Going back and forth on a real estate contract is an American tradition. The seller of the property knows that the list price is only the starting point. The buyer as well knows the list price won’t be the final price,Real Estate Negotiations especially so if the property is an older one or the seller needs to sell quickly. But as an accepted offer is executed by both parties, it’s still not written in stone. Not until the property inspection has been completed.

Before buying any property, investment or otherwise, while it’s not a requirement to get an inspection, it should be. And if you’re a serious real estate investor, you know this. After an inspection report is completed, you’re able to review any problems with the property that need to be corrected and which ones you can overlook. After all, you’re trying to get a deal here, right?

But let’s say the inspection report comes back and it says the furnace needs a repair to the tune of $3,000. You get with your agent and ask that they repair the furnace. The agent says “no thank you” but says they will provide a furnace allowance of $3,000 at the closing table for you to repair the furnace at your leisure, after you close. No big deal, right?

Actually, it is a big deal to a bank. If the contract says there’s $3,000 to give to the buyer at the closing table to fix the furnace, there’s no way the bank knows if the furnace will ever be fixed. If it’s in the contract, it must happen. As far as the bank can tell, the seller is giving the buyer $3,000 in cash and that’s not allowed.

What is allowed however is to reduce the sales price of the home by $3,000 or pay for $3,000 of the buyer’s closing costs, but handing over money for any purpose can be construed as a cash incentive. Don’t get caught at the last minute when the bank says the furnace allowance is a non-starter. Reduce the price or pay for costs instead.