Property rectification: The negotiating challenge costing inexperienced buyers greatly

If you’re lucky, the issues will be relatively small and easy to rectify — the house might need a new layer of paint, birds might have torn up some of the fly screens, or perhaps the mailbox has been broken clean off. These small issues are easy to deal with one way or another and are hardly going to cause a re-negotiation between a buyer and seller.

It’s when you must deal with things such as major plumbing problems, rising dampness or termites in the woodwork that the project becomes significantly more complex. This is also where the agents will start playing their games.

You can expect that an agent is going to be quite open about some areas of concern in a property. They’ll do this to build rapport and a sense of good faith and trust with the buyer. They’ll also be happy to quote some rectification numbers that will sound quite reasonable. For example, an agent might say, 'The home needs restumping. I’ve had it looked at, and it shouldn’t cost more than $20,000 to $25,000.' If you take them at their word and proceed with the purchase on that basis, don’t be surprised to discover the project will actually set you back $30,000.

The agent’s goal here is simple: they want to get you, the buyer, under contract. They know that once a buyer is committed to purchasing a property, they’re going to be less likely to try to haggle on the details. The committed buyer is reluctant to request a discount on the agreed price to compensate for rectification or have clauses added to make the seller responsible for the repairs. The buyer is emotionally invested at that point.

Three ways to approach negotiations around rectifications prior to going to contract

There are three different approaches a buyer can take around this subject and each has its own pros and cons:

1. As the purchaser, you can be responsible for the rectifications after you take ownership. In this scenario, you want to be very confident that you know how much it will cost to complete all the rectifications, so you should insist on a thorough inspection by a specialist before committing to the purchase. You will also need to consider what these additional outlays will do to your cash reserves and borrowing capacity above the cost of the deposit and stamp duty. Can you afford these critical repairs to make your new home liveable without putting yourself in financial distress?

2. You can make it a requirement that the seller is responsible for any rectification costs. This protects you, should anything be discovered during the entire process of buying the house. The potential downside is that any flaws they do have to rectify could be done in the cheapest and lowest-quality manner, meaning you’ll be up for the cost of future repairs far earlier than you should be.

3. As a middle ground of sorts, you can agree to take on the responsibility for rectifications but also insist on a thorough inspection and then use the faults found as a negotiating chip to lower the up-front price of the home. The challenge to this approach is that an inexperienced negotiator might struggle to overcome the emotional investment they may have in the property, which is an advantage to the agent and seller.

While the third approach is the one that is most likely to result in a positive experience for the buyer, it’s also one that really relies on experience. Inexperienced buyers tend to do one of the following two things when a building inspection poses certain issues requiring work.

Firstly, they often panic and withdraw. The numbers involved in rectification work can be significant and by failing to take the time to really understand the cost or importance of the work, many buyers miss out on something that could have been ideal for their needs.

Alternatively, many inexperienced buyers nervously commit to the home, despite their reservations and without any real negotiating strategy behind them, because they’re emotionally invested and don’t want to miss out. In these instances, the property can quickly become a money-pit nightmare that puts them in financial distress.

This is why a negotiating strategy and having someone experienced in property and dealing with agents is so important. Too often, an inexperienced buyer relies on their own property inspection to determine what they should pay for a property and this can lead to an entirely avoidable outcome that hurts them financially.

Scott Aggett is the founder of Hello Haus property advisory.