Author Topic: Contract protections for sellers who back out  (Read 1799 times)

Axecleaver

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Contract protections for sellers who back out
« on: December 10, 2015, 11:07:19 AM »
We've been searching for a good flip/rental property for about three months. We wanted something that we could live in for 1-4 years, flip and repeat, or fix and make into a long term cashflowing rental. We've put in four other offers and lost three of them - two because our price was not the highest, and one because our offer was higher but winner's was all-cash.

The last deal, we had our offer accepted, but during the contract negotiation phase (prior to inspections, etc at least!) the seller backed out. The seller was an elderly woman who had listed her home for three years. When it came time to sell, she couldn't come to terms with moving on, which I sympathize with, but it's made me a little gun-shy of this scenario. I spent $350 on my lawyer, usually costs $750 for a closing here in NY. Fortunately I didn't have any other costs except wasted time and aggravation.

Current property I'm considering has potential. Owner had another contract fall through when radon came back high (14.1) and buyer canceled. Owner is a widower who has lived in the home for two years. Her husband died six months after they moved in. We've figured out that she has about 255k into the place. She does not have her crap together, she is cash-poor and unable to pay for radon remediation (or so she says). The property was listed a year ago for 275, no takers. Was delisted in August at 230k. It came back on the market in November listed at 229k and comps at 190-205k. Radon remediation is 4k and there's another 5-10k of deferred maintenance.

Problems - it's a little quirky, has some super nice high end amenities for the retired couple, but not very family friendly. The audience for this property is limited, so flipping it could be difficult. On the other hand, it could go for a premium to the right buyer.

We offered 208k (91% of list) and she rejected without a counter. I was shocked - stuff does not move around here very quickly. Wife and I discussed and decided to raise our offer to 219k, BAFO. This is 96.7% of list, and at least 14k over market value. She says she has to discuss it with her son and financial advisor. When I got that call, I canceled my offer and told our agent that it sounded like she didn't want to sell after all. Give us a ring when she gets her act together. I couldn't believe that she didn't know what to do with an offer 10k under list.

Three days later, we get an email that she will sell for 220500, best and final. We're considering it, but my biggest concern is that we have protection against a flighty seller. I'm at a loss to figure out protections that would let us move forward with this, after a demonstrated lack of decision making powers.

I'm also sensitive to the fact that I do what's in our best interest, not just react out of aggravation and emotional frustration. Emotionally, I want to tell her we're done and it's over. But if it's a good buy, we should buy it. If it's a bad buy, we should let it go. The seller's instability just adds risk to the deal.

So here's the advice I need - what contract protections can I put in place to protect me from mortgage application fees, inspection fees, legal fees etc., from a seller who seems very difficult to deal with? Should I walk away from this one, knowing that there's another deal around the next corner? Thanks!

branman42

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Re: Contract protections for sellers who back out
« Reply #1 on: December 10, 2015, 11:18:37 AM »
I would probably leave it. There are plenty of good houses, no need to pay a premium (especially for a flip) and deal with a seller you do not like.

It is interesting whether it is easy to add these points in there or not.

brooklynguy

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Re: Contract protections for sellers who back out
« Reply #2 on: December 10, 2015, 11:50:28 AM »
So here's the advice I need - what contract protections can I put in place to protect me from mortgage application fees, inspection fees, legal fees etc., from a seller who seems very difficult to deal with? Should I walk away from this one, knowing that there's another deal around the next corner? Thanks!

If I'm understanding your question correctly, you are asking what contractual protections you can put in place before you have a binding contract, and the answer is none.  Once you have a binding contract, you will have contractual protections against a "flighty seller," but until you have a binding contract, you will not have a binding contract.

You can seek to put a contract in place with the seller to reimburse you for expenses incurred in anticipation of the real estate deal in the event the deal does not go through, but, in my (very limited) experience that is not at all customary.  In my two real estate purchase transactions (both of which occurred in Brooklyn, NY), both times I conducted the inspection (and incurred the associated costs) after my offer was accepted (which, for real estate transactions in New York, generally remains unenforceable prior to execution of the definitive purchase and sale contract), but before signing the binding definitive purchase and sale contract.

***This post, like all of my posts on the forum, does not constitute legal advice***

Axecleaver

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Re: Contract protections for sellers who back out
« Reply #3 on: December 10, 2015, 12:40:17 PM »
Not quite, I understand that until we sign a contract, there's nothing to default on. I'm OK with that risk. That's what happened to me last time, and OK, it sucked, but I understand there's not much we can do before an agreement is in place.

I'll probably discuss with my attorney and see if there's anything I can reasonably insert into the contract to protect me from an irresponsible seller. Big concerns would be misrepresentation of the property, delay in moving out, and simply changing her mind.

Axecleaver

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Re: Contract protections for sellers who back out
« Reply #4 on: December 11, 2015, 01:36:08 PM »
Talked to my attorney, and the only option was to have them escrow dollars against the specific things I was worried about. This wouldn't work in this case because seller was cash-poor. He told me in cases like this he advises his clients to find another property, because all the things you think of to protect yourself from, there's a dozen things you didn't think of, and then you're in the same spot.

Decided to pass on this one. The search continues.

zephyr911

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Re: Contract protections for sellers who back out
« Reply #5 on: December 14, 2015, 10:27:29 AM »
Probably a good call. Keep shopping.