How do you budget for unexpected home repairs before closing?

Inspecting the property before making an offer is like performing a medical diagnosis; you need to identify any issues before they become a costly headache. As a Real Estate Advisor, I always recommend that my clients hire a professional home inspector for a thorough assessment. This step is crucial to avoid unexpected expenses. Additionally, I advise buyers to do their own walkthrough, paying close attention to signs of damage or wear. With a clear list of potential repairs, you can create a more accurate budget, allowing for more informed negotiations and avoiding unexpected costs after closing.

?? First Time Home Buyers - Inspecting the property is just one step in the transactional process and one that should be completed. Then you need to assess how the condition of the house will impact your lifestyle and what financial obligations you will have in five, ten years etc. It's more than someone saying - well just set aside some money for big ticket items. There are great resources that can give you an idea on what these big ticket items will cost in your area, and then there will be inflation as well. In addition to the "condition" depending upon the age are the construction materials used and if there has been water that has caused any problems. There are many ways to fix an issue - don't get scared off by deferred maintenance.

A thorough home inspection is essential for budgeting for unexpected repairs. By identifying potential issues before closing, you can avoid costly surprises and make informed decisions. Set aside a contingency fund, consider a home warranty, and be proactive about maintenance. These steps will help you prepare for any challenges that may arise and ensure a smooth homeownership experience.

Since the market has turned more to a Buyer's market recently vs. the Seller's market we've seen over the last few years, Buyers are encouraged to do a home inspection so they have a solid idea of the costs that may lay ahead for them, or if you get the property at a GREAT price without a home inspection, then put some of that money aside for big ticket items that might be near the end of their life such as Roof, windows, A/C, furnace. You may get another 6 years out of that furnace but at least you'll have the money set aside for when it goes!

To budget for unexpected home repairs before closing, inspect the property thoroughly, review inspection reports, and research local costs to estimate repair expenses. Set aside 1-3% of the purchase price in a contingency fund, consider a home warranty, and prioritize essential repairs. Review seller disclosures, get multiple quotes for major repairs, and plan for ongoing maintenance costs to avoid financial surprises after closing.

Negotiating unexpected repairs before closing is one of the key skills in buying a property. I've seen how a home inspection report can become a powerful negotiation tool. When necessary repairs are identified, it's essential to be strategic and maintain open communication with the seller. My approach involves assessing the severity of the issues and proposing solutions that benefit both parties, such as requesting a price reduction, asking for a credit at closing, or even having the seller complete the repairs before closing. The key is to be realistic yet firm, using my experience to guide clients toward the best possible outcome.

Ask your Realtor to ask about the age of the roof, furnace, air and windows ahead of the offer , this gives heads up to the other agent and Seller that you're aware of these aging big ticket items and try and negotiate from there. Using the home inspection as an excuse to negotiate is often too late and the Seller might not want to budge on price despite the inspection report. If your agent negotiates well at the beginning, it's a win win if the home inspection fares well. If the big ticket items have only a few years left but you've negotiated $10's of thousands of $$$ off , then you will have the funds in your pocket and won't mind to update the furnace for $5000 for example when you saved $50-80,000 off the price of the house.

?? People say "Once you have the inspection report, you can use it as a tool to negotiate with the seller. Depending on the severity and urgency of the repairs, you can ask the seller to either fix them before closing, lower the price of the home, or offer you a credit at closing." I don't like this strategy - not because I dont want you to negotiate - I want you to recognize the issues BEFORE you make the offer. Yes, sometimes you can't see the issues relying on tests - but houses actually speak to you if you know the signs. Then of course, this is a negotiation process and that too, you as a First Time Homebuyer will need to interview the professionals helping you so you know the negotiation process is completed to your satisfaction.

Identify the most critical repairs and focus on those that pose safety or functionality concerns. Assess how the necessary repairs will impact the overall value of the property.

After receiving the inspection report, negotiate with the seller by identifying major issues, prioritizing repairs, and requesting fixes or credits. Share the report and estimates to support your requests, and be flexible and open to compromise. You can say something like, "Based on the inspection report, we're concerned about the roof condition and would like to request [repair/credit]. Can we discuss possible solutions?" This approach helps you address concerns and find mutually beneficial solutions.

