What to do when your client receives a building report with issues in it.
The purpose of this Newsletter is to provide purchasers and mortgage brokers with a road map on how to successfully negotiate a price reduction in their building report.
This Newsletter will address how to:
This Newsletter will not cover:
Why It's Important to Negotiate the Purchase Price following a Process “So, do we have to tell the bank about the issues and price reduction?” - Anonymous client.
I am never surprised by how often I get asked this sheepish question.
As a blanket rule, any time you are negotiating a price reduction, the bank will want to see a copy of the building report.
I always respond with:
“If you were the bank and you were funding 80-90% of this purchase, would you want to know about this?”
If the bank does not like your proposal, you need to move on. That's why you need to make it easy for them to say "Yes".
An inexperienced purchaser will ask for $5K, $10K, $15K, $20K etc off the purchase price because of the building report. This has a low chance of working because:
“My mate reckons he can do it for $12K but will only charge me $6K - let’s ask for that”.
Similar to Option 1, verbal estimates lack credibility.
Unless your client is a tradie, please steer them away from Option 3. Anyone who has done DIY knows it costs three times more than expected and takes twice as long.
How I Make it Easy for the Seller and the Bank to Say “Yes”
How to Persuade the Seller
In our case study, we got a quote from a contractor to redo the driveway for $49,826.50.
Click here to see how a quote should look for it to hold any influence.
The sellers then got their own quote showing the works should cost $31,710.10. Damn this was almost $20K less than our quote!
This is actually good news because the seller has engaged in our process. Sometimes they will tell you to p*ss off.
Now it’s time to reel them in...
Our clients reject the proposed price reduction of $49,826.50. On the basis that the agreement is declared unconditional, our client is prepared to offer a price reduction of $31,710.10 (see attached quote).
Please advise if the above is agreed, and the agreement is now unconditional.
At this stage, the seller as:
Depending on how brave your client is, you can either:
Depending on how brave your client is, you can either:
Negotiating this part takes knowledge of how desperate the seller is and how keen your client is to buy - the harder you push, the higher the chance your client could walk away with nothing.
So, what happened?
I think we could have pushed them to meet in the middle, but my clients accepted their price reduction.
Old Price: $1,000,000.
New Price: $968,289.90.
Instead of negotiating more money, we asked for a two working day finance extension and satisfied all of our other conditions.
This part is really important. I called the agent, explained we needed lender sign off and reassured them everything else had been satisfied.
Thank you for the below. I now have instructions. My clients accept the price reduction of $31,710.10 on the following basis:
Client's Acceptance and Conditions
1. The agreement is varied so they receive a finance condition extension until 5pm, Tuesday 16 July 2024.
2. In return, my clients will satisfy the following outstanding conditions: a. LIM report b. Building report c. Due diligence d. Insurance
Remaining Finance Condition
This means my clients will only have a finance condition remaining per the new agreed expiry date.
Lender Sign Off
"Please note, we require lender sign off for this price reduction. We expect this to take between 1-2 working days.
Request for Instructions
Please take instructions.
Kind regards,
Angus
36 hours later, the bank signed off on our quote and price reduction. Because the bank will decrease their loan amount, this means your client needs to have extra savings to cover any work. In the below example, there is only $6,342.02 spare money in savings to complete works that will cost between $30K - $50K.
As you are all experts at lending, you will know to make up this amount that you will recommend for your client to take out a revolving credit to cover the difference (so long as this does not ruin their LVR).
In the above case study, my client was a tradesperson and could complete some of this work himself and would only need to pay for resources and not labour. With that being said, the above approach can work provided you have the savings or revolving credit to fund it.
1. Details: Persuade the Seller with a Real Quote - Details, Details, Details.
2. Wait: Be Prepared for a Counter Offer.
3. Final Offer: Make your Own Counter Offer and Ask for More Time.
4. Bank Will Not Lend: Understand you will need Money to do the Works.
