Most people I know who are contemplating a home purchase, hire a licensed inspector to analyze the house in great detail and prepare a report for them so they can make an informed decision.
I take an entirely different approach.
If it’s not an old crack house, ready for condemnation, full of mold, falling down, in need of desperate repairs or a bull dozer, then I’m not interested in buying it anyway.
I wouldn’t know what to do with a house that wasn’t sorely in need of work. I am who I am and stick with what I know – disasters – home to me.
I buy them as is.
Yes I’m supposed to know better. After all, I am a state licensed inspector. I even specialize in advising people about these types of homes. What is the matter with me? It must be a personality flaw. I can’t figure it out so hope you don’t waste your time trying either.
On Tuesday, I had an appointment to meet with the home owner’s son-in-law. I had previously provided him a compressive analysis on a house from which his elderly mother-in-law had moved.
Then, the timing was wrong. The market had just entered a slumping period. I had no ready buyer for the house. I wasn’t willing to an offer that I thought I would have been acceptable to the owner.
How things can and do change in fourteen months. This time it seemed they changed for the worse.
The housing market was at an all-time low; foreclosures were at an all time high and there appeared no end in sight.
My buddy had completed college and became an electrician. He just landed a new job and after six years was ready to buy another home.
We had been dealing on another home but had not heard if they were interested in selling it at a fair price reflective of its value.
At the last moment I decided to once again contact the lady who owned the house four doors down and across the street from my home “This Old Crack House.
Tuesday arrived and her son-in-law contacted me when he got to the house after work. This was only the second week this year that he had work in the cities. It has been a tough year in construction.
We met at six o’clock. A few minutes of catching up with how his family was and his mother-in-law and other normal pleasantries and we got down to the business of why we were there.
He clearly understood the market had significantly deteriorated since fourteen months ago. The difference this time was that I had a buyer for the house who was already qualified and pre-approved for a mortgage that would cover the renovated value of the home.
I reiterated that there would be no commission charged because I would do the purchase agreement and we would take the house as is – mold and all. The “and all” part was forty years of deferred and non-maintenance.
He understood. He seemed much more engaged this time and attentive to what I was saying.
I cut to the chase and said, “David, if you and your mother-in-law want to sell this house and take a fair offer we can get this deal done tonight.”
I then offered him one hundred forty thousand dollars. He asked if that was my final offer. I said I am open to a counter offer but didn’t have a lot of room to budge on the price.
He knew why this was the case because we had reviewed and added to the list of things that I felt had to be done. My estimate to do just the minimum things I felt necessary was thirty thousand. To do a full renovation would cost much more.
I laid my cards on the table. No games, no double talk, just the facts.
I was honest and open. I had no agenda other than to strike a fair deal for both parties.
He then said he would like to get at least one hundred fifty thousand dollars.
I looked him right in the eye and said, “That amount wouldn’t work for us.”
He asked what would. I said we could split the difference, in the selling price and we could structure the purchase agreement that would allow them to pay closing costs and certain remodeling expenses.
I told him we were in basic agreement over the final purchase amount, now it was a matter of structuring the purchase agreement so it was palatable to all.
I also pointed out that being we both had others to answer to we would need their approval and agreement. I informed him I would be passing through the purchase of the house directly to my client thus saving the costs of a second closing. I would only be doing the remodeling of the project. My role would limited; I would be the facilitator and general contractor.
I also would be the “back up buyer” in the event that my buyer failed to perform for any reason. As I explained I would be putting the money up front to fund the remodeling costs.
These costs were estimated somewhere between thirty and thirty eight thousand dollars depending on the budget and choices my client made. Certainly, I had no interest in putting that much of my own cash into a project without performing a successful conclusion.
He had more than average knowledge about construction as he earned his living from it. He knew that I had performed on over 10 properties in the neighborhood and that I had a letter from my bank guaranteeing my performance along with a pre-approval letter for my client from his mortgage company.
I went prepared and ready to do business. We had presented a fairly convincing case. He knew this and could see the evidence right in front of him.
I told him regardless of what my client said my word was good and I would honor this deal. I stood up and looked him right in the eye and asked outright, “Do we have a deal or not”?
He responded, “We will make this work”.
He then shook my hand and said, “Prepare the paper work and I will take it to my mother– in– law”. She wants you to have the house and wants the deal to work. She left me to decide. I think it is a very fair deal and will recommend that she take it.
I told him I would prepare the paperwork and send it up to him in a day or two. I knew he was leaving again to go back home. I explained that an early start was necessary for me because of the potential for weather-related problems, not to elaborate on other scheduled commitments. I knew that we had less than six weeks to complete all the remodeling and perform the closing of the house. I also informed him that I had an annual two week hunting trip scheduled in western South Dakota, right around the corner.
I left, walking down the street back to my house, “This Old Crack House”. I was already on the cell-phone to my buddy and client informing him of the news that I had a deal and he needed to come over right away to either accept or reject the deal. Regardless, I was going to buy the house, remodel it, and put it back on the market for resale.
I made it clear that my preference was to have him buy the house for several reasons; market conditions, my timing issues and the fact that it was a much better deal for him than the other house in which he was interested.
I would reveal the details when he got to my house.
Within an hour, he was at my house and I presented the deal.
The purchase price would be 141,000.00. For starters, this was 25 thousand or so below what the ‘range” was for the other home he was interested in. This house was also on a corner lot, had over 600 more square feet and offered a lot more potential than the other house.
