Seller claiming "not enough money to close"

Seller claiming "not enough money to close"

Real Estate Investor · Norfolk, VA · Member since 2016 · 13 posts · 2 votes

I'm in a bit of a pickle on closing right now.  

I was under contract for a duplex for $165K "as-is, where-is" but on the home inspection, we discovered a leaking pipe in the bathroom which was flooding the bathroom/adjacent bedroom when the shower was running.  The inspector estimated it could cost anywhere from 2k-10k to fix depending on the moisture damage.  With this new info, my agent changed the PICRA to include repairing all moisture damage, including but not limited to the bathroom the leak was in and then gave them the option to just cover $5k of the closing costs, thus allowing me to take care of the issue myself.  I liked the latter better since I would have control over the issue and would know it was taken care of properly.  

They got back to me the same day through their agent to mine saying they would take the "$5k of closing costs" option but had to check their accounts to make sure they had enough cash to do so.  Since then a week went by with my agent calling theirs every day and going straight o voicemail, being told she had phone problems, and other excuses.  Today, my agent was told that the seller is already bringing $2,356 to the table at closing (they bought it in 2005 for $199K) and simply doesn't have enough money to cover the $5k of closing costs on top of this.  

This is more of the seller's problem, but I want this deal to go through so I can get in the game.  The numbers are mediocre to start and taking on a project with the potential to cost $10K without getting any help from the seller would be too much of a risk for me, I think.

Any of you veteran hustlers have ideas on how to help the seller pony up with the ~$5k or a way for me to work it into the deal for a delayed payment or something that will make this deal work?       

Numbers below: Cap rate should read ~6%. ARV would be around $180K.

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
8y

Buy it or dont. You cant make money appear out of the air

See this reply in the discussion

41 Replies

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  • Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    8y

    @Marty Sheehan, why not the obvious: get the Seller to lower the purchase price by $5k?...

  • Real Estate Investor · Norfolk, VA · Member since 2016 · 13 posts · 2 votes
    8y

    @Brent Coombs , I was told that wouldn't lower the amount they would need to bring to the table since they owe more than they are getting for the property and are bringing $2356.

  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y

    Buy it or dont. You cant make money appear out of the air

  • Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    8y
    Originally posted by @Marty Sheehan:

    @Brent Coombs , I was told that wouldn't lower the amount they would need to bring to the table since they owe more than they are getting for the property and are bringing $2356.

     If you put down a non-refundable deposit on a "mediocre" deal, who's to blame?...

  • Fort Worth, TX · Member since 2018 · 41 posts · 21 votes
    8y

    Agree w@Russell Brazil.  Just decide if it's still worth it or not based on your best possible scenario.  Sometimes that's just the way it works whether it's the seller or buyer, i.e., appraisal issues where they don't have more cash to put down post appraisal. 

  • Real Estate Investor · Norfolk, VA · Member since 2016 · 13 posts · 2 votes
    8y

    @Russell Brazil , I appreciate the motivation. The advice is reminiscent of what Yoda told Luke.  I’ll plan on keeping my terms and give them a deadline so I don’t keep waisting everyone’s time. Thanks for the help!

  • Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    8y

    Too bad WA takes 1.78% as a transfer tax the seller pays. That's $3000.  The other sad part is the realtors. $10,000+ there.  These skinny deals with nothing left need to be belly to belly.

    Choices are-1) take a gamble you can do most of the work yourself. Demo for sure. Bring in the contractors only after it's all opened up to repair with clear scope of work.  2) Appeal to the realtors to reduce commission a little on this one.  3) When that doesn't work, walk.  

  • Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    8y

    For that level of cashflow just buy a turnkey from memphis invest fully rehabbed no water damage.

  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    8y

    The agents may figure out it's in their best interests to chip in dollars to get this closed. 

    Gimer Law516 Reviews
  • Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
    8y
    Steve Vaughan Philly transfer tax is 4.1%, commonly split between buyers and sellers. Now the mayor wants to raise it even more to keep the school district alive!
  • Member since 2016 · 13k+ posts · 12k+ votes
    8y

    @Marty Sheehan

    "I want this deal to go through so I can get in the game."

    One of the biggest mistakes new investors make is allowing personal feelings interfere with business decisions.  This is not a good deal and conditions have gone beyond the point of deciding to walk away.

    Run away.

  • Rental Property Investor · Washougal, WA · Member since 2015 · 82 posts · 18 votes
    8y

    this is probably a property that has multiple offers.  it would not surprise me the owner and agent are sitting and waiting for others to come in.   and for other offers to be higher and to take as is where is and do the closing costs as well.  it will be interesting to see how this pans out.  good luck

  • Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    8y

    @Marty Sheehan Hi Marty, as much as I don't like to say this, but this might be a sign. 

    Make sure there aren't other issues with this property. 

