From Jerry Fowlers Web Site
STORY # 1 - BUYERS BACK OUT
Four years ago, Henry and Mary Langley bought their first home. They loved it and planned to live there about 10 or 15 years and then move out to the lake. But nearly a year ago Henry's employer offered him a transfer to another city. Henry wasn't given much of an option. It was either transfer now or receive no advancement in his present job. Henry's company did not offer a buy-out provision, so the Langleys would be responsible for the sale of their home.
Henry and Mary asked three agents to perform a comparative market analysis on their home. The results were discouraging. Because they had been in the home such a short time, the Langleys had not realized much appreciation in their home's value, so if they sold through a Realtor they would have to pay the commission out of their own pockets. They decided to try the For-Sale-by-Owner route.
Everything proceeded smoothly at first. Several lookers stopped by, but the seventh family to see the house fell in love with it and made an offer. The offer was lower than Henry and Mary had expected, but time was running out so they decided to accept it. In writing the offer, the purchasers had used a blank form they'd found in an office supply store. The Langleys never thought to have an attorney review it. If they had, the attorney would have advised them to add a financing contingency clause, which would have let the Langleys out of the contract if the buyers couldn't get financing within a certain number of days.
The house was to close in 90 days. When weeks passed and the Langleys hadn't heard from the purchasers, they began to worry. Henry finally called his buyers, who told him they'd been turned down by the first bank. Still the buyers were optimistic they could get the loan from their credit union. Later that same day a buyer dropped by because someone in the neighborhood had told him the house was for sale. This person offered the Langleys full price in cash for their house with closing in one week. Once again, Henry called the buyers and told them he'd received another offer, but the purchasers remained adamant that they could get financing. They refused to release the Langleys from their contract. Because there was no financing contingency, the Langleys could do nothing but wait - 60 more days to be exact. Unfortunately the second buyer needed to find a home within two weeks. The Langleys called the first purchasers almost daily but they wouldn't give up on trying to get a loan. Finally the 60 days passed, but the generic contract contained an extension clause allowing the purchasers an additional 30 days if financing had not been finalized by the original close date. Another 30 days passed and finally Henry and Mary could sell their house to the cash buyer. There was just one problem. The cash buyer had already bought a house. The Langleys had wasted four months because they wanted to save that commission. It was now time for them to move, so they were forced to list the house anyway. It's now been six months - that's six months after the four wasted months - and the Langleys still don't have a contract on their home. They're renting in their new city and waiting, waiting, waiting...
What Henry and Mary should have done was to have a Realtor or attorney review that contract before signing it. Real estate professionals will keep you out of trouble. In this case a financing contingency clause would have permitted the Langley's to move forward immediately when the buyers' loan was turned down. They could then have sold their home to the cash buyer. Please ladies and gentleman, if you're selling your own home there are more than 90 things that need to be done to get your house closed, any one of which could stop your sale cold if not performed properly. Consult a Realtor or real estate attorney before playing with the largest investment you'll ever make.
STORY # 2 - RENTER SELLS OWNER'S HOUSE
John's house had been on the market for three months and he hadn't gotten a single offer to purchase. Finally, one day Henry drove up and offered John a long-term rental agreement. Henry was a traveling salesman and needed to move to this town to be centrally located within his sales area. Henry was very nicely dressed, drove a respectable car and talked very professionally. Because Henry was on the road so much of the time, he wanted to simplify the move for his family by paying John a security deposit and six months' advance rent. He also wanted to sign a three-year rental agreement. Needless to say John was excited. He didn't really want to sell and a three-year rental agreement from such a professional was a dream come true. Henry signed the agreement, advanced the money and John headed to the bank. That is when the real estate horror story began.