The costs to bring both homes up to code and make the necessary changes to make them very livable and appealing were very close in estimate. Both houses would need between $30,000 and $40,000 of remodeling depending on which options he chose.
In short, it was a no-brainier.
He could see this, he knew I was passing through all the savings and he would likely be inheriting substantial equity.
I was upfront with all my numbers for doing the construction and remodeling including my fee. I am a big believer that regardless of who it is, there needs to be a fee involved for doing the work or practicing your craft of trade.
I have found that hiding these charges or fees usually leads to resentment or misunderstanding.
Being straightforward puts all the cards on the table giving the client an opportunity to reject the deal if it isn’t to his liking.
My policy has been and is, “In God we trust, all the rest of you pay cash and we do a detailed written contract”.
I don’t care if you are my immediate family, best friend, acquaintance, client, enemy, or the king of England, I insist on a detailed contract. No exceptions.
Let me reiterate in case I didn’t make myself clear on this; no exceptions.
When things are clearly spelled out, there are no ambiguities, nor misunderstandings, and “he said, we said, you said arguments.
End of discussion.
If this seems harsh to you or overkill, so be it. I have one word for you.
Move on because we won’t be doing business. I could and intend on writing a whole blog on this subject – moving on.
My buddy and I got together and hammered out the details and a purchase agreement for the property. The agreement was simple, concise, easy to understand and contained enough information to make it very clear what the sale of the house consisted of and who was responsible for what and how much. This agreement was only two and a quarter pages.
I will be forever grateful for my Para- legal back ground.
We hammered out the agreement, I called David the son- in-law with the details of the agreement and explained how we structured our offer and asked three questions of him.
1. Do you have any questions and understand exactly what we are asking and offering?
2. Would you like to offer any additions or deletions?
3. Are these acceptable to you?
I then suggested for his peace of mind that he have the agreement reviewed by his attorney. He may suggest something that we had both overlooked.
I then informed him I would be sending the offer overnight with earnest money and I had highlighted where his mother-in-law needed to sign.
I like to keep things very simple. I find there is less chance of a misunderstanding this way. I have found any and all agreements can be challenged. What it really boils down to is trust understanding and honesty.
Whenever the slightest deviation in construction occurs, or when I have not used straightforward language in the contract, resulting in a complete understanding on the part of all parties, that is when I have run into trouble.
I don’t allow this to happen any longer.
No good outcome for any of the parties has ever come from a misunderstanding or lack of clarity.
Be honest, up front and clear and you will be rewarded and happy.
From time-to-time a deal falls apart.
That is life.
If you approach ever transaction with honesty, integrity and detail, along with thorough and simple easy to understand details, the less likely you will have a deal that falls apart.
In reality, it’s better for an agreement to fall apart before you get to the closing and are in so deep that there are substantial financial losses. I find that the more thorough you are, the smoother the closing.
If you are hiding something, or not being fair and honest at some level the other party feels this and acts according.
It is amazing how human beings have an ability to sense something is “foul” without necessarily knowing what it is. They know when something “stinks” long before the smell is evident.
I then prepared the purchase agreement documentation, the construction bid and scope of work with prices and payment details for my client to take home and review with his Mother, Father, 589 attorneys, neighbors, friends and even Oprah Winfrey if he wanted.
I simply don’t care who looks at these documents because whoever they are, they are easily understand.
If they come back with a lot of “legalese” and hard to understand changes, I will review but likely decline the offer to do business.
Why? My experience and maturity tells me that we won’t get along very well and the deal has a high potential to go south and fall apart somewhere in the mix.
I don’t need or want the headache.
I would prefer to walk away than enter an agreement with the potential to destroy a friendship.
Because, you can darn sure bet that at some point down the road, it will get ugly.
My favorite phrase – “not interested!”
I then will shake hands wish the person luck and move on.
And that’s just what I do. I never look back. No regrets no second guessing.
One reason I am so adamant about this is that my time is worth something, as is my craft. The person helping you is worth the same amount, unless they have special skills that make theirs worth more. If one doesn’t feel his time is worth anything or want to charge for you for his time, that is fine but then at least seal the deal with a cup of coffee or a dime. That way there is no future misunderstanding.
I assure you that, if one is expecting things to be “made right at the end” without a clear up front understanding, then he will inevitably be disappointed and become resentful.
I also firmly believe that if the homeowners are involved in working on the project, then they needs to account for their time and the value that they place on their skills in contributing to the project. This not only helps establish the value of their contribution to the project, it helps put their expectations into perspective.
There is no such thing as a free lunch or “sweat equity”. Those are simply terms used to justify and explain working your butt off for nothing. They are warm and fussy feeling words for doing a portion of the work.
Trust me, anyone who has ever contributed “sweat equity” would tell you that, that is exactly what they did, sweat and there was no equity involved.
To avoid this, be realistic when preparing your offer or bids on any project, even if it is a small job. Be honest about your expectations for your time.
You will find the bigger the project the more likely you will be disappointed in your return on your personal investment.
This is another whole blog; I will defer that for a later date.
After preparing all the documents and papers I gave them to my buddy and asked him to take them home and do what he had to do to make him comfortable enough to sign or reject them.
Time was of the essence and with or without him; I was pursuing the purchase of this
house for my rehab project.
I told him to call me in the morning. I wished him a good night.
Regardless of what it was I was going to sleep well.
I slept well.
What would his decision be?
copyright all rights reserved D.Jerzak Dec 12 2007