Property Flaws Rectification: The Negotiating Battleground That Costs Inexperienced Buyers Greatly

One of the most common ways that purchasing that dream home can turn into a nightmare is when you start spotting faults that need fixing. You should always expect that issues will be flagged when purchasing a property second-hand. How you navigate those issues can mean all the difference to how happy you are with the eventual purchase.

If you’re lucky, the issues will be relatively small and easy to identify – the house might need a new layer of paint, birds might have torn up some of the fly screens, or perhaps the mailbox has been broken clean off. These small issues are easy to deal with one way or another, and are hardly going to prevent a negotiation between buyer and seller to fall through.

It’s when you have to deal with major plumbing issues, rising damp or termites in the woodwork that the subject becomes significantly more complex. This is also where the agents will start playing their games.

You can expect that an agent is going to be quite open about some areas of concern within a property. They’ll do this to build rapport and a sense of good faith trust with the buyer. They’ll also be quite happy to quote some rectification numbers that will sound quite reasonable. For example, an agent might say "the home needs restumping. I have had it looked at and it shouldn’t cost more than $20-$25K.” If you then take them at their word with that, don’t be surprised to discover that the project will actually set you back $30,000.

The agent’s goal here is simple: they want to get the buyer to an offer that the seller has accepted. They know that once someone is contracted to buy a property, they are going to be less likely to need to budge on the details. They’ll be less likely to need to accept the cost of rectification to reduce the agreed-on offer price, and they’ll be less likely to need to agree on the seller being responsible for the rectification. They have the buyer emotionally invested at that point, and they’re going to feel like they’re the ones with the cards.?

Three ways to approach negotiations around rectifications prior to going to contract

There are three different approaches that you can take around this subject as a buyer, and each has its own pros and cons:

1) ? ? As the purchaser, you can take on the responsibility of rectifications after you take ownership. In this scenario, you want to be very confident that you know how much it is going to cost to make all of those rectifications, so you should insist on a thorough inspection by a specialist before committing to the purchase. You will also need to consider what these additional costs will do to your cash reserves and borrowing capacity above the cost of the deposit and stamp duty – can you afford these critical repairs to make your new home liveable without putting yourself in financial distress?

2) ? ? You can also make it a requirement that the seller is responsible for any rectification costs. This protects you should anything be discovered during the entire process of buying the house. The potential downside to this is that any flaws that they do have to rectify could be done in the cheapest and lowest-quality manner, meaning that you’ll be up for the cost of further repairs earlier than you should be.

3) ? ? As a “middle ground” of sorts, you can agree to take on the responsibility of rectifications, but also insist on a thorough inspection and then use the faults found as a negotiating chip to lower the up-front cost of the home. The challenge to this approach is that an inexperienced negotiator might struggle and, as mentioned earlier, the emotional investment that they would have in the property by this stage is an advantage to the agent and seller.

While the third approach is the one that is most likely to result in a positive experience for the buyer, it’s also one that really relies on experience. Inexperienced buyers tend to do one of the following two things when a building inspection posed certain issues requiring work;

Firstly, they often panic and withdraw. The numbers involved in rectification work can be significant, and by failing to take the time to really understand the cost or importance of the work, many buyers miss out on something that could have been ideal for their needs.

Alternatively, many inexperienced buyers nervously commit to the home, despite their reservations and without any real negotiating strategy behind it, because they were emotionally invested and didn't want to miss out. In these instances, the property can quickly become a nightmare that puts them in financial distress.

This is why negotiating strategy, and having someone experienced in property and dealing with agents is so important. Too often an inexperienced buyer relies on the property inspection to determine what they should pay for a property, and too often, in the nuances of that, they end up missing out.