The educated dummy loses the deal

Continuing his Monday series, Sam Schneiderman (Broker-owner of Greater Boston Home Team) returns to the story of his journey from a real estate dummy to real estate professional:

Around 1984 my fiancé and I were living in a rental while renting out my recently renovated studio that was too small for us. I was getting used to the concept of collecting rent that covered my expenses and mortgage. I figured that if I could do that for 28 more years, I would own the place outright and create some nice income.

We wanted to buy a three family to live in while the rents would cover our PITI (Principal, Interest, Taxes and Insurance). The numbers actually worked back then because prices were not driven by condo conversion potential.

Interest rates were down to 14% from their 18% high, creating a surge of buying activity causing three families to sell quickly at top dollar. Each property that came onto the market came on at a higher price.
We found a solid three family with good apartments, but the outside had peeling paint. We considered that when we made our offer and figured that we could get the outside painted once we moved in.

We were approved for the mortgage but the lender wanted the house to be painted before closing. Sounded simple enough. First we tried to get the seller to paint it. When she said no, we offered to increase the price by the cost of the paint job. Then we asked the mortgage company to wave the condition. They were reselling the loan to an investor that insisted on having the house painted before closing.

Meanwhile, the seller’s agents applied more pressure as we got closer to the mortgage contingency date. When we finally got the lender to agree to try another investor that might not want the house painted, the seller refused to extend the mortgage contingency date by 5 days and we lost the house. She put it on the market and sold it for $10,000 higher than our offer. Ouch!

Perspective:
Because I was still a real estate dummy with a new agent’s license, I didn’t understand what needed to be done up front to insure that the deal would go through the mortgage underwriting process smoothly. Lenders, appraisers and mortgage underwriters can be unpredictable. Potential glitches should be addressed in the offer and the Purchase and Sale for the buyer’s protection.

Our attorney could not protect us because he didn’t see the house. Seller’s agents often leave it to the buyer and/or the buyer’s agent to deal with a property’s challenges, often costing the seller a timely sale while the buyer looses the cost of inspections, appraisals and more. Sometimes matching the right lender or mortgage program to the property or buyer can solve all of the problems.