So I have a deal meltdown in process and would really appreciate assistance/advice on what my options are. Here's the scenario:
Day 1. Two homes go on the market 3 doors apart at the same price. I immediately view.
Day 2. I put an offer on one. Seller stalls past 48 hr acceptance date and accumulates a few more offers.
Day 6. Seller's agent responds with a counter - there are 3 offers on the table (market is pretty hot in this neighborhood and price is right). I offer full asking price $66k (with $2k seller assist) as the numbers work for me as a long term rental - $5-10k necessary in improvements and $1200 in anticipated rent. FHA 203k financing. Seller accepts.
Day 7. Ask seller to turn on utilities in order to inspect property and determine full work scope to get contractor bids. Seller stalls.
Day 12. Utilities go on.
Day 16. Inspection happens. SOW developed. Called contractors to start getting bids.
Day 17. Speak with lender and am told that closing date is not possible with holidays and no contractor bids in hand. Discussed options to use conventional loan instead - given that the gas was not turned on (and seller refuses) I could not get underwriting on a conventional loan without knowing if the furnace works, so this is a no go. I ask the seller to extend the closing by 2 weeks.
Day 19. Seller says no. He still has the house listed as for sale on the MLS and the other home is listed as pending with a cash buyer. Other investors keep visiting this property and I assume more bids are coming in.
Day 20. I offer $1000 more to extend two weeks. Seller still says no.
Day 22. I've talked to other investors, explored private lending, spoken with my lender, and no great options exist. I ask seller if there is anything that can be done to keep this under contract - I am out $395 at this point in inspection costs if the deal falls through.
Day 24. Seller responds and says increase offer $1000 and no seller assist - for a total price increase of $3000. I consider this. Then I go to a lunch meeting. During this meeting, a colleague of mine offers me 100% cash for this deal with a 5-year balloon and very reasonable terms. Needless to say, I jump on this. My REALTOR tells seller's REALTOR. She says Great!
Day 25. Seller's REALTOR responds that seller is nervous because of the many changes and does not believe this is going to close. He wants an additional $1000 in escrow. I agree after speaking with my new attorney - who I hired to help with title and loan and closing. I am now $1400 into this deal as I am paying costs for drafting a note and mortgage.
Day 26 (today). Seller wants to speak personally. I call him, believing it will be a friendly call and he will leave the conversation feeling confident that this is going to close. It turns out I could not have been so wrong!!!
The conversation: The seller starts by asking what is going on. I explain delays in utilities and having to shift to private lender after he would not extend the date - of course I used a friendly tone while doing this. He immediately responds by interrupting me and stating that he has a cash offer for over $70,000 and wants me to beat this if we are going to move forward. I tell him that I am currently under contract for $66k with $2k assist and that I am keeping this on schedule to close on time, so I do not want to increase my offer, but that I am putting an extra $1000 down. The seller gets angry at this point and starts yelling "you ARE NOT going to FORCE me to sell MY house!". I WILL put a tenant in it now if I have to and GOOD LUCK getting my property!!!". Then he hangs up!?!?
Closing is scheduled for 8 days from now... This is my first investment property.
Has anyone experience something like this? Is there something I can do? Am I going to lose all of the money I have put down on this property? And is there something I could do differently next time to avoid situations like this - one thing I am thinking is not to speak directly to the seller again, as I did not anticipate an irrational person on the other side of the phone.
Wow. It sounds to me like the seller started with an asking price that he was comfortable with. Then he found out he could get significantly more after agreeing to your contract... I'm not sure what your options are with him trying to renegotiate on an already accepted offer. I would honestly consult your lawyer.
I believe that is exactly right. The seller invested in the area when it was really rough, and it is transitioning very quickly now. I am speaking with my attorney shortly.
@Alex M. Long story short as long as you get the money and close within the time you have allowed in the contract you have nothing to fear. This is why we have contracts and why they are in writing. If the seller refuses to close based on the terms in the contract you can sue the seller and you will win. If you do not close in the time allowed you can almost guarantee that the seller will not extend the closing date and you will lose the money you have put in. I would recommend a backup plan. Look into other investments you may have, stocks, 401ks, mutual funds, home equity, etc.... just in case your colleague backs out. You will not get a second chance at this.
