Note: This is the latest post in my series the ABCs of Buying, Selling and Investing in Real Estate. This month I picked the letter N and made up a story centered around the letter. The story is fake, but the advice is real(ty).
This story continues the story found in the post Three Uncommon Negotiated Items for Buyers in a Seller Market
Nan and her husband has come to me seeking advice on how offers should be made in a tight seller’s market. They had made several offers only to be turned away each time. We discovered through our discussions that Nan’s husband had been offering the same template offer with each property. After the initial conversation, Nan came to me the next week by herself to continue our conversation. We met at a local coffee shop. She started by telling me excitedly that an offer had finally been accepted. Her husband had listened to my advice and they had gotten high praise from the sellers for their offer. I congratulated her, but could tell something else was on her mind. She laughed and said she was now worried sick about the next steps on the process. Her husband, she said, had gone back to his stubborn ways and was trying to prove he was an expert in the process by telling their agent how to do her job. She felt her husband was acting irrationally and would do something that would come back to hurt them in the near future. She asked me what were some of the things that they should never ever do after a contract is executed.
This is what I told Nan….
I offered up my sympathies and said that I wished her husband was here as well so I could include him in the conversation. She said it was better for him to hear it from her. I nodded my head and told her that when it comes to buying a home, logic is sometimes thrown out the door due to high emotions that happen during the process. I have had many clients that would protect their pride and ego so much that the would prefer to be right versus accomplishing the goal of purchasing the property they set out to buy. I related to her that I have had half million dollar deals fall through due to $2500 dollars, which is a lot of money, but when you are talking about a high valued property it is not so much. The trick is find a happy balance between being right and getting the job done of buying a home. For example, repairs are always a bone of contention with most real estate contracts. Sellers hate to admit their home is defective and buyers don’t want to buy a home that is not perfect. I am constantly amazed how perfectly rationale people lose all objectiveness during a repair negotiation. Buyers don’t want to buy a property that will be dangerous to them or cost a lot more money to make the repairs. However, I have seen buyers let a property slip through their fingers due to cosmetic concerns. Items the buyer could easily and cheaply fix themselves after moving into the home. With all this in mind, I told Nan that I considered the following never evers when buying a home.
Never skip the inspection – I told Nan that her husband should never rely specifically on his own observation skills when analyzing a property. In Texas, we can pay consideration to a seller to get an option period, where the buyers can due diligence on the property by having it inspected by experts. Most sellers will not intentionally hide defects from buyers, but will focus more squarely (as they should) on making the cosmetics of the home look good. Buyers owe it to themselves to pay an inspector, anywhere from $250 to $500, to look over the property for them. Inspectors will tell you in very nice detail what they find questionable about the property. They will never tell you specifics on how to fix it or how much it will cost to fix it. However, if the inspector tells you the roof, plumbing, electrical or foundation seems off, it is a good idea to have these items furthered examined by an expert, who can quote you a price or what needs to be done to fix it. When all is said and done, you have a good idea on what needs to repaired on the property and the costs. At that point, you can either terminate the contract or send a repair amendment to the sellers asking them to fix the issues or give some other consideration (allowance or sales price reduction) because of the repairs.
Never buy anything after a contract is executed – Once you have gotten a contract on a property, you first instinct is to go find things to put in the new house. What furniture would look good with the layout? Will I need a new lawn mower for the new big yard? You have so many ideas on what you need to buy for the new house. My advice to you. Don’t do it! You need to take a spending vacation when you are in a contract for a house (If you are getting a mortgage). Lenders will check your credit rating and your debt-to-income ratios two or three times in looking over your loan application. If you have suddenly bought a lot of stuff, you credit rating will be hit and you will have a higher debt-to-income ratio which could negatively hurt your terms for the loan, or even put you in a position not to get the loan at all. When buying a home, you simply do not want to go on a spending spree. You can hold off for the 30 to 45 days to let the loan get the clear to close.
Never default on the contract – You a week away from closing. You have gotten through the loan approval process and the lender is ready to close on the home. You wake up that morning with a huge case of buyer’s remorse and immediately call your agent to tell them you changed your mind about buying the home. My advice to Nan is that if her husband is going to do this that she should call their attorney immediately. I am not an attorney. However, I do know that the contract gives you several ways to get out of a contract without defaulting on it including the option period and the property not passing the lenders standards. If you decide to back out and default on the contract, the seller can seek to keep the earnest funds deposited as well as seek legal action against you for not going through with the contract. It is never a good idea to default on a real estate contract.
Nan was busy writing down all the things I was telling her so she could figure out how to tell her husband these important never evers. She agreed that they needed to inspect their house as her husband did not know everything and there might be hidden defects. She didn’t realize that they needed to go on a spending vacation so she was glad to know not to follow her base instincts. Finally, she never thought they would ever default on the real estate contract, but it was good to know to consult an attorney if her husband ever did change his mind at the last second.