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For Sale by Owner Guide

Guide for Sellers

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Resolve Any Issues

Tip

Be patient and stay unemotional. Working through the details can be the most trying aspect of selling a home.

It is inevitable that issues will arise during the transaction. The key to resolving them is to be pro-active (don't let your contract timeframes slip) and to clearly understand the problem and your options for solving it. The loan officer, lender and title officer are valuable resources in the transaction. They can frequently help resolve issues.

Common issues and possible solutions

Home inspection reveals deficiencies and buyer asks for repair or replacement

Don't overreact. Go through the entire list of repairs and separate out what is easy and inexpensive and what is hard and expensive.

Understand what you are required to do (if anything) by the contract.

Get estimates for the repair/replacement so you understand the costs involved.

Decide how to respond to the buyer's request. This is really a matter of determining what cost is acceptable to you and whether the buyer will actually walk away from the house if you do not agree to everything.

Some options:

  • You can either agree to do the actual work or you can agree to an amount of money that you will credit the buyer in lieu of making the repairs. The latter is usually acceptable to the buyer.
  • You can agree to do one big thing and not the small things. This might be acceptable to the buyer since it is easy for them to do the small things as well.
  • If some of the repair items are not really non-functioning, but rather just on their last legs (for instance, your dishwasher is 10 years old and the inspector indicated that 10 years is the expected lifetime) don't agree to replace or repair. Offer instead to split the cost of a home warranty with the buyer and it will cover those appliances, etc. if and when they go bad. That way, everything is covered. NOTE: All appliances, plumbing, etc. must be in working order at the time the warranty is placed.
  • If something serious is uncovered, such as joist rot, foundation cracks, leaks in the roof, faulty wiring or plumbing problems, get a second professional opinion. If the problem is real, you have to decide how to handle it. Now that you know of the problem, you will likely have to disclose it to other potential buyers. It will probably come up in another buyer's inspection as well, so you might as well deal with it now.

 

House Appraises Low

If your home is priced correctly, this is a very infrequent occurrence

The appraisal is usually ordered by the buyer's lender and is used by the lender to insure that they are not over-lending. Indirectly, it also protects the buyer from overpaying.

The result of a low lender's appraisal means the lender will base the buyer's loan amount LTV off a lower value, resulting in a lower loan amount This generally means the buyer can't get the loan amount they have requested, or they may have to pay PMI insurance, or they may have to make a larger down payment

If the buyer cannot get the loan outlined in the contract, generally, their deposit is refunded and the contract is dead

If the buyer can get the same loan amount regardless of the low appraisal, then the contract may require them to go forward with the purchase. Check the contract and/or speak with a real estate attorney to determine

Very likely, if the house doesn't appraise for the sales price, the buyer will want you to lower the price

Don't overreact. The buyer will have just heard from their lender that the house didn't appraise for the sales price - the buyer didn't order the appraisal and isn't responsible for the result. Also, the buyer will be just as nervous as you are - they will be afraid that they have agreed to pay too much and that they might not be able to buy the house.

Enlist the buyer's help. Presumably, they still want to buy the house and might be willing to make a slightly larger down payment or have another appraisal ordered by the lender (you can split the cost or the seller can pay for the second appraisal). With the buyer's help, the lender should be willing to offer some options to resolve the issue.

Ask for a complete copy of the appraisal from the buyer.

Check all the details about your property on the appraisal. Make sure the square footage, number of bedrooms and baths, etc. is correct. Look at the comparables the appraiser used. Do you have knowledge of more recent comparables (remember, they should be of the same size and style as your home) that support your sales price? If any of the information is on the appraisal is incorrect or you have more recent comparables to show to the appraiser, call the buyer and ask if you can speak directly with their loan officer to correct the information.

If the buyer says yes, talk with the loan officer, explaining the inaccuracies and/or new information. The loan officer will pass it on to the appraiser. It may or may not make a difference.

If the buyer says no, give the buyer the information and ask them to pass it on to the loan officer. It may or may not make a difference.

Failing any results with the above options, and if the buyer has the right to get out of the contract, you will have to make a decision. Let this buyer go and hope for another buyer (you may encounter the same issue with the appraisal) or drop your price and go to closing with this buyer.

Buyer is rejected for their mortgage

If you have required the buyer to provide you with a pre-approval letter (with credit, ratio and source of funds review) early in the process, a surprise rejection should be a rare occurrence

Don't overreact. The buyer is probably just as disappointed as you are.

Ask for a copy of the lender's declination letter. The lender is required to notify the buyer in writing that their loan has been declined. You are entitled to a copy before you have to refund the buyer's deposit.

If the buyer received a pre-approval letter, ask the buyer what changed between the pre-approval letter and the final loan rejection. NOTE: If it appears that the buyer misled you or lied to the lender to get the pre-approval letter, you may have reason to keep the buyer's deposit. Consult an attorney to find out. If the buyer doesn't seem to understand exactly what the problem is, ask them if they mind if you speak directly with the lender.

If the buyer says yes, have the buyer call the lender and authorize the lender to talk to you. If you call on your own, very likely the lender will not talk with you, which is appropriate since loan information is confidential. Call the lender and ask if there is anything that you, the seller, can do to help the buyer get the loan. For instance, will it help if you lower the price slightly? Hold a second trust so the lender has a lower loan-to-value? Postpone settlement so the buyer can save money?

If there is nothing you can do to help this lender approve the loan, ask the lender to give suggestions as to another company who could possibly make the loan.

If you have to refund this buyer's deposit and start over, ask the buyer for a copy of the appraisal. You can use this to justify your price to new buyers. Next time, require the buyer to get a pre-approval letter (complete with credit and source of funds review) from an established lender prior to moving forward with the contract.

Termite inspection shows active infestation

Generally, the contract calls for the seller to pay for treatment. Just pay for it and supply the lender and escrow officer with evidence that you have had the treatment done.

Termite inspection shows prior insect damage

This is damage to wood areas caused by prior wood boring insect infestation. Usually the lender will require that it is repaired and some contracts call for the seller to repair it. If your contract doesn't specify who pays, you and the buyer will have to negotiate who pays for the repair.

Get specific instructions from the lender as to what needs to be repaired. The termite report will have a list of the areas that require repair, have the lender or buyer fax it to you. It is easiest to have the same company make the repairs if they do that type of work, otherwise ask them for the name of a company they recommend. If the work is extensive, (such as joist damage, etc.), get two or three quotes before you have the work done.

Survey shows encroachments

The title/escrow attorney/agent will direct you in a solution.

Title search reveals problems

The title/escrow attorney/agent will direct you in a solution.

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