Should I buy a house that needs a new roof?
Thursday, August 23, 2018
If your home inspector climbs back down the ladder after examining the roof and tells you that it needs to be replaced, you don’t have to move on and start looking at other houses. “There are basically three options: get the seller to pay for a new roof, split the cost of a roof, or pay for it yourself,” according to realtor Barbara Vineyard, of Green Tree Realty. “And you have several different ways to handle each one.”
Homebuyers have more negotiating power than they may realize in this situation, because insurance companies will not issue a policy on a home with an older roof that is at the end of its lifespan, even if it is not leaking, and mortgage lenders require buyers to get homeowner’s insurance as a prerequisite for closing on the loan.
So the seller can only sell the home to a buyer that can pay cash for the property, and cash buyers expect a steep discount on the price for a house that needs a major repair. This means that it is in the seller’s best interest to work out something with you for a roof replacement, because the problem will pop up again with the next buyer that comes along, so the issue might as well get resolved with you.
Here’s how the three options play out, along with an interesting fourth option that requires a special type of home loan:
1) GET THE SELLER TO PAY - The seller can put a new roof on the house without changing the sale price. This is the best scenario for you, and you can ask. Sometimes your realtor can make it happen.
2) SPLIT THE COST - You can pay part of the cost of the new roof in cash at closing or by agreeing to a price increase equal to part of the cost of the roof. The most common arrangement is to split it 50/50, but you could also negotiate for less than half of the cost.
3) PAY FOR IT YOURSELF - You can pay the seller in cash for the new roof at closing or agree to increase the sale price equal to the cost of the roof. Increasing the sale price too much may put you above the appraiser’s estimate of the value of the home for the mortgage, so this strategy can be risky.
4) GET A RENOVATION LOAN - “A renovation loan is the perfect product in this situation,” according to Betsy Pepine, of Pepine Realty. “You can get renovation financing to repair, upgrade or remodel your home. For example, if the house is $200K and the new roof is $10K, you would get a loan for $210K. Once you close on the house, you put the roof on immediately and the contractor is paid by the lender, who is holding the additional $10K. Many insurance companies will insure a home with an older roof if they know you are getting renovation financing.”
If you really like the house, don’t allow a bad roof to keep you from buying it. Let your realtor find a creative solution, and you will move into a house with a handsome new roof that has lots of years of life ahead. Also, see our blog post How can I tell if the house needs a new roof?
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