with that, some people just do it via your own conveyor. You can send them an email saying, hey, we've identified these issues. Please request a product production of $15,000 on this basis.
00:03:29
Speaker
It's entirely up to you if you go via your conveyance sale or you speak directly to real estate agent, but just be prepared for a bit of back and forth. It's not often that they just say, yep, I'm gonna take a $15,000 hit. Thanks for coming, see you later. It's worth thinking about too, smaller cosmetic issues could be worth fixing yourself. So these aren't gonna be a fantastic bargaining tool. If the wall's missing a bit of paint, there's some chip balustrades, it's probably not gonna help compared to bigger ticket items that would actually reduce the sale price and risk them losing the sale. So now I've covered price-free negotiation and depending on the seller's situation, this could or could not work.
00:03:58
Speaker
Which brings us to option number two, requesting repairs. Sometimes asking for a price reduction might not be your ideal situation. Maybe the repairs are essential for the home's safety or functionality and you just prefer the seller to handle them and it's all sorted out before you move into the home. Here's a few things you want to think about. Firstly, prioritize with the major repairs.
00:04:16
Speaker
Focus on the repairs that are crucial and could significantly affect the quality of life or the property's actual value. Think of them like major structural problems, faulty roof, major electrical issues, or pest infensations. Next, try and be realistic. Not every minor perfection warrants a cell's fixing. You want to be a bit selective here and put your requests that aren't overly demanding or derail your negotiations.
00:04:36
Speaker
Third, know your rights. Research local regulations or talk to your conveyors that understand if the issues you've identified are breaches of contract and if the seller is legally required to fix them. And remember to document everything. Keep records of your conversation just to chat with the real estate agent with them saying, yeah, we're going to totally fix that before settlement doesn't count for anything. Make sure you send an email, send a text message, keep records of that because these records are going to be crucial if ever a disagreement arises.
Legal and Financial Considerations in Negotiations
00:05:00
Speaker
Remember, successfully negotiating repairs often depends on how motivated the seller is to complete the sale. So you're going to need to consider that angle when you're asking for these requests. If there are no rush or there's a backup offer that's unconditional, you might have less leverage. Arrange your price reduction. All right, so you've had your inspection results for repair estimates, you've spoken with the agent, you've negotiated a $10,000 price drop. What actually happens now? Do they give you the $10,000 settlement? This is where there's two actual pathways to follow for your solicit to update the contract price.
00:05:26
Speaker
The first one is a deed of variation. If you're looking at a significant price reduction, a deed of variation is the way to go. This is a legal document drawn up by the lawyers to officially show the changes in the contract price. So if you'd agreed on 600,000, that was going to be a $10,000 drop, the deed of variation keeps the original contract to sell in place because if you rip that up, then potentially they can terminate the contract and walk away. They don't want to do that.
00:05:47
Speaker
They'll do a deed of variation to drop it to $590,000 and the big benefit here is you're paying stamp duty on a lower amount. So the deed of variation, the stamp duty is calculated on the lower purchase price. So in this case, you're going to be paying stamp duty on $590,000. The downside to getting a deed of variation is the legal fees. Usually, solicitors will charge money to drop the deed of variation, but it's worth considering the difference in stamp duty because sometimes that can be thousands of dollars. The second method for reducing the purchase price after you've renegotiated is a settlement adjustment.
00:06:14
Speaker
For smaller price changes, this can simplify things. Instead of changing the contract, you and the seller agree on a reduced amount as adjusted at settlement. Different states have different rules around there. Some lawyers even won't let you do a bigger settlement adjustment than $500. Speak to your solicitor conveyance about this and see what they can do. The downside is you're going to still be paying stamp duty on the original purchase price. So if it was a $600,000 purchase, $10,000 adjustment, they're still going to be calculating stamp duty on the $600,000 as there's a $10,000 adjustment at settlement.
00:06:41
Speaker
Now, the most important thing here, whichever route you do, either way, you need to inform your bank and your mortgage broker.
Withdrawing an Offer: When and How
00:06:47
Speaker
The main reason is your home loan is based on the property's value. So the lender is going to need to know if that's changed because it could affect their LVR, lender's mortgage insurance and other assessments. But what happens if things just aren't working out? Can you actually walk away from the deal? Let's talk through withdrawing your offer.
00:07:00
Speaker
Imagine a worst case scenario, the inspection reveals a major issue. Cracks in the foundations, excessive pest damage or something equally severe. Or maybe the seller just refuses to budge on the repairs or price reduction. In these cases, it might be time to reconsider your offer. This is where the process is going to change state by state. I'm going to break down what happens in Queensland before acceptance.
00:07:19
Speaker
If the offer hasn't been signed by the seller, you can freely withdraw it. Just make to do so in writing and submit it to the agent as soon as possible. This is where you can use a deadline to help with the negotiations. You could include an expiry date in your offer, giving the seller a limited time to accept. If it expires, your offer is automatically off the table. In Queensland, you can also have a building pest clause. So if an issue happens in the 14 days, you might have three billion pest clause. You can potentially terminate the contract without penalty. Speak with your solicitor or conveyance from this on the exact steps. But if that building pest report isn't satisfactory to you, that's what the clause is there for.
00:07:49
Speaker
So let's chat about Sarah and Ben's $15,000 success story. Sarah and Ben were over the moon that offers acceptance on an awesome, older Queenslander. But as is the emotion rollercoaster that buying a property is, their excitement turned to worry when their inspection report revealed the leaky roof with potential water damage. Now this is obviously a costly fix and they didn't want to really overpay for the property. So here's how they handled it. Firstly, they got the facts.
00:08:11
Speaker
Serenbent went online and got two quotes from a few local roof repair agencies. The estimates for the repair, including fixing any internal damage, ranged from $12,000. The second was $18,000. Next, they presented their findings to the seller's agent, along with a clear request for a $15,000 price reduction. So the good thing here is it wasn't just a random number. They gave them the two quotes. They said it's going to cost somewhere between $12,000 and $18,000. $15,000 is fair. Now, as is always the case, the seller was hesitant. They only wanted to reduce by 10.
00:08:36
Speaker
and after some back and forth, they agreed on a price reduction of $15,000. They spoke with the conveyor and their mortgage broker. The conveyor drew up a deed of variation to reduce the purchase price for $15,000 and actually save them a bit on stamp duty as well. A few weeks later, Sarah and Ben moved into their home with a new roof and a few thousand dollars of savings.
00:08:52
Speaker
Alright, so we've covered a lot of ground, but here's what you need to know. Finding a problem after a billion inspection can be stressful, but it can also give you a bit of power.
Concluding Thoughts on Successful Home Buying
00:09:00
Speaker
Whether it's a price reduction or requesting repairs, use those inspection results to get a fair deal that reflects the true value of the property. Remember to know your options. You can choose an approach that works best for you. Don't be afraid to walk away from the deal if it just isn't the right fit, or to require way more repairs than you initially signed up for. And don't be afraid to get some advice.
00:09:16
Speaker
Speak to the conveyancer, broker, local builders are really going to help you through this process to understand what it's actually going to cost. At the end of the day, a billing inspection is an investment in your future. By taking time to understand your options and taking informed decisions, you'll ensure that you're purchasing your dream home and not someone else's problems. At Hunter Galloway, we're the home for home buyers across Australia. If you need help with finance, hit us up at Hunter Galloway and come to AU. Until next time, see ya.