When a Real Estate Deal Goes Bad

So what do you do when a deal goes bad? Notice I say “when,” not “if.” Anyone who stays in this business for any length of time will have a deal go sour. A real estate transaction has so many moving parts that it is rarely smooth sailing. Even the best of them will have a hiccup or two. It’s part of the business and should be expected. The important thing is how you deal with the inevitable monkey wrench that gets thrown into the works.

So what could go wrong? Almost anything you can think of. A bad appraisal perhaps? How about a surprising inspection report? Maybe the mortgage pre-approval turns into a decline? You could have problems with the title, liens that rear their ugly heads at the eleventh hour, a seller that balks, or numerous delays that cause a deadline to pass. In short – if you can think of it, it can happen.

Taking Stock

The first step to take when a deal is blowing up in your face is to identify the problem. Sounds simple doesn’t it? Unfortunately the first reaction for many novice investors is to panic. I’m unaware of any headless chicken having solved a problem ever. So when something goes wrong take a deep breath, and look at the problem(s) logically. If you’re not sure what the real issue is start asking questions.

After you’ve identified the problem determine who is responsible for the issue. Is it some you did or didn’t do? Did someone else drop the ball? Was it something that was unforeseen? If you have identified a culprit, ask them what they are going to do to solve the problem. If they can’t or won’t do anything, nobody was at fault, or if you caused the problem, what can you do to fix it?

The Dale Carnegie Method

Many years ago I read a book by Dale Carnegie that discussed how he solved problems. It taught me to face problems head on rather than hide from them. Ignoring a situation will not make it go away. When you have identified a problem define the following:

What is the absolute worst outcome?
What steps can I take to improve on that outcome?

Once you know what the worst possible result is you can do whatever you can to make it better. When a real estate deal goes sour the worst thing you can do is succumb to a case of gotta-do-a-deal-itis. All too many investors will try to salvage a deal no matter what, that is not always the best thing to do. If a deal has blown up the absolute best solution may be to let it go and move on to the next one. More than once I have walked away from a deal that fell apart only to have an even better one land in my lap. Sometimes the best deal is the one you don’t do (article) and there is definitely something to be said for living to fight another day.

Good judgment comes from experience, and a lot of that comes from bad judgment. – Will Rogers

Photo Credit: SashaW

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.