Thursday, August 7, 2008

Ruminations On Selling a Home (Or, Why Real Estate Sucks, Part 1)

Since moving to Northern Virginia in 2004, my wife and I have been renters. We were lucky enough to ditch apartment life and find a great home whose owners have spent the last three years overseas, but like all good things, our time in Vienna is coming to an end as the owners return to the States. Coupled with the real estate market collapse and the ensuing "buyer's market," this seemed an ideal time for us to buy a home.

But first, I had to sell my townhouse back in Blacksburg, which I'd rented out the past four years. In my favor, Blacksburg's market is somewhat insulated from the overall burst real estate bubble by its nature as a college town, though that also means the peak period for sales is springtime, as people want to be able to close and move in before the start of the fall term in mid-August. I contacted the same agent who'd handled the purchase for me when I originally bought (Vicki Powell, a great agent in southwest Virginia), and we put the property up for sale.

Though the first offer was less than my asking price (by about 4%), the prospective buyer wanted to close in early May, which was ideal in that it gave my wife and I plenty of time to locate and buy a home before our lease was up in mid-August. After getting confirmation from the buyer's agent and lender that he'd have no problems closing on schedule, I accepted the offer. And thus began a months-long odyssey which has yet to have its final chapter penned!

I'm sure my situation represents an extreme, but it shows just how many things can really go wrong in real estate transactions. Rather than going off on a lengthy rant no one will want to read, let me make several points, or "lessons learned," I took away from the experience:

  • Investors using conventional lenders for their financing (vs. "hard money" lenders) are NOT a good fit for sellers right now! Banks are really tightening their lending guidelines, and are giving investors (buyers who are buying a home they don't intend to live in) a really difficult time. And yes, parents buying a condo for their college students are considered investors.

  • Mortgage brokers suck! (Especially mortgage brokers who also run talent agencies and are credited as Grandmaster Flash's "personal assistant" on his albums; more on that shortly.) I'm sure in better markets, mortgage brokers help their clients find the best available loans, but today, many lenders are shuttering their wholesale lending divisions, meaning there are far less options available to brokers. And as a seller, having a buyer with a mortgage broker means a lot more potential for delays--any requests for clarification or additional information from the actual bank have to pass up to the broker, to the buyer via his agent, then back through the same chain, sometimes adding days to the process for each instance--as well as significantly reducing transparency (meaning as a seller, it's much tougher to find out exactly where my buyer is in the approvals process).

    My buyer's mortgage broker was incredibly unprofessional. They never returned e-mails, faxes, or phone calls from me or my agent, despite the contract specifying the buyer allowed his lender to communicate with me regarding his loan. Worse, when I reminded my buyer of that, his mortgage broker actually called my agent and reamed her out, and stated they had advised the buyer not to provide the written consent I had requested (note: mortgage brokers should not give legal advice; what they had suggested would have put my buyer in material breach of the contract, not a place he wanted to be!)

    Being a good Internet sleuth, I soon discovered his mortgage broker's owner had a MySpace page--disturbing enough in itself; we're talking about the financial world, after all, where tattoos and shirts in colors other than white are frowned upon--and proclaimed only to be interested in people "making millions," as well as her dubious credit being the personal assistant to Grandmaster Flash and her other business as a talent agent for the hip-hop community.

  • People listen to lawyers. The buyer completely ignored reminders his closing date (which he missed by almost two months) was a material consideration in my acceptance of his offer, and as such, he would need to pay a per diem or other compensation to reflect his not making good on his promise... that is, until I got lawyers involved. The only downside to lawyers is that they are like fraternity brothers, willing to be your friends after you pay them first--though I think my lawyer's fees turned out to be money quite well-spent.

I would have found the buyer in default (which I reminded him was the legal position he found himself in, many times), and delivered the required 72-hour notice to yank his contract, had his delays and promises not pushed us into early summer. Remember, in a college town, the market is almost dead during the summer; students already have their fall housing lined up by then, so if I put it up for sale again, I'd have to cut the price further to move it, etc., and still have had no guarantee of finding another buyer in a timely manner.

It's my opinion that my buyer never intended to make good on his contracted early May closing date. I'm not sure how much of a role his agent and his mortgage broker played; they both certainly had their share of unprofessional behavior and were complicit in the assurances the closing could be done on-time. I think he wanted to get the property under contract at a discount.

In the end, we did successfully close--and not a moment too soon, as it turns out! Within days of closing, his ultimate lender, Wachovia, discontinued the loan program he had used to buy the home, the "stated income and assets" pick-a-payment product which many have called the worst idea in the history of mortgages. And within weeks, Wachovia, following the lead of many other major lenders, shuttered their wholesale division entirely, meaning they won't work with mortgage brokers at all any longer.

Still, due to the buyer's and his broker's often inexplicable and always unprofessional delays, my wife and I lost the first home we'd found (twice, actually; more on this later), and I incurred quite a few additional expenses. For example, I paid two months' more mortgage interest, as well as two months' more FHA mortgage insurance (they don't pro-rate, so I actually had to pay for all of July even though we closed June 30th!), storage unit rental (again, more on this later when I blog about the frustrations of buying a home), legal fees, and incalculable stress and frustration.

If I ever sell real estate again, I will definitely do a lot more investigation as to the buyer's funding (though, contractually, buyers can change their funding source at any time so long as it causes no delays or damages to the seller). No small-time mortgage brokers allowed, unless they're willing to state in writing they will provide bridge funding as necessary to close on schedule. Investors vs. buyers looking for a home of their own will get extra scrutiny. And I'll get lawyers involved sooner, as well as having contract addenda explicitly spelling out the per diem and other damages the buyer must pay if he or she is late on closing.

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