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Monday, November 4, 2013

Going Nuclear: Walking Out of the Real Estate Deal at the 11th Hour


Real estate transactions happen by the good graces of a buyer and seller.  When both agree, a transaction happens.  The purchase contracts are usually written with deadlines in place as mileposts to mark the progress of the transaction.  Buyers are given the opportunity to discover information about a property and can renegotiate based on their findings.  To keep both parties interested in the transaction, the buyer will offer earnest money to the seller in order to prove seriousness.  If the buyer defaults on the contract, the seller has the right to keep the earnest money.  

Lately however, I have worked with a couple buyers who have seemed very willing to part with their earnest money.  For both of these contracts, the buyers had apparent last minute reasons for not executing their contract.  Unfortunately, in both of these cases, the prospects of this outcome were not revealed until a day or two before the closing was scheduled.  

When that happens, and the sellers have no idea that it is coming, it is a bad day.  Here is a video representation of what it looks like when the buyer drops this surprise on the seller:



The one aspect that both of these contracts had in common was a very long contract time.  One was two months and the other was just over three.  With time, these transactions became more volatile and blew up at the last second.  The lesson learned from this is that longer contract times should require larger earnest money amounts to keep the buyers motivated and the sellers compensated in the event of a buyer default.   

    

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