Negotiating Realities To Assist Your Client
Another point that I agree with Realtors on is the fact that it's none of your business if the client does or does not want to negotiate with the seller after your appraisal! You have no right sticking your nose into anything other than the appraisal itself. If the client asks you to help him out further with some negotiations, then you can provide this service if you would like. It's up to you. But let the client ask for your help, don't volunteer it.
Sometimes your client will ask you for your advice. They may want to know if any repairs or differences between the purchase price and the value estimate of your appraisal report should be negotiated with, or paid for by the seller. Tell them that it all depends on the flexibility of the seller. Some people are negotiable and some aren't. However, if he asks the seller, there are only two answers he can get, and one of those is great!
It's similar to finding termite damage in a house. In many states the seller of the house is required by law to pay for the removal of any termites found on the property. However, the seller doesn't have to sell you the house if he doesn't want to. He can just say, "Fine I'll pay for the termite treatment but I'm going to raise the sales price by the same amount". The point is, just tell the client that whether or not something is negotiable will always depend on the flexibility of the seller.
The seller is more likely to hire the guy who's the cheapest to save himself a few bucks. After all, he's selling the house and he's not going to have to live with any poor quality repairs in the home.
However, there is a very important concept that you want to tell your client about negotiating repairs or other factors that come up during your appraisal. Most of the time, if the seller is flexible, the seller will agree to have the repairs done at his own expense. You want to inform your client that if the seller has the repairs fixed at his expense, then he's probably going to get several estimates. Which contractor do you think the seller is going to hire: The guy who does high quality work at a high price or the guy who does low quality work at a low price? I'd say the seller is more likely to hire the guy who's the cheapest to save himself a few bucks. After all, he's selling the house and he's not going to have to live with any poor quality repairs in the home. I think your client might agree with that conclusion as well. So you should inform your client about this possibility.
Also, if the seller hires the contractor and pays him with his own check, then that contractor is responsible to the seller and not to your client. Therefore, if the contractor does poor quality work and your client buys the house and finds problems with the repair work done, then your client has no legal recourse. That contractor was hired and paid by the seller of the house and not by your client. Therefore, that contractor is generally only liable to the seller for his work. What are your client's chances of getting the seller to come back from his new home to your area to file a complaint and demand compensation against that contractor for poor quality work? ZERO!!!! Now, I'm not an attorney so you have to check this and all other legal aspects I'm telling you about with your own legal counsel. But the point I'm making is pretty clear. Just inform the client of these ideas and let the client decide what action they want to take. You'll find that this type of information is very helpful to your clients and you'll look like a hero when you open their eyes to it.
When hiring repair contractors you need to notify your client about some basic concepts. In most areas, contractors must be licensed and insured to do any repair work. The local town hall could verify this information. Insurance coverage should be for the general contractor plus any subcontractors they hire to assist them. For large construction jobs, the client should see if the contractor is bonded. Bonding means that the contractor can insure the quality of their work and that the job will be completed on time. A bonded contractor will have to place a bond before they start the job for it to be valid. For small construction jobs, bonding may be too much to ask from a contractor.
The client should check with the local Better Business Bureau and other organizations to determine if the contractor is reputable. The contractor should provide references of former clients they have done work for. This can help the client to find out about the contractors track record. However, if the contractor does provide your client with names, he's going to make sure he doesn't give them phone numbers of unhappy customers! This is where the client's own judgment will come into play in deciding if a contractor is reputable.
All aspects of agreements with contractors should be clearly stated in the written price estimate. The client should have a time limit and a price cap on the repair work. This will prevent the contractor from "dragging their feet" to complete the job. A price cap will prevent cost overruns and excess fees added after the work has begun. A statement should be put in the estimate that the contractor will provide the homeowner with all permits and final approvals from town hall. Any warranties for the repair work should be in writing. If the seller has hired contractors to make repairs, the client needs to speak with them about warranties. The client should find out how long the warranties are in effect and if they are transferable to the new owners.
There's another aspect that you need to inform your client about regarding negotiating with the seller. That is there will be times when some Realtors or other third parties will tell your client, "Oh, there's no way the seller is going to reduce his price. He's already giving the house away and he has two backup offers waiting if you don't buy the house now. " HORSE MANURE!!!! I've heard that line used 100,000 times, not only while doing home inspections and appraisals, but also when buying my own rental properties. I've seen my own offers accepted by sellers that some know-it-all Realtor told me would never be accepted. I've also seen many clients get offers accepted when a Realtor or other third party told them the seller would never accept it.
So don't let yourself or your client be intimidated by anyone. It's your client's money and future, he/she has to be the one to decide how much he/she wants to pay for a house. Don't you or any third party make the decision for them. Any Realtors involved in the transaction have a fiduciary responsibility to the buyer or the seller. This means that they are required to present any and all purchase offers from all potential buyers to the seller that they know about. No matter how low or ridiculous the offer might seem, it still has to be presented to the seller. It doesn't matter if someone offers the seller less than 1/2 the asking price. They have to present the offer to give the seller the opportunity to accept it or reject it.