5 Things You Should Know About Homebuyer Credits

By Brendon DeSimone

After months of searching for the perfect home, writing multiple offers, and dealing with sellers who won’t budge on price, you’ve finally got a contract on the perfect home. It took you and the seller weeks of negotiations and several rounds of offers to get there. But, you have a deal at last.

Or do you?

Too often, getting a signed contract and putting your money into escrow is simply the beginning of what can become yet another round of negotiations. Here are five things every homebuyer and seller should know about last-minute credits.

1. Buyers frequently ask for credits based on property inspections.

Usually, your real estate contract provides for a property inspection. As part of your inspections contingency, you may have a general property inspection performed. Depending upon the property and the issues, you might also have a specific type of inspection for the sewer line, pool or roof. Also, depending on which part of the country you live in, it may be important to have a termite or mold inspection.

These inspections can bring to light issues that the buyer couldn’t possibly have known about before writing an offer and signing the contract. Once inspected, the buyer may still be interested in pursuing the sale. But given the needed repairs that have come to light, the buyer will probably want to re-negotiate the price by asking for credits or cash off the purchase price, usually up to 3 percent, per most lenders. To come up with a reasonable figure, the buyer or seller will often get two to three bids and use the average of them combined.

2. Sellers may try to avoid giving credits  by having work done before escrow closes.

Other times, you and the seller might agree to have the work done prior to the close of escrow. Or the seller may require that the credit be given directly to a contractor for the purpose of performing the specific, required work and nothing else.

These agreements help protect the seller because many times, a buyer asks for credits just to help offset the closing costs — and never intends to do the repair work. It also protects the seller in the event that initial estimates for needed work turn out to have been overstated.

For example, a property inspection performed on a San Jose, CA condo during escrow uncovered that water was leaking from the condo’s master bathroom into the unit below. Two different estimates calculated that the needed repairs would involve ripping out and replacing bathroom tiles at a cost between $8,000 and $10,000. The sellers gave the buyers an $8,000 credit. After moving in, the buyers had the leak permanently fixed — with a $200 caulking job.