Although they are very common in Metrowest, not all homes have septic systems. A system that no longer functions as designed is considered “failed” and while they are always problematic, they can be incorporated into a real estate sale and get you to the closing table in one of three ways.
First, you can undertake the work and complete it prior to closing, with a full sign-off from the Board of Health in the form of a Title 5 Certificate of Compliance. This is often the preferable course for all parties and a lender, if any, and this option will get you the highest selling price for your home. You will need a design and this takes time for testing holes and design approvals so plan accordingly. If you’re short of funds, some septic installers will begin and complete the work slightly before the closing date and get paid out of the seller funds at the closing. This would require you to agree to release the funds directly to the installer at the closing.
Alternately, Title 5 does not require that a system be in passing condition prior to the sale, but most lenders will not issue a mortgage until the failing system is upgraded or funds to perform the upgrade are escrowed.
So you and the Buyers can agree to put an appropriate amount of money in escrow guaranteeing that the system will be installed after the closing. The usual formula for calculating this amount is taking the median of three bids plus a 50% contingency reserve. Most installers are able to give solid estimates based on a design, but they will charge more it they hit ledge, or other unforeseen conditions, so the contingency is there just in case. Again, this would require you to agree to release the funds from the closing to the escrow account. The escrow funds are usually held by the bank’s conveying attorney who will pay the bill for the septic when it’s completed, and then return any extra money to you. Many lenders don’t allow septic hold-backs at all, so this option, while an excellent solution if you’re tight for funds, might limit your pool of buyers and thus extend your time on market, but it won’t affect the price you’ll get for the home. Here’s an example of how this might work: A home is on the market for $300K with a failed Title 5. A buyer agrees to purchase the property, and they both agree to put the septic repair money in escrow. The median estimate is $30,000 for the system. The buyer, at the closing, pays the seller 300K, and the seller then pays of his mortgage (100K, for example) and then takes 150% of the 30K ($45,000) and puts that in escrow with the closing attorney. The seller leaves the closing table with $155,000. The buyer then has the new system put in place, and it only costs $30,000. The buyer sends the bill to the closing attorney, who pays the installer, and refunds the difference ($15,000) to the seller. There are variations on how this unfolds, but this would be a typical scenario.
A third option would be to get the buyer to pay for the septic system, although this is less likely to occur. A buyer who agrees to assume the cost of replacing the septic system will factor the cost of replacement plus a contingency factor into his bid price for the property. If it costs less than he planned, he pockets the difference. This would most likely have to be a buyer who can pay cash for your home. Most municipalities will allow him up to a year to fix the septic system and update the Title 5. But if the septic system isn’t working, the Board of Health can require that nobody will be living there. Not many people can buy properties with cash, so counting on this option will severely restrict your buyer pool, exponentially lengthen your market time, and ultimately get you less money for your home. So, in summary, bottom line … marketing your home with a failed septic system will affect the property’s value and restrict the pool of buyers, but it has been done many times successfully and with the right agent (shameless plug for “me”) you can do it too.