No Deal Is Done

Several times a year friends will exclaim they have sold a property. They are so excited with their success I never tell them that no deal is done until money actually changes hands, and when it comes to real estate that deal may not be done for ten years or more after the papers are signed.

That first flush of a sale in real estate that makes them so ecstatic is usually only "an offer to buy." It is just the beginning of the dance. By no means should you think the ball is over just because someone plops down an offer to buy.

It starts out like this: You have a house listed for $200,000. Someone looks the house over and offers you $175,000 or so. The first thing you want to look for is a "subject to" clause in that offer. The offer might be "subject to" the buyer getting a loan. Or it might be subject to getting a loan at below 6%.

Any "subject to" clause you see in a contract is a loophole. Yes, you have made a sale but only IF those conditions are ever met. The danger here is that it's all too easy to cut loose the purse strings a week or so after the offer is made because you think it is a done deal, or will be a done deal within thirty days. Giddy with the windfall you know you will soon have you spend money in advance that you wouldn't otherwise consider. When the deal falls through you are left in a financial bind.

More and more real estate deals do fall through these days. It is like a horde of tire kickers has been turned loose on the world. People make offers in a pathetic hope they can swing a loan, or make some other connection in the "subject to clause."

Earnest money, usually a mere thousand dollars or so, lends weight to the offer and makes you think the deal is done for sure. It isn't. More than likely you are going to lose the earnest money because With that loophole the buyer can yank every cent of that money out of your grasp at the very last minute. The moral of the story is, don't spend your money before the deal really is done.

"Okay," you say. "I wasn't going to do that anyway. But what's this part about the deal coming back on me ten years after the papers are signed?"

Here's an extreme illustration that really happens occasionally. Let's say when you bought the place you were told by an agent there were 1.5 acres there. It's a HUD foreclosure and you're getting it for two thirds off retail so you aren't checking your papers as closely as you should.

After polishing the place up you put it up for sale and mention in the ad that there is an acre and a half of land. That's good drawing power. Your buyer takes your word for the acreage and the sale sailes through without this buyer noticing anything either.

Ten years later that buyer goes to sell the property and the new buyer asks for a survey. Lo and behold, the square footage doesn't even measure out to a whole acre.

The first thing your buyer does is turn on you. You can bet your sweet bottom peso your buyer will be hard to placate. You can expect lawyers to be involved. On top of that, you may be facing criminal charges and in some circumstances those will be FEDERAL criminal charges. Do you even remember the name of the real estate agent after ten days?

You are probably thinking this is an absured example.. "Surely the real estate agent knows an acre and a half when he sees it."

No, actually real estate agents are wrong quite often. Even some professional people don't know how many square feet there are in an acre and just "suppose" the numbers are right.

The moral here is, GET IT IN WRITING. Either that, or never mention any fact you aren't ready to testify to in court.

A less dramatic situation might involve something like a capped well. You show your buyer that a pebble through a hole will make a splash when it hits water below. Then you mention that the previous owner told you that he used to irrigate his garden with water from the well.

Two years later the buyer comes back to visit you and s/he has a lawyer tagging along. It turns out there isn't enough water there to irrigate half a garden. Even though two years have passed your buyer will be agitating for damages.

This risk can be as simple as you saying the roof is in good shape, or the pipes have just been replaced. Even after money has changed hands, if the buyer discovers -- or believes -- you gave false information you can find the transaction reopened and the sale thrown out.

Where this really gets hairy is when some unscrupulous contractor convinces your buyer that one of your statements was false. "Why, this roof has been leaking for ten years or more!"

If you don't have proof of what you say, don't say it. If you are buying a property, get it surveyed, and have the dwelling inspected by a professional -- before money changes hands and the deal is done.