As long as you perform he can't back out! So make sure you can perform and you will be fine!
@Richard Richard @Elizabeth Colegrove
The wrinkle in this is the shift from FHA to private finance - the contract states a mortgage commitment date and the sellers ability to back out if I do not meet this until it is met. I did have a letter from the private lender (via email) sent to the seller's agent today, and the seller had not backed out up until this point, so I believe we are technically still under contract, but the seller is not signing the contract amendment that we submitted stating that the finance has changed from FHA to private lending.
Have either of you had to force the hand of a seller who did not want to close?
Who's responsibility was it to turn on the utilities and everything else? I would start to nitpick every little thing and make sure he fulfill his requirements.
I would not communicate directly w/ this seller again. Communication should come from the attorney to the seller referencing your compliance with the contract & his non-compliance, if any. As long as you've complied w/ your portion of the contract the seller is in a weak position.
I have a similar situation here, and the buyer will prevail, but it's a cash deal. The real question here is: 1) Are you still technically in contract 2) As to your financing contingency, it depends solely on the contract language; hopefully (and generally) You as the buyer have the right to Remove the financing contingency, thereby making you contractually committed no matter what, and the seller can cancel at any time after your financing contingency IF you have not removed it. So, as long as you remove the financing contingency, the seller has no right to cancel because you are using different financing.
Read your contract, post the relevant paragraphs as to the financing contingency here if you want.
@Elizabeth Colegrove I'm starting to compile documentation on items like that. I don't know if he is legally required to put the utilities on for the sale or not, but it was requested of him and he was informed that delays may mean a delay in the financing.
This is the last thing I wanted to be doing on my first deal, but it looks like I will need to prepare to fight this one. Given that I am over $1300 in to the property already, I am bracing myself to learn the lesson of what it looks like to take someone to court to enforce a contract - worst case, this will be an expensive lesson in contract law for me. Thanks for your encouragement.
@Wayne Brooks This is good to hear that a buyer is prevailing. I believe I am technically under contract still, but am confirming this with my attorney.
The part of the contract that worries me is that the mortgage contingency was checked, and does not appear to have language allowing a unilateral change - "this agreement will not be altered, changed, amended, or modified except in writing executed by both parties".
That said, the contract also states that the seller "will have all heating and all utilities (including fuel(s)) on for all inspections/appraisals". It was the seller's delay in turning on utilities that lead to the need to extend under the contracted FHA financing, and the seller's refusal to turn on gas that forced me to switch to a private lender...
@Crystal Smith I hope you are right. I plan to show up at the closing on the 4th and will post updates here to let folks know how that goes.
Best of luck to you, Alex!
I am waiting with baited breath to hear how this plays out! This is a very rough start to your career as a real estate investor, and as a newbie myself I have no useful advice to offer. I can say, however, that in the few real estate transactions I've conducted, I've learned a HUGE amount from the (many!) mistakes I've made - primarily in the contract details.... I'm certain you will survive this and take much from this to future transactions!
@Alex M. ... I have a question. Why would the seller not turn on the gas for an inspection if he is under contract and trying to sell? I don't get that part and can't you use that against him?
@Julia Pinelo Thanks for your words of encouragement! I'm sure this will be one of those cautionary tales of learning I share when I am a wise and seasoned investor. Not so much fun right now. I did just speak to my lawyers, and they are drafting up a letter to see if they can get this back on track. Contract specifics matter it seems. A LOT!
@Charmaine M. Weird huh! ...apparently, the gas stove was stolen, and the seller did not want to deal with a but pipe and potential gas leak, so they are refusing to turn it on. I think they thought that buyers would hop on the property at their asking price and cash buyers would not care as they would be planning to do a full rehab anyway. That's my assumption... but I don't know for sure. I certainly intend to use it against them. It was the single most important factor underlying why this did not just go through smoothly with original plan.
The utility issue, while seeming important to you, is likely not legally relevant. The entire language related to your financing contingency will be more relevant. We don't know what that says.
