Every transaction requires work. There is no free lunch. Sometimes the home has some challenges, sometimes personalities can be challenging. It is always something. Either way, it always seems like I earn my keep some where along the line. However, in one recent transaction, I earned my keep several times over. It was stressful and exhausting.
This recent transaction was the perfect storm. It was a confluence of problems. One problem exacerbated the the other problem. It was synergistic in a bad way. Any one of the following 6 problems would have been no issue by itself, but combined, it turned this real estate sale into potentially the hardest deal I have ever had to save. The issues:
1 – The seller thought they had a termite / dry rot free home
2 – The buyer’s inspector didn’t catch the dry rotten bathroom
3 – The agent had only 3 deals under their belt
4 – The buyer signed off on their contingencies
5 – The buyer’s son had severe health issues regarding mold
6 – The seller had a massive tax liability due in 30 days
Three weeks into the escrow, everything seemed fine. The buyer had done their inspection, signed off on the physical inspection contingency, the appraisal was done. Everything appeared text book fine. Then out of the blue, the buyer called me up to let me know they were cancelling escrow. I was not representing the buyer. Why would they call me? Since I was only representing the seller, I had had no conversations or contact with the buyer. My reaction was “What?…….”, I was speechless and didn’t really know where to start with my first conversation with the buyer. Usually, I would get a tip off from the other agent if there was a problem. When you go from everything is fine to “We want to sue our buyers agent, and if we buy this home our son is going to die, so we are cancelling escrow”, you don’t really know where to start. The conversation between me and the buyer started anyway. It had to. I was immediately thrust into the middle of a dialogue where I was not aware of what had been said.
The start of the problem was a termite report which didn’t jive with what the home inspector had found. It is the job of the seller to get the buyer disclosures within a certain period of time. Usually this is about 7 days. Due to the seller stating that they had a termite service that maintained the property, they wouldn’t need us to schedule our termite company. Three weeks into the transaction the seller’s termite company finally came out to do their inspection. One of bathrooms was so rotted out in the sub floor / shower pan area that they would not even quote repairs. It was beyond their scope.
When the buyers received this report, they pretty much went through the roof. Understandably so, as the buyer’s son had been to the emergency room for mold related lung issues many times. To them proceeding with the purchase would be reckless. Normally the process would be to simply correct any dry rot condition, but the buyers medical history caused this issue to be elevated to a higher level of concern.
While the buyers agent did nothing wrong, they clearly didn’t have the experience to talk the buyer off the ledge or propose solutions. This compounded the problem. The buyers agent was a personal friend that they thought they would throw some business her way. They were not aware that this was only the agents third transaction. Every agent has to start some where, but this was not the transaction to be cutting your teeth on. When I first spoke to the buyer they were figuring out how they to cancel escrow and / or sue their buyers agent. They were not happy campers.
This is where I stepped in, all of a sudden needing to try to salvage the transaction. I communicated to the seller that there was a problem with their bathroom, confirmed by two termite companies. The seller let me know that “Sh&*t would hit the fan”, if this transaction didn’t close, but gave me no specifics. Hmmmm, why was the seller under so much stress and in such a panic. It seemed a little out of character. Not until 2 weeks into resolving the issue, did the seller let me know that they had borrowed from their 401k to purchase their new home and this money had to be back in place within 30 days. If this transaction fell out they would have about $500,000 added to their taxable income for the year! Ok, good to know, I wish I had known this upfront. Atleast now I had a timeline to get the job done and knew the importance of the getting this deal closed.
The IRS tax code allows you to disperse money from a SEP IRA or 401k and not pay taxes as long as you get the money back into a qualifying account within 60 days. This is where the seller’s 500k down payment for their next home came from and it needed to be redeposited within another 30 days.
My first job was to ascertain whether the buyers were dead set against buying the home and they were just using the bathroom issue as a smoke screen, or whether the problem was simply the bathroom. This wasn’t the easiest of task as the buyer was an engineer and a little hard to read. Engineer’s don’t take this personally, I have an engineering degree. Engineer’s as a lot tend to be more analytical and less emotional, so it is maybe more difficult to read their motivations, as engineers are more about data points. The buyer approached every problem from a “What If – Worst Case” mentality. Over and over I had to deal with these types of questions, “What if there is mold there, how will we know if it isn’t everywhere and since the inspector missed this bathroom how do we know what else he missed.”
So I felt like I was trying to dig the transaction out of a hole created by the other agent. The buyers had already lost faith in their buyers agent and their inspector. The buyers wanted nothing to do with their agent and ceased communication with their agent. I became their point person. Yet I was the seller’s agent, so it put me in a precarious position. One where I would more likely be distrusted.
Whether the buyer were to proceed or not, I had to very quickly ascertain the extent of the dry rot in the bathroom. This required demoing the bathroom area to the point where one could see the extent of the dry rot. At this point with the help of my very competent inspector, Marty Salcido, the “What If’s” mold related issues were eliminated. This is where the transaction started to turn around. Once the buyers felt like they were being give full disclosure from honest and competent providers everybody calmed down and trust was slowly rebuilt. The buyer felt comfortable with my inspector, Marty Salcido, and hired him to review the balance of the home to make sure there wasn’t a second bathroom that was rotting.
While we had ascertained that there wasn’t a mold issue and the extent of the dry rot was determined, we still had a big hole in the middle of the bathroom that needed to be resolved. This was the second big issue. How was the bathroom to be rebuilt. The extent of the bathroom damage was significant enough that entire bathroom had to be redone. Fortunately, the seller had selected Eric Hetland of Hetland construction to rebuild the bathroom. It was a stroke of luck that Eric had remodeled a bathroom for one of the buyer’s personal friends and was very happy with Eric, so the buyer knew that the bathroom reconstruction would be quality. After about 2 weeks of negotiation hell, I felt like the universe threw me a bone. Now we just had to come to terms with how the bathroom would be rebuilt and get it done in time to close.
Without going into more details, let me outline how the issue was resolved. It was resolved with FULL DISCLOSURE, competent service providers, good communication, a cooperative seller and 30 years knowledge and experience on my end to rebuild trust and resolve the issue in a VERY timely manner.
Once trust has been lost, vary rarely can it be rebuilt. The confluence of events left the buyer’s feeling like they had no choice but to cancel the transaction, even if their deposit was at risk. A cancellation would have been detrimental to the sellers. I had a vacation planned right when this problem surfaced. It was very clear this vacation would not happen. The transaction needed me to walk the buyer through the entire process. Eliminate any concern about mold and then rebuild the buyer’s faith that they would eventually own the home of their dreams.
After negotiation about how the bathroom would be completed and laying out a schedule, we got the escrow closed with 3 days to spare for the seller to get their funds back into their retirement plan narrowly averting 1 half million tax consequence. That same week I also got a text from the buying family. It was a picture of all of the kids jumping into the pool and how happy they are with their new dream home.
I feel truly grateful for the sellers and the buyers putting their faith in me and the process. It was particularly fortuitous that my home inspector had lots of experience in mold related issues and I had a contractor that was well respected by all parties. With over 30 years in the business, I had the right expertise and experience to turn around a very disappointed buyer, eliminate a huge tax burden for the seller and eliminate any lawsuit that might arise and end up with two satisfied parties. While I missed my summer vacation, I somehow felt like I had been selected to get this job done and was happy that I could make a difference.
Moral of the story…. Don’t borrow funds that need to be paid back in 60 days. Don’t believe a termite company that only sprays around your house 4 times a year and hire an agent that has both a vast level of experience and excellent communication and technical skills.