One of the most misunderstood moments in a real estate transaction happens after the contract is signed and inspections and financing are underway. A repair issue comes up, and everyone assumes it is simply a matter of deciding whether the seller will fix it.
Unfortunately, it is not always that simple.
There is a significant difference between a repair requested by a buyer and a repair required by a lender as a condition of financing. Sellers need to understand that distinction before accepting an offer—particularly when considering FHA, VA, USDA, or other financing where property-condition requirements may become part of the lending decision.
When the Buyer Requests a Repair
Let's start with the more familiar situation.
A buyer has the home inspected, the inspector identifies several concerns, and the buyer asks the seller to address some of them.
Maybe there is a plumbing leak. Perhaps the HVAC system needs servicing. The inspector may find damaged wood, an electrical concern, moisture in the crawlspace, or a roof nearing the end of its useful life.
These are buyer-requested repairs.
Depending on the contract and applicable South Carolina real estate law, the parties may have several options. The seller might agree to make the repair. The seller might agree to some repairs but decline others. The parties might negotiate a credit or other concession when permitted by the contract and lender. Or the seller may point out that the home's condition was already reflected in the agreed-upon price.
In other words, there is generally a negotiation between buyer and seller, subject to the terms of the contract.
That distinction becomes especially important when a property has already been priced below comparable homes because of its condition.
Suppose similar updated homes are selling around $350,000, but a particular property is priced at $315,000 because it needs a roof, cosmetic updating and other improvements. A buyer may still request those repairs, but the seller has a reasonable negotiating position: We already accounted for those deficiencies in the price.
Whether that argument ultimately carries the day depends on the contract and the parties, but there is room for negotiation.
When the Lender Says the Loan Is "Subject To" Repairs
Now we have a very different situation.
During the financing process, an appraiser or lender may identify a property condition that must be corrected before the lender will fund the loan.
The loan approval or appraisal may essentially become subject to completion of specified repairs.
Those words can dramatically change the transaction.
At this point, we are no longer dealing solely with something the buyer would like the seller to repair. We may be dealing with something the lender says must be corrected before it will make the loan.
That's an important difference.
Imagine that a buyer asks for a roof replacement after an inspection. A seller might respond, "The roof's age was considered when we priced the property."
That is a negotiation.
But if the lender determines that a particular roof condition makes the property unacceptable under the applicable loan requirements, the conversation changes. Unless another financing solution can be found, the condition may need to be corrected before that lender will close the transaction.
The same problem can arise with peeling paint, damaged flooring, missing handrails, electrical hazards, plumbing problems, structural concerns, moisture issues and other health, safety or property-condition deficiencies, depending on the loan program and circumstances.
Why Sellers Need to Understand Financing Before Accepting an Offer
This is one reason I tell sellers that the highest offer is not necessarily the strongest offer.
Imagine receiving three offers for your home.
One is cash. Another uses conventional financing. The third uses government-backed financing and offers slightly more money.
It can be tempting to look only at the purchase price. But an experienced listing agent should evaluate much more than the number at the top of the contract.
We need to consider financing, contingencies, appraisal risk, closing timeline, concessions, the buyer's financial strength and—especially when a home has deferred maintenance—the likelihood that property-condition requirements could affect financing.
A $325,000 offer that closes smoothly may ultimately be far better for a seller than a $330,000 offer that creates thousands of dollars in required repairs or never reaches the closing table.
"But We Already Discounted the House"
This is where sellers understandably become frustrated.
Perhaps everyone knew the house needed work. Maybe the listing price was intentionally reduced by $20,000 or $30,000 because the roof was old, the flooring needed replacement and the property had deferred maintenance.
The seller accepts an offer believing the buyer is purchasing the home with those conditions reflected in the price.
Then the lender becomes involved.
If the lender requires a particular condition to be corrected, saying, "We already discounted the house for that," may not solve the financing problem. The lender is evaluating whether the property satisfies its lending requirements—not renegotiating the home's market value with the seller.
That is why the financing structure matters so much.
An Appraisal Is Not a Home Inspection
There is another important distinction.
A lender appraisal and a home inspection serve different purposes.
A home inspector performs a detailed evaluation of the home's systems and physical condition for the buyer. An appraiser's primary responsibility is establishing value for the lender, but the appraisal process can also identify observable property conditions that affect eligibility for a particular loan program.
An appraisal should therefore never be considered a substitute for a professional home inspection.
Likewise, passing a home inspection does not guarantee that a lender or appraiser will have no property-condition concerns.
They are different processes serving different purposes.
Can the Buyer Simply Pay for the Lender-Required Repair?
Sometimes solutions can be found, but this needs to be handled carefully.
Who performs repairs, who pays for them, whether repairs may occur before closing, whether money can be escrowed, and whether a lender permits a repair escrow can depend on the contract, lender, loan program and specific condition involved.
Never assume that a seller can simply give the buyer money at closing instead of completing a lender-required repair. A lender may require the work to be completed and subsequently inspected before authorizing funding.
This is why your Realtor®, lender and closing attorney need to communicate early when one of these issues appears.
The Best Repair Problem Is the One We Discover Before the Buyer Does
My philosophy when listing a home is simple:
No surprises.
I would much rather identify a potential problem before the property goes under contract than discover it two weeks before closing.
That does not mean I recommend that every seller renovate a home before putting it on the market. Quite the opposite. Many repairs and improvements will never return their full cost.
Instead, I want to identify the issues, understand them, determine whether they could create financing problems and develop the appropriate strategy before we put a sign in the yard.
If we know a roof is near the end of its useful life, let's discuss it.
If we have significant crawlspace moisture, let's investigate it.
If there is peeling exterior paint, damaged flooring, an unsafe deck or an obvious electrical concern, let's determine whether it could become an issue with the types of financing likely to be used by our buyers.
Then we can make an informed decision: repair it, price around it, disclose it appropriately, or structure our marketing and offer evaluation accordingly.
Price Isn't the Only Thing That Matters
Real estate negotiations involve much more than purchase price.
When I evaluate an offer for a seller, I am looking at the entire package: price, financing, appraisal exposure, inspection provisions, repair risk, concessions, earnest money, closing date and the probability that the transaction will actually close.
And when repairs enter the conversation, the first question should be:
Who is asking for the repair—the buyer or the lender?
Because those are two very different conversations.
A buyer-requested repair is generally part of the negotiation between buyer and seller under the contract.
A lender-required repair can become a condition of obtaining the money necessary to complete the purchase.
Understanding that difference before you accept an offer can save you money, frustration and, in some cases, an entire transaction.
If you're thinking about selling a home in Anderson, Greenville, Oconee, Pickens or elsewhere in Upstate South Carolina, the goal shouldn't simply be getting your home under contract.
The goal is getting it successfully from "For Sale" to "Sold."