As soon as Henry gained control of the house, he placed a for-sale ad in the paper, advertising the home for an unbelievably low price. In fact the price was so low Henry received hundreds of calls. Henry scheduled dozens of showings. Each time, he would give the person a real sob story about how he had lost his wife and family in an accident the previous year. Henry told everyone that he was being forced to give up thousands of dollars of equity in order to pay bills resulting from the accident. He then convinced the buyer to give him a $2,000 earnest money deposit to hold the house. The buyer's greedy nature told him he would never find another deal like this and he gladly forked over the $2,000. In fact, 30 buyers put up $2,000 each. With $60,000 in cash, Henry split, leaving behind 30 contracts for sale on John's house. Can you image the horrible situation John faced when the buyers' attorneys tracked him down? What do you do? I'm sure the title companies are having fun with this one. How could you stop this from happening to you?
If someone wants to advance you a large up-front deposit and pay the rent in advance, be very suspicious. Ask for three credit references and check them. Get referrals from the renter's previous landlord and verify that he is moving in immediately. Make sure the water and utility accounts are transferred into his name. Ride by your property often and inspect it. If you see a lot of unusual activity, investigate. Just remember that if something sounds too good to be true, it almost always is.
STORY # 3 - TITLE STOPS CLOSING
This is a true story about Mark and Rebecca. They listed their house for sale and received a contract seven weeks later. The contract specified that the buyer would take possession of the house on the day of closing. Mark and Rebecca found a new house, which they were to close on the same day as their old house. Both transactions proceeded smoothly and everything was set for closing. The first home closed without a hitch. On the new house, however, the attorney informed them when they arrived that there was a problem with the title. It seems 40 or 50 years ago a relative of a previous seller had claimed that part of the property had been stolen from her and she now wanted her property back. BIG problem! To complicate matters, the house was now being handled by a third-party relocation company. Not being able to obtain title insurance for the lender would stop this sale. The attorney called the relocation company to see if Mark and Rebecca could move into the house on a rental basis with a hold-harmless agreement. The answer was no. And thus the horror began. Mark and Rebecca were homeless. How long would it take to resolve the problem? Where would they go? What could they do? They approached the purchasers of their old home to see if they could move back in temporarily but got another no. As it turned out they kept their furniture on a truck and rented a motel room for three weeks. Luckily, they were able to resolve the title problem within that three weeks. Often, title problems will take months to solve.
What could they have done to avoid this situation? I don't understand why some attorneys wait until the last possible minute to search the title. If the attorney had done the title search as soon as the contract was signed, the horror of this story would have been greatly minimized. Before you close on your existing house, call your attorney and make sure everything is in order for your new house. Ask if he's done the title search and make sure there is nothing pending that might halt the closing.
STORY # 4 - TOO LATE FOR TERMITES
This is a story about a man here in Columbia. We'll call him Johnson. Johnson had his house on the market for nine months at a price of $12,000 more than the market value. Why? Well Johnson said that's what he needed to be able to move to his new home. Of course his house didn't sell. Johnson then contacted another company and this time was lucky. His new agent knew the market very well. She listed his house at what it was really worth. She staged the house to get it ready to show and put it on the market.
Johnson told his Realtor there was a termite bond on the house and the termite company had just re-inspected the house and there were no problems. Three weeks later an offer can in but was $5,000 below the listed price. Johnson thought about the offer very seriously and decided to accept because he really needed to move.
The buyer was pre-approved and everything looked great. Seven days from closing Johnson's agent helped him order the termite letter. Upon inspection the termite company discovered termites. Although Johnson claimed he had a termite bond, he really didn't. The bond had expired two years ago. The termite company that had just visited his house was simply one that sprayed for bugs on a monthly basis. The termites were so bad that they were in the walls and had eaten severely on the seals below the house. In addition Johnson needed French drains to get water out from underneath the house. The entire situation cost Johnson almost $10,000.
Had Johnson known about the problem beforehand, he could have held to the full price rather than accepting the lower offer. That, of course, would have helped. He also would have had more time to shop for better prices on the repairs. The pre-inspection is absolutely necessary even if you have a bond. Then if you find problems, you'll have more time to correct them.