Negotiate Seller Credits When Buying Multifamily Properties

You’re investing in real estate as a business. To make money. To find the best and most profitable deal.

You’re accustomed to negotiating a purchase price. But do you find yourself reluctant to ask the seller to chip in for property repairs? After all you don’t want to rock the boat. The negotiation process is a challenge for most people. It’s human nature. We don’t like to be told “No.”

Do you hate the idea of negotiating? Well, here’s a different way to look it. Negotiations do not need to be unfriendly or hostile.

Imagine You’re the Seller for a Minute

Put the shoe on the other foot. Pretend you’re the seller of the property. Say you’ve owned the property for five, ten or fifteen years. You’re intimately familiar with it. Right?

You know about the blemishes. You remember every single time a contractor has made repairs. You’re fully aware of the deferred maintenance—the stuff you keep meaning to fix but haven’t got around to yet.

Now let’s say you’ve found a buyer for your property. Do you hide that information? Hope the buyer doesn’t discover the imperfections?

Hardly.

Typically what comes out in an inspection is no surprise to the seller. And even if it is a surprise there’s no question the problem exists.

When you ask a seller to credit you for some of the essential repairs, it’s really no great surprise. They may even feel you’ve caught them in the act of not disclosing every little item.

So, why wouldn’t you ask for a credit?

Asking for a Seller Credit for Repairs

There’s more good news.

Here’s a way of thinking that will eliminate the pressure of negotiating.

Property inspections are normal during a real estate transaction. In commercial real estate, the inspection process is part of the contractual obligations of both the buyer and the seller.

The seller knows you will inspect the property and they expect to see your follow-up about the items that you find unsatisfactory. You are not calling the seller on the phone and saying, “Hey there’s a bunch of things I don’t like over at your property.”

Nothing so crude as that.

Your findings from your inspection of the property are provided to the seller in an Inspection Notice. It becomes part of the contract. It’s standard procedure to negotiate seller credits when buying multifamily properties. And when you put those items in black and white, they’re hard to deny. It’s the power of the written word—with personal remarks removed.

Simple and clean.

The contract language reads…

BUYER’S NOTIFICATION OF UNSATISFACTORY PHYSICAL CONDITION

Notice to Correct. Pursuant to [section] of the contract, Buyer notifies Seller that Buyer requires Seller, on or before [date], to correct or resolve the following unsatisfactory physical conditions of the Property or Inclusions:

Buyer to receive credit at Closing for the following items:

(List each item and the cost of the repair.)

If both parties agree in writing to a credit, it will appear as a Miscellaneous Adjustment (Credit) on the Buyers Closing Statement.

Typically the result is an agreement to meet somewhere in the middle.

Standard business.

And what’s the worst thing a seller can do? Say “no”, right?

List of non-aesthetic, essential repairs:

Roof restoration, roof coverings, gutters, scupper drains, downspouts
Sidewalk, asphalt, courtyard surface
Parking and car port structures
HVAC
Plumbing
Electric
Boiler and other large mechanical systems
Main sewer line
Pool
Elevator
Building structural integrity
Individual units (such as units with extensive damage)
Leaks and water damage
Commercial back flow
Common area flooring, walls, ceiling, entryway and doors (severe damage)
Common area appliances such in laundry facilities
Doors and windows (severe damage)
Wind, fire or hail damage
Damage to asbestos and lead-based paints containing materials

Take note of the language, “non-aesthetic, essential repairs.” I’ve had buyers ask that we remove graffiti (aesthetic) and winterize the sprinkler system (non-essential).

Ask for repairs to the big stuff like a roof that’s at the end of its useful life or a boiler system that’s on its last leg.

Don’t nickel and dime the seller. If you do, you can easily insult the seller and jeopardize the entire transaction.

A last note.

The negotiations for repairs are done while in contract—after an offer is made and accepted. You’ll conduct your inspections during the due diligence phase of the contract.

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