Read every page of the sourcing agreement and still lost $3,400

Engaged a sourcing service as a buyer client. Their agreement was better than most. Fee $9,000 at closing, buy box defined, tail limited to ninety days, and a sentence saying the company acted as my agent for acquisition. I marked up three clauses, they accepted two, and I signed.

They brought a 1970s fourplex, decent bones, contracted at $212,000. I put $5,000 earnest money up and it went hard after a ten day inspection window, which I agreed to because the seller had two other offers.

Inspection was fine, $18,000 of deferred stuff I'd already priced. Then the title commitment came and there was a recorded memorandum of contract from an entity I didn't recognize. Turned out the service had contracted the property at $189,000 through an affiliate three weeks before they showed it to me, and the $212,000 I was buying at was their resale price. So the total to them was $23,000 of spread plus my $9,000 fee.

My agreement said the company would not receive compensation from any other party to the transaction. It said nothing about an affiliate acting as principal on the sell side, because an affiliate selling me a house isn't another party compensating the company, it's the company selling me a house. That's the gap I read past.

I walked. Earnest money was hard so I lost the $5,000, got $1,600 back after a fight over the inspection credit, and ate $600 in legal to write the exit letter. Six weeks and $3,400 net.

What I'd do differently. One sentence in the agreement: the company and any affiliate will not take title to, hold an equitable interest in, or profit from the sale of any property presented, and will provide the fully executed seller side contract on request. And I'd never let earnest money go hard before the title commitment is in my hands, whatever the competing offers situation is. Whether their conduct was permissible where the property sits is a question for a lawyer in that state and I decided the answer wasn't worth another $10,000 to find out.

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1angela_burkeServicePRO6

The affiliate gap is the standard one and you found it the expensive way. When we sign as a service provider we now include a schedule listing every entity under common ownership, and the no-principal language attaches to the schedule plus anyone added later. Operators who intend to double dip won't sign that page, which saves everybody time.

The part I'd push back on slightly is walking. $23,000 of spread is enraging and it's also sunk, and the only question at that moment was whether a 1970s fourplex at $212,000 with $18,000 of deferred work was a buy on its own numbers. If it was, you paid $3,400 to punish someone who didn't feel it. If it wasn't, the spread just told you something the comps should have told you first.

On earnest money going hard before title: yes. We won't ask a client to do that anymore. Ten day inspection windows and title commitments that take twelve days is a mismatch that shows up constantly, and the fix is one sentence tying the hard date to receipt of the commitment rather than to the calendar.

Read every page of the sourcing agreement and still lost $3,400

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