?? Ever heard this? "Even if you negotiate a favorable deal with the seller, you should still set aside some money for unexpected home repairs before closing... A contingency fund can help you cover any unforeseen expenses and avoid financial stress. A general rule of thumb is to save at least 1% of the purchase price of the home for repairs and maintenance." Most First Time Homebuyers get a pre-approval letter from a banker & go shopping - not so fast - Home Maintenance is not included in your affordability and so really its back to your budget before shopping - a Projected Budget is key to affordability! Eliminate Homebuyer remorse by becoming educated! Empower yourself!

After closing, establish a routine maintenance schedule to address minor issues before they become major problems. Regular upkeep can extend the life of your home's systems and prevent costly repairs.

I once had a client who negotiated a great deal on an older home. Despite a smooth inspection, a storm just before closing caused a roof leak. Thankfully, they had set aside a contingency fund, allowing them to cover the repairs without delaying the closing or facing financial stress. This reinforced the importance of saving at least 1% of the home’s purchase price for unexpected repairs. No matter how well things go, having a financial cushion ensures peace of mind and readiness for unforeseen issues.

Even with a solid inspection and negotiations, things can still go wrong—like a leaky roof or a broken HVAC. A good rule of thumb is to save 1-3% of the property's value each year for these unplanned expenses. Think of it as your safety net. That way, when something unexpected happens, you’re not scrambling for cash. Having that fund in place gives you peace of mind and keeps your budget on track.

??First Time Homebuyers?? Budgeting for an expensive repair in 2-3 years is much like saving for a down payment. 1. Estimate the Repair Cost - get quotes & factor in inflation & 10-15% buffer for unexpected issues. 2. Break Down the Goal into a monthly expense - Divide the total amount by the number of months into the repair to determine how much you need to save each month. ($10,000 in 3 years (36 months), you’d need to save about $278 per month) 3. Open a Separate Account with a high yield & set up automatic monthly withdrawal. 4. Identify areas where you can cut back or reallocate funds or consider extra income. If necessary, look for additional income streams or side gigs to help reach your target. 5. Monitor and Adjust

When prioritizing repairs, focus on essential and safety-related issues first, such as: 1. Fire hazards (e.g., faulty electrical systems, damaged chimneys) 2. Water damage and leaks (e.g., roof, plumbing, foundation issues) 3. Structural damage (e.g., foundation cracks, sagging floors) 4. Safety risks (e.g., mold, asbestos, lead paint) 5. Functional issues (e.g., plumbing, HVAC, electrical system problems) These repairs should take precedence over cosmetic issues like: 1. Paint and wallpaper 2. Flooring and carpeting 3. Kitchen and bathroom updates 4. Landscaping and exterior paint By addressing critical repairs first, you'll ensure a safe and functional living space, preventing potential disasters and costly future repairs.

Safety first: Address repairs that pose safety risks immediately. This includes issues like electrical hazards, structural damage, or plumbing leaks that could lead to water damage. Legal compliance: Ensure your home meets all local building codes and regulations. This might involve updating outdated wiring, fixing code violations, or addressing issues flagged during inspection. Comfort and Functionality: Prioritize repairs that prevent damage and save money in the long run. Cosmetic Upgrades: Once the essential repairs are taken care of, you can focus on cosmetic upgrades. These can enhance the aesthetic appeal of your home and increase its value, but they can be done gradually as your budget allows.

Early in my career, I worked with a buyer who fell in love with a charming fixer-upper. After closing, they discovered the roof had significant leaks and the electrical system was outdated—issues that needed immediate attention. While they had big plans to renovate the kitchen and get new carpet, I advised them to first tackle these critical repairs for safety and comfort. They prioritized fixing the roof and electrical system, ensuring their new home was safe and secure. The cosmetic upgrades came later, allowing them to upgrade their kitchen's previous renovation concept to include their growing family.

Prioritize the repairs based on urgency and importance. Not all issues are created equal; some repairs need immediate attention, like a leaking roof or plumbing problems, while others can wait a bit longer. Make a list of the repairs needed and categorize them as urgent, necessary, or nice-to-have. This way, you can allocate your contingency fund effectively and tackle the most pressing issues first. Plus, it helps you stay organized and avoid feeling overwhelmed. Keeping your focus on the essentials will ensure your property remains safe and comfortable while you gradually address other repairs.

