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How Doing the Right Thing Will Make Me Money

by Mark Ferguson on January 19, 2014 · 29 comments

  
Right Thing

In one of my previous articles I talked about how a good reputation gets me more deals.

This last week I had a what appeared to be a very bad thing happen on one of my flips.  I had two choices that I could legally go with; ignore the problem or spend some money to make it right.  I chose to make it right and it has had multiple benefits.

The Problem With The Fix and Flip

We remodeled this home before we sold it; new paint, carpet, doors, floor coverings, appliances and more.  Everything went according to schedule as far as repairs, listing and selling the home.  Then about three days after closing I received an email from the selling agent telling me the sewer line had backed up and the line needed replaced!  Uh oh….  The home was built in the  1960’s and we never suspected a problem as our contractors and cleaners never had any issues.

The good news was the entire line did not need replaced, just about 15 feet of it.  The new buyers were a couple who had little money and they had to take out a loan to pay the $6,000 needed to make the repairs.  The buyers agent did not want any part of this and told me to contact the buyers directly if I wanted to.  I had a choice to make; ignore the problem since the home was sold and we had no knowledge of the problem or try to help out the buyers.

I chose to help out the buyers for a couple reasons.  The first reason is we sold market the home as being remodeled and in great shape.  Even though it was older I hate seeing problems on houses we recently sell.  The second reason is we sell a lot of homes and someone complaining about how we do business could hurt us in the long run.

The Solution

I decided to offer the buyers $2,000.  

It was not the full amount, but something to help them deal with this unexpected cost.  The buyers came back and said they would like to split the cost and would like $3,000.  I agreed and I personally took a check to the buyer.

The Surprise

I did not know what to expect when I took the check to the buyer.  

He could have been irate and the situation extremely ugly.  It turns out he was extremely grateful that I was willing to do anything.  He said he had contacted a lawyer and was thinking about filing a lawsuit when I made the offer to him and he quickly dismissed the idea of suing us.  He then told me his son was going to move to the area and he was going to give his son our name when he was ready to buy a house.

Not only did we avoid a lawsuit, which would be costly whether we won or now.  We also made a client for life and will probably get many referrals from him.

What would you have done? Share you thoughts in the comments below!

Photo: Jeffrey

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{ 29 comments… read them below or add one }

Brian Gibbons January 19, 2014 at 8:50 am

I love this article.

My Dad was an orthopedic surgeon in Boston and came from a working class blue collar family in Dorchester. He always did the right thing, if some patient had no insurance, he would do whatever he could to help them pay, many times he would bill and not chase the bill.

Once I did a Joint Venture with a Wholesale deal, like $400K ARV, free and clear with $50K in repairs, a rehab gone bad. Sellers had $0 money.

“We buy houses” people offered them traditional 65% of ARV less costs less liens.

I did a JV agreement with the seller of $50K plus $20K profit, place a lien of $70K to protect my interest, used private money for $50K plus $5K interest to use the money for 3 months.

Seller netted WAY more this way, and I made $15K.

Golden Rule…What do you want on your tombstone? Here lies a wholesaler that…”

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Mark Ferguson January 19, 2014 at 9:02 am

Brian, My dad is an agent and I learned from him. He always did/does the right thing as well. It may cost a little money in the short run, but when you give it usually comes back two fold in the end. Not that financial benefit is the only reason for helping out.

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Brian Gibbons January 19, 2014 at 9:07 am

Thx, Mark, love your posts!

And go Pats! (couldnt resist, I love John Elway.)

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Mark Ferguson January 19, 2014 at 9:17 am

Thank you, but you should be rooting for the Broncos.

Adam Schneider January 19, 2014 at 9:06 am

Mark,
You’ll get tons of responses all telling you they’d do the right thing. Who wants to say that they would do something sneaky? There’s no benefit to that. In an industry that is heavy with word-of-mouth referrals and is full of unscrupulous people, the scrupulous individual with long-term thinking can really differentiate his (or her) branding by stepping up as you did. In some of those situations, I like to present the situation, and ask the buyer first what they think we should do. If they come up with the same solution (or close) as to what I was planning on doing, they’ll feel even better. It’s usually a “let’s split the cost” offer. If I think they may want more than I was planning to offer, I’ll do what you did. I have had 2 experiences similar to yours where I know it helped me, and countless experiences where I assume it helped but don’t know. And, aside from the business reason, don’t we all want to be able to put our head on the pillow at night knowing that we act in good conscience?

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Mark Ferguson January 19, 2014 at 9:23 am

Thanks Adam. I think the peace of mind is worth more than the financial gains.

Another thing I just realized is my dads reputation in real estate has helped me tremendously. Things you do don’t just affect your reputation but your family’s as well.

