How do you handle incomplete repairs at closing?
After all the negotiating back and forth, you finally agree on the terms and conditions for closing. But as is pretty standard with closings, something unexpected happens and repairs that should have been completed by closing won’t be ready in time. This can be an emotional trigger for the buyer, who is already naturally nervous about embarking on such a large purchase. The seller will no longer be vested in the business and doesn’t want another last-minute headache to handle on his way out the door. How do you resolve this issue in a way that is mutually beneficial?
The buyer should obtain 2-3 estimates to do the work that is incomplete. An escrow agreement should be prepared, providing that two times the average estimated cost is held in escrow from the purchase proceeds. That amount can only be distributed to the seller when both the buyer and seller agree in writing that the repairs have been satisfactorily completed.
Another alternative is to provide the buyer a credit (reduction in purchase price) sufficient for the buyer to hire someone to complete the work. Some buyers prefer to control the work or do it themselves to save some money, “pocketing” the value of the difference between the contractor’s price and sweat equity. They may also want to be assured the repair will be quality work by hiring a trusted repair contractor. Whether the buyer chooses to complete the repairs himself or hire out the work, he is still entitled to the estimated costs for a professional service. Unlike the first alternative where extra money is held in escrow until the repairs are complete, a credit lets you walk away from closing with the entire proceeds you expected.
Both solutions work equally well. It is a matter of what is most comfortable or convenient for the buyer and seller. Although this situation is not ideal, neither is it unusual. The attorneys of both parties can determine which solution is best and set up the logistics for making it happen.