1. As a seller I was in a position that I knew I sold for too low and didn't like it but I also knew that I'm in contract and there was nothing that I could do. The listing agent should have made it clear to the seller.
2. You have mentioned that the property still showed available in MLS after accepting your offer. This is not right and evidently has caused problems. Status should have changed to "pending" or "contingent" to stop additional showings.
3. Regarding speaking with the seller directly, I wouldn't do that...I think it usually only adds to your negotiation abilities to go through your Realtor.
4. Timing to close: to me you are still in due diligence period which automatically can extend the closing date because seller has not turned the gas on for you. He has to turn it on and allow for you to inspect the property and by not doing so he is extending due diligence and time for you to close.
5. If you weren't that crazy about the house you could ask the seller and cash buyer to buy you out of the deal if that made sense to you. But then again, sounds like a great deal that is worth more than the few $K you would be making...
Finally I believe you should be able to close and hopefully enjoy your first cash flow property. The numbers seem great! Good luck.
Step 1. Reread contract and determine if he has any way out. Consult attorney if necessary
Step 2. Show up to closing ready to go. He doesn't he's breaching the agreement. He does, you purchase and move on.
Step 3. If he doesn't close you have some decisions to make. Youre out money you can sue for in the form of damages, you could sue him for specific performance...and you could also use to prevent sale to anyone else. Saying that, understand that nobody wins a war...aka, nobody wants court, which usually ends up costing money and definitely time for everyone....good luck.
@Guy Raveh Agreed with all points. I definitely feel "in the right" here, and am also very interested in the property, as I see it as a great long term investment for me. That said, @Seth S. makes the really important point that court is going to cost time and money and be unpleasant. I don't have a lot of time (work a 60+ hr a week demanding job, and have 2 small kids, in a different state, who i try to spend as much time with as possible), or money (pay a lot of money to an ex-wife on a weekly basis). The unpleasantry is something I would like to avoid, also. From chatting with my attorney it sounds like I can file a Lis Pendens and "force" the hand of the seller, but it is not guaranteed. Based on this and everyone else's advice, as I see it, I have the following options:
- 1. Stand firm, stick with the current offer, go to close, and then decide what comes next if the seller does not show (preferred option, but unclear on how it will turn out - and still requires a little more time, money and effort on my part as I am navigating private finance and a RE attorney to draft documents).
- 2. Walk away, lick my wounds, and move on to the next property - eating the costs of the money I have already sunk into this (least favorite, but easiest option).
- 3. Offer the seller to buy me out of the deal and walk away with my costs recovered.
- 4. Meet in the middle - offer the seller an extra penny or two to sweeten the deal, but not the $70k+ he is asking for.
- 5. Hybrid of 3 &4. Offer the seller two options: Option a. he can buy me out so I lose nothing and he gets to sell to the new guy. Option b. he can accept a moderately sweetened offer (already under contract) with a closing in 1 week.
The reality of going to court is after both arguments and stated facts are presented you have no guarantee who is going to win.
Usually a contract might have something like if the contract is disputed and interpleaded into a court of law then the prevailing party will have all of their costs covered by the losing party.
It's really all in the contract you signed.
I am convinced if I sell a property I want it to be AS-IS and no contingencies with a high amount of non-refundable earnest money and a low lock up time period. Even if you sell for less it can be better than going in and out of contract with inspections and financing etc.
Keep life simple. Make money quick with velocity. Sounds like seller wants probability of close more than anything.
No legal advice is given in this post.
I would not bother trying to sue the seller for performance on this contract. You would really only be eligible for the damages resulting from their failure to perform. This looks like a $70,000 deal how much time and money are you willing to tie up in court over this? Seems like a better deal to just go find another house if this doesn't go through.
I know it's tempting to go after someone when they don't live up to their word, but I honestly think you'll spend more time and would be better off just moving on if you can't manage to close on this house. It's not the last house in the world, there'll be more and you'll overlook those if you're busy arguing about this one in court.
All - thanks so much for the great advice here!!!
