In some situations, particularly following an inspection of a property, a seller will be asked by a buyer to agree to a cash-back which will provide the buyer with funds necessary to complete repairs identified during that home inspection. Be careful before agreeing to such an arrangement as the following is a typical scenario.
If you are considering compensating the buyer for repairs identified during a home inspection, or for any other reason, here are some suggestions to more effectively deal with the situation.
1. Simply reduce the purchase price. By doing so, the buyer will fully understand their mortgage options well in advance of the completion date, and will minimize the potential for delays in completing your sale.
During the course of a real estate negotiation, you may hear someone suggest using a holdback to resolve an issue between the parties. One example is where a deficiency is noted during a home inspection. The buyer may ask the seller to make the appropriate repairs. However, to ensure the seller is sufficiently motivated to make such repairs, the buyer may propose holding back a portion of the sale proceeds until the repair is completed. In general, we recommend avoiding such holdback arrangements. Although they are intended to resolve a situation, they may in fact complicate the real estate transaction. The complication arises out of the following.
If a deficiency is noted which requires repair, it is far simpler to negotiate a reduction in the purchase price or provide payment to a third party and make the buyer responsible for the repairs. Please note, this can lead to complications for the buyer such as a reduction in their mortgage eligibility. We urge all buyers to read the Buyer’s Section of our website for details on this issue. This avoids disputes with respect to whether or not a repair has been adequately completed and gives a buyer full control over the manner in which a repair is completed.