Offers Where The Buyer Knows About A Problem With Your Property

Every once in a while, a listing agent will get an offer in where the Buyer's Agent did their research, got lucky, or both, and the offer indicates that the buyer is aware of one or more problems that really do exist in a property.

Contrary to most people's immediate reaction, this is a good thing, as I am very happy to explain to my listing clients. It means they know about it and are want to buy the property anyway. Not only can you build a serious case that this means there is no contingency period applying to that particular defect, it means that these buyers are willing to deal with the defect. As opposed to the buyers who discover the problem during escrow, there's a much higher chance of that transaction going through.

Matter of fact, a good listing agent will disclose that problem in the listing itself.

Why in the world would you do something so stupid, you scream? It's really very simple. Pretty much every problem is going to be discovered even if you don't disclose it, and selling a property has a major component of managing buyer expectations. They come to the property expecting a beautiful turn-key property, and when they actually lay eyes upon the thing, it's got this problem. Kind of like picking up what you think is a gold nugget, and finding out it's really donkey droppings. The predictable reaction is revulsion. This is one reason why there may be a lot of showings, but no offers.

You're going to have to price the property for the fault, of course. But if you don't do that, it's not going to sell. Prospective buyers are looking for reasons not to buy your property. Whether they look at it as overpriced or priced correctly but with a fault they don't want, they're not going to put an offer in. No offer, no purchase contract, no sale. It's that simple.

Suppose, as with a property I looked at yesterday, it's not an obvious problem. This thing had been made seductively attractive on the surface, but it was really a cash-sucking vampire property ready to pounce upon an unsuspecting buyer. If you do get an offer where they don't understand and you do get an offer and negotiate a contract, what happens? I'll tell you what happens. Their inspector tells them about the problem. Okay, so they've committed $400 for the inspection, so there's some buy-in, but now they find out about this problem that you should have told them about that's going to cost something in the five figures (possibly six) to deal with. You've just been caught leading them down the primrose path. What's your level of credibility? I think the average buyer is just going to bail out at that point. If they are willing to re-open negotiations, the prognosis is not good for a new agreement. Net result? You've taken the property off the market for a couple days to a couple weeks, and anybody else who may have been interested has crossed it off their list. Furthermore, when it returns to the market, it shows as having been listed that much longer ago, making it less attractive to new buyers coming into the market.

What if it actually gets through escrow and the purchase is consummated without the buyer finding out? That's the worst situation of all, because now the courts are going to get involved when the buyer does find out. Bismarck said that people who like treaties and sausage shouldn't see them made, but if he had ever been involved in a twenty-first century US lawsuit, that would have been first on his list. You're probably going to pay your lawyer more than whatever extra profit you made, and you're going to end up paying their lawyer plus damages as well. Plus, you might very well be ordered to buy the property back. No. Thank. You.

Now, suppose you disclose the problem, and price the property accordingly. You might not get Mr. and Ms. Yuppie looking for the perfect little place for them - but you can quite likely get Mr. and Ms. Yuppie looking for an investment opportunity. You've obviously decided that fixing the problem is not something you're willing to deal with, for whatever reason, but perhaps they are. You have decided you want it sold, and here's the opportunity for that. They know about the problem, and they're interested anyway. It's a matter of managing expectations. Remember up above, where I talked about revulsion? But if your prospective buyer is expecting the problem and prepared to deal with it, they're much more likely to make an offer when they visit. No, you're not going to sell for the same price as the showplace up the block. But you wouldn't sell to that buyer anyway, and trying to do so is one of the biggest wastes of time and money that would-be sellers of real estate talk themselves into.

So an offer where the prospective buyers indicate that they are already aware of an existing problem is not an offer to be blown off. It's a serious offer from interested parties. It is a lot more likely to get the property sold, and it pretty well vaccinates you against later lawsuits on the issue. You can waste your time trying to find and sell to the Suckers of the Century, or you can decide to accept that the property is what it is, and sell to someone who understands the situation from the outset. You're a lot more likely to end up better off in the end result from the latter - because even the Suckers of the Century can get themselves a good lawyer and sue you when they do discover the problem. They are on the hook for several hundred thousand dollars. They're not just going to blow it off and say, "Oh, well," and when they do get that lawyer, they're going to get a lot more out of you than the difference between what you got, and what you could have had without the lawsuit.

Caveat Emptor

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