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Condition/Foundation Issues – How To Handle?

Condition/Foundation Issues - How To Handle?

Agents often ask us about properties with condition issues and last week was no exception when an agent was looking at a property with major foundation problems.

In light of this, I thought it was time to set out some of the options once again.

I. DON’T TELL US 😊 (NON-DISCLOSURE)

If lenders/underwriters are made aware of significant condition issues (like foundation problems), they will require full inspection reports and that any necessary repairs be completed and verified prior to close.

This not only delays closings but it also turns off many sellers – looking to close quickly and without hassle – making them less likely to accept offers.

So, we often recommend not-disclosing any issues IF the following criteria are met:

  1. Health & Safety: The issues are not threats to health and safety.
  2. Visibility: The issues are not visible to an appraiser, e.g. a clearly leaking roof or sloping floors will (and should be) called out by an appraiser.
  3. No references to the issues are made in the purchase contract, MLS or any other online sources linked to the property (and yes both appraisers and underwriters check all the sources).
  4. Enough Cash/Smaller Down Payment: The buyers will have enough cash after close to do the repairs. We often recommend that buyers in these situations put less money down in order to save cash for post-close repairs.

The advantages of this tactic include: (1) offers without repair requests are much more enticing; and (2) buyers can take their time after close to get their repairs done more carefully and cost-effectively.

II. DISCLOSE THE REPAIR ISSUES

If the condition issues are significant, if the buyer will not have the cash to do the repairs after close, and/or if the condition issues threaten “health and safety,” they should of course be disclosed.

But, as mentioned above, this will require all repairs to be completed prior to close; it will force buyers and sellers to “rush” the work; and it makes offers less enticing.

III. RENOVATION LOANS

Both agents and buyers often automatically default to “renovation” or 203k loans whenever they see condition issues. But renovation loans are often too inefficient, as I mentioned in this blog last year.

Renovation loans require formal bids by approved contractors, substantially more paperwork, higher rates, and slower closings.

In addition, the more popular “streamlined renovation loans” don’t even allow for many structural repairs.

Sometimes, renovation loans are the only way to go when condition issues are significant and buyers are tight on cash.

But, if buyers can avoid them, we always recommend it. They will save time, money and stress.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646