I have a listing where the older section of the house–built in 1937–is being renovated, and a new 2 story addition is being added to the rear. The potential buyers are asking about upgrades (hardwood floors in the master bedroom, granite countertops, etc.). What is the best way to handle the upgrades from a financial perspective? The seller/owner is also the general contractor. Should the cost of the upgrades be paid for upfront (maybe held in escrow until the work is done?)? In this way, if the deal goes south for any reason my seller does not get stuck with upgrades for which she may not be compensated in a subsequent sale? Should the upgrades be added to the base price or should they be paid for outside of the base price?
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Replies
Make the deposit on the contract in the amount of the upgrades and make it non-refundable. If I were the buyer I wouldn't go for this if there were any serious contingencies, but otherwise why not?
You could handle it no different from any other house sale. Buyer will pay $x for the house contingent upon financing, termite, HI, AND granite, h/w floors, etc.
Get a deposit that bears reasonable relation to the losses the seller would incur if the buyer pulls out -- back on market, financing costs for how long you think it would sit, etc. As in standard agm of sale (at least here) if buyer pulls out, seller keeps buyer's deposit as liquidated damages. Whether seller "wants" the upgrades or not, if they up the sale price of the house, it's hard to claim "loss" from doing them -- you're the RE professional so use your experience to add an amount to the deposit in agm of sale that would "not be compensated in subsequent sale" relative to the cost of the upgrades.
Make sure the buyer has the financial wherewithall to get financing based on a preapproval and financial disclosure, to reduce that risk.
Handle it same as any other deal.
Would that work for you and your seller?
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