Ensure contractors have the necessary licenses and insurance to protect your interests. Request references from previous clients and contact them to get feedback on the contractor's work.

Don’t just go with the first name you find; take the time to compare prices, check reviews, and ask for recommendations from friends or connections. Getting multiple quotes can help you gauge the average cost and ensure you’re not overpaying. Plus, talking to different contractors can give you a feel for their expertise and reliability. Building a good relationship with trustworthy pros can also save you time and stress in the long run. Remember, quality work is worth it, so do your homework before making a choice!

Verify Credentials and Insurance: Ensure that the contractors you consider are properly licensed and insured. This protects you from liability in case of accidents and ensures that the contractor meets industry standards. Check References and Reviews: Ask for references from previous clients and read online reviews to gauge the contractor's reliability and quality of work. Visiting past projects can provide a firsthand look at their craftsmanship. Detailed Written Estimates: Request detailed written estimates from each contractor. This should include a breakdown of labor, materials, and other costs. A clear estimate helps you compare bids more accurately and prevents unexpected expenses.

??First Time Home Buyers ?? The other perspectives are good that are listed here and here's another strategy. Start small. If you really don't know the contractor and you need a big, huge job, see if you can find a smaller job and have that person work with you. That way you will be able to see if you can develop a working relationship. You will learn the handyman or contractor's skill set. You must supervise and check-in with the person doing the work so, if something isn't done the way you like, a correction can be made early in the process. Ask your neighbors too they often have great resources.

When you're hiring a contractor and you're new to the area... go with someone that's been trusted by many others before you. HomeStars for example is an excellent resource tool in Ontario. They'll be well skilled and they're exposed online with referrals, testimonials and endorsements. Hiring someone on facebook for example could be great- but you could also be hiring a total stranger in and around your home. Either know them- to know their work and expertise or go to a reputable sight such as HomeStars that recognizes professional work they've done in the past.

Start Small: Begin with projects that require minimal tools and experience. Tasks like painting a room, replacing cabinet hardware, or fixing a squeaky door can build your confidence and skills. Online Resources: Utilize online tutorials, videos, and forums to learn new skills. Websites like YouTube, DIY blogs, and home improvement sites offer step-by-step guides for a wide range of projects. Safety First: Always prioritize safety when undertaking DIY projects. Wear appropriate protective gear, follow instructions carefully, and know when to call in a professional to avoid accidents and ensure quality work

?? First Time Home Buyers?? DYI is A Lot of Fun but be careful not to take on projects that are beyond your abilities or require professional expertise, such as plumbing, electrical, or structural work. this is when you really get to make you house your own and there are so many places to look for inspiration. Just take your time and select things. items, and themes you can live with for many years. This will save you money in the long run!

Start an operating fund and plan as you tour prospective homes. Know the ages and conditions of all major components, expected life span and replacement cost. Begin contributing to a fund with each mortgage payment that you only use to fund those large, unexpected repairs. Keep your mortgage payment in line with your ability to handle routine repairs without becoming "house poor" as some might say. Stretching your purchase budget to the limit will come back in the end as an unexpected expense.

After receiving the inspection report, negotiate with the seller by identifying major issues, prioritizing repairs, and requesting fixes or credits. Share the report and estimates to support your requests, and be flexible and open to compromise.

The other contributors here give great ideas on what to do when you are in the process and have committed - my suggestion is to think about this piece before you start shopping. Often times mortgage agents give you a pre-approval and you assume that's your max price but, it's not - that is just the mortgage - you have to consider insurance, home maintenance and repairs. My advice is to do a forecasted budget. I have only serviced one - one client that hasn't done something to their house so, in the beginning budget for that so you don't' have buyer's remorse and be house poor.

I once worked with a client who inherited a house from a family member. While they were eager to sell, I advised them to first set up a trust bank account. This step is crucial for managing the estate’s finances and ensuring the proceeds from the sale are properly handled. This could have delayed his escrow process. Selling an inherited home involves unique challenges—like dealing with potential tax implications, clearing out years of accumulated personal belongings, and sometimes addressing outdated maintenance. By taking these steps, my client was able to navigate the process smoothly, secure their finances, and make the most of their inheritance.