Can I get in trouble for that?
A few weeks ago a friend of mine from Texas called me and told me about a problem he was having with a recently consummated real estate transaction. He had inherited a townhome in a very nice part of town. He had been pretty much managing the property for his mother for a couple of years before he inherited it. He had it rented and that had been going along pretty well. One of the neighbors, who was a friend of his mom’s and also a real estate agent, had found him a couple of tenants. After he inherited the property he no longer wanted to be a landlord, so he decided to sell.
Who’s working for whom here?
Once he decided to sell he discussed his options with the helpful neighbor/real estate agent. She told him she was aware of a gentleman who had been waiting to buy into that community for a while. She suggested that maybe she could work something out between the two of them and save the trouble of listing the property. You know what a pain listing a property is; cleaning, showing, open houses, and phone calls. This would be easy. She would just simply introduce the two and let them negotiate the deal. Money and property would then be exchanged; no muss, no fuss. And that’s pretty much how it went.
The buyer checked out the house, he and my friend agreed on a price. There were some repairs that he wanted done, not the least of which was a new roof. They got an estimate to repair the roof and my friend agreed to reduce the price to cover that cost. He also agreed to accept a sales contract that was contingent on the buyer selling his property. It was all very casual and not a lot of excess paperwork was done.
I guess that was pretty easy, right?
In my opinion there were a couple of problems with this situation, and I believe they all stem from a lack of well-defined representation of either party in the transaction. First of all, without the home being listed and presented to the larger marketplace there is no way of knowing if the price agreed upon was the best price for either party; much less the best price for the seller. It could have been a very fair price, but we will never really know. Secondly, because of the somewhat casual approach to the deal there was no property disclosure from the seller to the buyer. And thirdly, in today’s market of multiple offers and bidding wars when prices can change dramatically in weeks if not days, to accept a contingency contract from the one and only potential buyer for the property seems like a bad idea all the way around.
Wow, that was close!
Well, the buyer’s house finally sold after several months and a number of extensions of the contingency deadline. So the sale of the townhouse did ultimately close. Of course we don’t know if the seller received his best possible price for the property. But it is highly unlikely, both because of the time lag and the lack of market exposure. What we do know is that he paid additional taxes, insurance and other costs while waiting for the buyer’s house to sell.
We also now know that because of the lack of a property disclosure document the buyer was not made aware of a pre-existing water problem. My friend says he really had not thought about the breach of the neighbor’s retaining wall that had caused a pretty serious leak into the townhouse several months prior while a tenant was living there. After all, the neighbor had made repairs by adding a french drain and it was assumed that he had corrected the problem. I do believe though that a disclosure form that specifically asks about such situations would most likely have reminded him of the water event, and he would have disclosed it.
So what’s the big deal?
What’s the big deal you ask? So they had to wait a little longer to close. And the seller spent a little extra money. Maybe the seller didn’t get the max price, but then maybe he did! Well, I said my friend the seller didn’t think much about the original flood and water problem. I should go on to say that he didn’t think much about it until after he received the letter from the buyer’s attorney. That was the letter threatening legal action over the flood in his newly purchased and newly remodeled townhouse. Turns out it might have been a good idea to disclose the water situation after all.
The jury is still out on this one, so we will have to wait and see the outcome. I do know one thing though; both parties would have been much better off if they had been professionally represented by a full time, well trained and licensed REALTOR®.