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Pam Burzysnki January 19, 2014 at 1:11 pm

Hi Mark,
Kudos to you! You could have easily walked away, and I doubt legally they would have won, but you did what your conscience told you was the right thing. Their buyer agent probably told them they were out of luck, but still, pretty wimpy that the BA washed their hands of it completely. As a recent subscriber, I’m enjoying your blog. Thanks!

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Mark Ferguson January 19, 2014 at 4:38 pm

Thank you Pam, I didn’t really write this article to show that I did a good thing, but to show others that if they can do the right thing it may work out better in the long run.

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Mike Grayford January 19, 2014 at 2:23 pm

Hi, Mark.

Wow, it’s almost like I could have written this article. We had almost the exact same situation. When we bought the house to renovate, we had a home inspector check everything, which included running the water for at least ten minutes in all the faucets and showers. Then the contractors came in and they were using the water for months as they worked on the house. And then when we sold, the buyer’s inspector checked the water, too. But when the new owner moved in, the plumbing backed up and large section of the drain line required replacement. Even though we didn’t think it was our “fault”, we wanted the homeowner to have a nice house and feel good about it, so we ended up covering most of the cost of the additional work.

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Mark Ferguson January 19, 2014 at 4:40 pm

Mike, that is almost identical. The rooter service said the line was partially blocked and if water was used for short periods of time the line could eventually drain before it backed up. But if someone drained a bath or shower then that would be enough water to back up the line into the house.

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Ric Miller January 19, 2014 at 3:10 pm

I would have fixed it at my expense.

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Mark Ferguson January 19, 2014 at 4:41 pm

Thanks for the comment Ric, I was waiting for someone to say that!

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Amy Arata January 19, 2014 at 8:56 pm

I had almost the exact thing happen on a flip, but it was far less expensive. The crud in the lines hardens when a house has been vacant for a long time. I paid to have it cleaned out even though there had never been a problem when I owned it.
By the way, my dad had a well drilled deeper for a buyer when he found out she ran out of water shortly after buying the house from him. She remembered years later and hired me to sell the home. I guess it can pay to do the right thing, but that’s not why I do it. I find that people are suspicious of real estate investors no matter how much good we do in the community. Stories like these help our rep though!

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mark ferguson January 20, 2014 at 4:27 pm

Hi Amy, you are right about investors having a bad name. We can all do our best to slowly change that.

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djopgenort January 19, 2014 at 10:12 pm

Doing the right thing IS a hard decision sometimes, but it feels better to remember the times you did do the right thing rather than the times that you didn’t.
Some of the “right thing” stuff turns into “things to watch for later” (ie after hearing these stories I will fill every tub in the house when testing the drain!).

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mark ferguson January 20, 2014 at 4:28 pm

Yes, our contractors are now filling all the tubs and draining them in every house we buy!

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Pamela L January 20, 2014 at 9:08 am

I think you did the honorable thing. While I was reading the first thing I thought of when you said 6k was offer to split the cost. I would hope that I would have done the same thing as you. Thank you for your integrity in this situation.

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mark ferguson January 20, 2014 at 4:28 pm

Thanks Pamela

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Martin Cortez January 20, 2014 at 11:10 am

Mark – your post is amazing! It was like you dodged a bullet by putting on an armor of integrity. Definitely proof that what goes around, comes around.

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mark ferguson January 20, 2014 at 4:29 pm

Thanks Martin, I think if people realized that doing the right thing doesn’t always have to cost you money, they would do the right thing more often.

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Martha Gonzales January 20, 2014 at 1:56 pm

That’s a great blog post and a really interesting one indeed. I more or less go through your blog posts regularly. That really helped a lot to know how doing the right way can still help retain a client and so make money, in the best way possible.

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mark ferguson January 20, 2014 at 4:30 pm

Thanks Martha! I am glad it helped!

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Jason January 20, 2014 at 2:36 pm

To echo Brian; Live your life so people don’t have to lie at your funeral. Good post Mark.

Jason

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Brian Gibbons January 20, 2014 at 4:12 pm

U r too kind, Jason.

Golden rule. Empathize then act.

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mark ferguson January 20, 2014 at 4:30 pm

Thanks Jason, That is a good philosophy!

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Marco Santarelli January 20, 2014 at 11:36 pm

Great article Mark! There is a saying that goes: “Good business is always good business”. I think that summarizes your article quite well.

Continued success!

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Mark Ferguson January 22, 2014 at 4:35 pm

Thank you Marco!

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Shaun January 21, 2014 at 6:33 pm

Great job Mark.
Even without the bigger picture view sounds like you at least avoided some hassle and possibly a fair amount of costs by avoiding getting attorneys involved.

That isn’t an easy decision when you had noway of knowing there would be an issue and you were probably not legally responsible.

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Mark Ferguson January 22, 2014 at 4:36 pm

Thank you Shaun.

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