Which is best, a credit or a repair?
When putting your home up for sale, there is no shortage of things that must, should and could be done. We have spoken at length about the “must” and “should”. In this week’s #ProTipTuesday we will cover the pros and cons of a “could”: doing repairs vs offering a credit.
- Credits have a double benefit.
When selling a home, generally thoughts and plans have shifted to the future and the next home. Generally, sellers don’t like spending time, effort and available cash on a house after they have begun to say their good-byes. Buyers probably don’t have the same taste and might not see the full value of projects completed. A credit allows them the freedom to spend the money in the best way for their tastes.
- Will the repair be required by most lenders?
Depending on the deficiency, a lender may not approve the buyer’s loan without a repair being completed. Items like roof, HVAC, electrical and other major items must have a certain amount of life expectancy remaining or be up-to-code. In cases such as these, doing the repair might be the best choice. The buyer pool is significantly reduced if only cash offers can be accepted. We can get creative if you aren’t able to pay for repairs. Some contractors are willing to be paid after closing and other options may be available.
- Repairs may cost less than anticipated.
Throughout the years, we have noticed a big discrepancy between buyer’s expectations of repair costs and the actual cost of having the work done. Generally, buyers inflate the costs in their mind. Doing the work may be cheaper than the credit the buyer would agree to. (Usually, “a worst-case scenario” cost is determined and some allowance for overages is added.)
- Plans for renovation may render the repair obsolete.
If a potential buyer wants to renovate the bathroom, replacing cracked tiles would be a waste of time and money. There may be little to no return on your investment.
- A credit allows buyers to finance repairs at a lower rate.
Offering a credit allows buyers to bring less cash to the closing. In effect, that frees up cash for repairs later. If one were to finance the repairs outside of the mortgage, a loan (or credit card) would have a significantly higher rate.
- If the repair will result in an offer higher than the cost, the repair is a no-brainer.
This is sort-of a continuation of #3. If a buyer will offer $15K more after a $10K repair is done you shouldn’t hesitate to do the repair. Of course, it is difficult to determine this before an offer is made. If the repair request is a choice between a $15K repair credit or making the $10K repair, we have all the information needed to make a great financial decision.
We will work with you to develop a plan and negotiate the best terms. We have been part of hundreds of these negotiations on one side or the other. We know what many repairs are likely to cost, how important they might be to a potential buyer, and have great contacts with contractors who can give us quotes for the work.
