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How to avoid closing disasters

by Theresa D. McClellan

How to avoid closing disasters

There is a potential for disaster involving agents, buyers, and sellers every time a deal approaches the closing table. Chicago real estate attorney and first-time homebuyer instructor Ranj Mohip calls refers to these situations as “post-close nightmares.” When the seller doesn’t disclose history, the buyer doesn’t reveal their full plans for the property or the agent doesn’t ask enough questions, Mohip usually gets a call.

“Anytime there is a problem with a post-close issue, somebody didn’t do something they were supposed to do. Sometimes, it’s the attorney. Sometimes, the agent. Sometimes, the client,” he said. 

Chuck Roush, productivity coach with Keller Williams Realty Memorial in Houston agrees. There are many things the buyer, the seller, and the agent can do to prevent post-close nightmares, said Roush, who trains agents to do it right the first time as yet another way to get referrals and repeat business.

Roush noted that real estate professionals can help buyers and sellers by advising them to always hire a Realtor for representation, close at a title company, get title insurance and get a residential service contract. “Buyers should always do a final walk-through before closing and have repairs done by the seller inspected again by a licensed inspector,” said Rousch. “Sellers should hire only licensed contractors or service providers in the specific trade to complete repairs negotiated with a buyer.” 

To protect yourself and your client, Rousch advises agents always get everything in writing through clear and specific emails. And, as the coach noted, loyalty to a client should never trump one’s ethical and legal responsibility to do the right thing, obey the law and urge your clients to do the same. “Work only with pre-qualified buyers and sellers who are willing to listen to your professional advice,” he said. “Be prepared to walk away from a client who is wanting to do something unethical or illegal.”

Learning — and applying — buyer intent

Mohip recalls the woman who fell in love with a condo and spent all her money to land the unit. She learned after moving in that the darling 95-pound Mastiff she’d owned since he was a puppy, would not make the cut. The homeowners association board had a 25-pound limit on pooches and sent her a letter telling her to get rid of the dog.

Heartbroken, the woman tried rallying support from her new neighbors. She sat outside her home waiting for other dog owners to appear and gave them a letter written by Mohip, with a picture of her dog as a pup. In the end, she was able to keep her dog, paying a small fine and agreeing to limitations on when she could bring the animal in or out of the unit.

While this deal ended up working out, Mohip noted that all this trouble could have been addressed early on with questions before the sale. “Now you are negotiating from a point of weakness,” he said about his client’s position. 

Getting the details before close is essential to getting the keys to a home without any static. Mohip said asking the client their plans for the home; making them aware of deed or condo advisory board restrictions; and insisting on surveys, inspections, title searches, building code violations, property fines and insurance are all essential in avoiding most problems.

Mohip had a client from Florida who was eager to spend $2 million in cash for multiple condos in Chicago in order to turn around and rent them out as short-term rentals but did not disclose that plan ahead of time. Mohip gave him the paperwork about STR restrictions, but the client didn’t read see the fact that leases under nine months were not allowed.

“He overpaid because he thought he’d make it up monthly,” said the real estate attorney. “A one bedroom in some of these condos can rent for $1,500 a month [but] with $150 a night [in] Airbnb rent, you can get up to $4,500 a month. But he was stuck.”

Respecting the inspection

But what about when clients don’t listen? Marty King, an agent with Baird & Warner in Orland Park, recalls a seller who didn’t listen to his advice, and as a result, what could have been a $200 fix turned into a $5,000 nightmare.

“You tell people stuff, and they look at Realtors like we have holes in our heads,” said King. Even though he suggested to his seller that he hire a certified professional to do repairs to his listing, his client brought on a friend to take care of the issue. King said seller was mad that he had to take care of hot water heater repairs that he felt were trivial and didn’t want to repair the crack. But that’s when the small problem grew into a big nightmare. “A month after the closing, I got weird calls from the buyers, wanting to know where the seller lived. We used an attorney for our closing and got a call saying they filed [suit] against us.”

With the $200 fix, the crack was obvious in the final inspection and the homeowner didn’t want to make the repair. “I said it could come back to haunt you and I was prophetic,” said King. “The kicker is the guy who referred him to me repairs basements.”

King urges homeowners to have an inspection before putting their properties on the market, noting that though it may cost a few hundred dollars, “it’s worth it.”

Mohip also recalls a couple of clients who fell in love with a property that had work done but where there were no permits for the repairs on the property. Mohip recommended they not buy it because of the missing documentation. 

“Their agent told them to drop me and get another attorney because I wasn’t pushing the deal through. I said, ‘I don’t think your agent has your best interest at heart, but it’s all about your commission,’” said Mohip. He was friends with the owners but they loved the property more and went with the agent’s recommended attorney and closed the deal. 

The buyers quickly learned that the workmanship was shoddy. Their floors buckled in the basement because a moisture barrier was never installed and pipe burst because vents weren’t cut out for the furnace.

“I tried to tell them, ‘This is not the deal you are looking for and if you do, you’ve got to get the price way down to pay for repairs,’” said Mohip, adding that sometimes there’s nothing a professional can do to convince clients not to throw caution to the wind. “I’m putting a lot at the feet of the agent. That buyer could have said, ‘I still want it.’ You can’t protect people from themselves.”

Getting matters checked out and being serious about the results is important, said the attorney. “You can buy a hooptie and get it inspected. People do that for a $300 car, and yet don’t get an inspection for a $300,000 house?”

 But even thorough inspections are not guaranteed to turn everything up, Mohip noted. “Most home inspections, if [they] miss something, the remedy is, ‘We’ll give you back your inspection fee.’ So $300 back for a $5,000 problem is not the greatest return,” he said. “You have to be very on top of this stuff… No one will be on top of it for you.”

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