Buyer walked three days out, so I closed leg one anyway to save 5,000

Contract at 74k on a 1,400 square foot two story in an older streetcar neighborhood, roof was near end of life and I priced that in. End buyer at 98k, cash, contract signed, funding commitment from a transactional lender with a 1,750 fee that went non-refundable when I locked the closing date.

Three days before leg two, the buyer's brother in law looked at the roof and the buyer sent me a one line email backing out. He had a 1,000 deposit up and he let it go without arguing.

My seller would not extend. She'd already moved and had a date. My earnest was 5,000 and hard. So the choice was walk and lose 6,750 with nothing to show, or close leg one and own a house I never wanted to own. I closed it, with hard money at 2 points and 12 percent because my transactional funder does not do multi-week paper and told me so in about four minutes.

Held it five weeks. Relisted at 96k, took 92k from a retail-ish buyer who needed the roof credited, gave 3,000 toward it. Carry, insurance, utilities, one extension point, lawn, and the second set of closing costs on the way out.

All in I'm down about 9,200 against an underwritten 14,500. Better than losing 6,750 and getting nothing, and I know that. Still a bad two months.

What I'd do differently: I had one buyer. No second buyer on that property, no relationship with anyone who does 30 day money, and no idea what my own carrying cost per week actually was until I was paying it. I scheduled a closing date, which triggered a non-refundable fee, on the strength of a cash buyer I'd never closed with.

Answer

4brandonlee36Passive

You survived this because you could get hard money in four days, which is the actual prerequisite nobody says out loud. A double close puts you on title, and being on title means the exit has to be optional rather than mandatory. If the second closing has to happen or you're ruined, you're not buying and reselling, you're just hoping.

So before scheduling a closing date I'd want three things settled. What the property is worth to me if I keep it, which means a rent number and a repair number, not just the resale to one buyer. Who lends me 30 to 90 day money and at what price, agreed in advance so it's a phone call and not a scramble. And my carry per week, written down, including insurance on a vacant house, which is a different and more expensive product than a normal policy in most states.

On your numbers, the 9,200 breaks down as roughly 6,000 of price concession and 3,200 of carry and second-round closing costs. The carry was almost fixed the moment you took title. The 6,000 came from selling into a five week window with a bad roof, and that's the part that shrinks if you know the property's floor before you commit.

The roof is worth its own line. You priced it into your 74k. Your buyer had not priced it into his 98k, and you found that out three days out, which means it never got discussed properly at contract.

4 replies

2mikeoconnell7SP2APRO6

The 1,000 deposit is the whole problem in one number. He risked 1,000 to control a 98k purchase and you risked 5,000 plus a 1,750 fee. When the roof spooked him, walking was obviously cheaper for him than negotiating. On a cash contract with no financing contingency I'd want his deposit sized so that walking hurts.

3angela_burkeServicePRO6

Second buyer, always. We don't set a closing date on anything until there's a name and a number behind the first one. It costs nothing to keep a warm second and it's saved us twice.

2stephen_ok9CO2CPRO6

What did the hard money actually cost you all in? 2 points on 74k is 1,480, plus five weeks at 12 percent is around 850, plus an extension point. I'm trying to work out whether the expensive part was the loan or the discount, and thicket's split says discount. That changes how I'd think about the funding relationship being the fix.