Update on the situation: I'm still really surprised by how this all worked out, ...but after much soul searching, many conversations with my attorney, and a lot of crunching of the numbers, we found a way to turn this deal into a win/win for all and I made it to the closing table and now own the property :)
The details: After the seller made it really clear he was haggling for every penny, I gave it one last shot and offered to remove the request for a $2k seller assist, reasoning that it was not going to make it a bad deal, but may help the seller with getting to the closing table versus heading to court - of course, it did not hurt that the seller's agent told them directly they were under contract and had to proceed.
Amazingly, I heard back quickly that the seller was going to proceed with the closing. For me, the extra $2k does hurt my pride a little, but after a lot of consideration, I realized that it was worth far more to me to swallow that pride and dive on in into investing, than it was to stick to my guns and go into a potentially long and drawn out fight.
Now I am looking forward to filling this place, and due to the private lender relationship that I developed during this process, I now have both the option to use an FHA 203k to purchase a small 2-4 unit MF property and rehab it as I already planned, as well as access to private capital to close on other cash deals within 15 days if necessary. I'm hoping to be on to the next one within the next 3 months.
Couldn't have done this without BP and the knowledge and advice of this community.
$.02 for the wishing well...
Assuming you don't have any committed dollars in this thing you can't get back otherwise, I would suggest the following...
When I feel like I am working too hard to get a deal put together... if I "gut check" myself, I usually find I AM working TOO HARD to get the deal put together. You are the buyer, if this is a good deal, or even a great deal, you need to gut check when things are weird. If the sellers are turning this into a carnival and they want you in the center ring... WALK! If it's the deal of a lifetime only seen once every 5 years, then you have to hang in there and don't steal in slow motion. Get it done. Get it figured out. Deal of the lifetimes are rare. I have paid well over list/asking price for a deal of the lifetime before. You will know when you have one with every bone in your body. There will be no question if it is or if it isn't. If you are not sure, then you just don't have one.
If it's just a good or great deal and the sellers are attempting to dress you up as the clown, don't let them, it's time to walk. They can find a new clown, because "you're out! " Good and great deals are around, always, if you get out there and find them.
- I lose interest with Mickey Mouse in the Playhouse deals sellers can create. Your time and sanity are worth more. You know already to never get attached to a single deal. You made this post because you want some folks to throw it on the x-ray for you on feelings you already have, which is great to do in these situations. Walk is my vote. Focus the energy you have invested in this thing on finding a better deal. Feel triumphant when you land it. Take a moment to reflect back and laugh about Mr. So-Special with his 1 house that has it's 1 million offers on it. (legit or make believe offers, you don't care) Then roll up your sleeves and go to work on your new found deal. Rinse, repeat.
You don't have time for that... unless it's the deal of a lifetime. Kick the time-suckers with their dramatics to the curb. YOU have the funds, they have a house. Who is more liquid? Who is truly in the cat-bird seat?
Many times I have walked away on deals to later get (days, weeks, months even) a phone call... You will never guess who it is? Yep, the clown show back for more. Having the opportunity to explain to sellers who would not take my 1st offer that parameters of the offer have now greatly changed have been some of my most memorable moments in real estate. It's a turn the table, flip the script, and here's how this is going to go now, or I'm getting off the phone conversation." This may only happen 10-20% of the time you walk, but it's golden when it happens.
Good luck to you, and go buy some Real Estate!
@Alex M. Awesome news, Alex! I am super excited to hear that it has all worked out! I am going through a similar situation at the moment - I decided to stick with a deal in progress even though it meant taking a slight cut in my asking price, just to keep moving toward my goals. Sometimes it's a step backward to take two forward....
I wish you the best of luck with this deal and look forward to hearing about your first success story sometime in the future!
Deals are like street cars there is one on every corner especially in your neck of the woods.. don't get too hung up on it.. looks like it worked out... but it could have been a sign that something was really wrong.
these squabbles are not worth attorneys fee's you just dig a bigger hole.. If it did not work out just go to small claims court and try to get your deposit back. At the end of the day a specific performance claim is very costly to pursue and the value of the asset and your damages are negligible... just move on if that was the case. cost of doing business.
Now you know to tighten up your contracts.. and when you have a pretty hot market like in most markets for low end assets.. Cash is the way to go.. not a 203k
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