    Goodluck. Thanks! - Ola 

  • Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    @Marty Sheehan your issue comes up more often than you might think.  Lowering the purchase price doesn't accomplish anything because obviously the equity isn't there to begin with, thus the requirement for the Seller to come to the table with money.  So, ignore that silly idea.  It wasn't well thought out before suggested.

    Have you considered initiating a short sale?  This would be the only way to have the expenses covered and be a relief of the burden for the Seller.

    It will come with it's obvious issues to the Seller like credit implications for the next 3-5 years, but if they are current in their payments, it won't be a huge credit hit.

    Also, it will add time to close obviously, because you need to loop the lender in and get their approval.  However, with such a small amount, it has a good chance of being approved.  Since you don't have an agreed to arrangement for the repairs, request the entire amount of the $10K before submitting to the lender.  Include the home inspection report when submitting the short sale request to the lender.  Lenders HATE repairs and get scared of anything remotely related to moisture.  They will want to rid themselves of this problem asap (even though they are not in possession, they will be thinking a few steps ahead to the trustee sale in the event it went that way).

    Aside from making this a better deal for you by getting the $10K through a short sale agreement, I don't know that sticking with a loser is the answer.  There are so many other deals out there.  Don't settle for mediocre.

    Best of luck to you!

  • Real Estate Investor · Norfolk, VA · Member since 2016 · 13 posts · 2 votes
    8y

    @Cara Lonsdale Thanks a lot! I will look into this. 

  • Syndicator and Fund Manager · Victor, NY · Member since 2012 · 760 posts · 345 votes
    8y
    You can suggest that the seller and /or buyers broker contribute part of the commission back so that the seller can walk away at break even.
  • Investor · Lake Worth, FL · Member since 2014 · 378 posts · 184 votes
    8y

    Doesn't sound like a 10 k repair if the water is only leaking when shower is on.  I would venture to say that it is in the pipe above the valve.  Depending on how long its going on for further damage that occurred.  That being said it is close to the bone so depending on your market it could go either way.  Good luck.

  • Rental Property Investor · Edmond, OK · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    I would get a plumber in there to eval and give you a bid before making any final decisions. Also remember that if you go in to fix one issue, you may find others. I ran into with a water leak is that if there is water damage on flooring, you may have to replace all flooring in that room or connecting areas depending on what kind of flooring you have, layout of the house, etc. The house I'm working on right now ended up getting 700-800 sq feet of unplanned new flooring (plus removing of that 700-800 sq feet of glued in laminate flooring) and a rebuilt cabinet due to water damage that was hidden by strategically placed furniture.  

    That kind of stuff will not be factored into your inspector's ball park repair numbers. Just keep that in mind if your numbers are already tight to begin with. 

  • Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    8y

    @Marty Sheehan  If the contract said "as is ,where is " the sellers should do nothing . You are buying the house the way it sits . Period 

  • Contractor · Cleveland, OH · Member since 2014 · 123 posts · 115 votes
    8y

    @Marty Sheehan - I went through college on a baseball scholarship. I also coached for a long time. As a coach, when I was deciding whether to send or hold a runner rounding third base, I was aggressive. if the defense had to make a perfect play to throw the runner out, I would make them make the perfect play, as I was a finance major and I knew statistically I had a better chance of them screwing something up and my guy scoring than I did them making the perfect play. In real estate investing which I have been doing for 20+ years, I take the opposite approach. If I need everything to go perfectly for a deal to work/cash flow/make money - I run the other way. The same thought process applies: rarely does everything go perfectly, and you will bear the costs of the mistakes/surprises once you close. Water = rot and mold. Rot & mold = expensive repairs. Expensive repairs = losing money on your deal. It's your money and you can do what you want. "Getting in the game" is good. Getting in the game costs be damned is not an investment approach. It's playing the lottery. Your spreadsheet looks awesome. It's also useless in the real world. Trust your eyeballs and your gut. You are asking for advice when you already know the answer to your own question. Go find a better deal.

  • Contractor · Cleveland, OH · Member since 2014 · 123 posts · 115 votes
    8y

    Also - Don't listen to anyone trying to diagnose the issue. The only way you will know the extent of the issue is when you tear down the drywall and see what's behind the wall. Any other attempt at estimating the damage is a SWAG.

  • Tacoma, WA · Member since 2018 · 230 posts · 257 votes
    8y
    Originally posted by @Brent Coombs:
    Originally posted by @Marty Sheehan:

    @Brent Coombs , I was told that wouldn't lower the amount they would need to bring to the table since they owe more than they are getting for the property and are bringing $2356.

     If you put down a non-refundable deposit on a "mediocre" deal, who's to blame?...

     Where did he mention anything about a non-refundable deposit?

  • Real Estate Investor · Norfolk, VA · Member since 2016 · 13 posts · 2 votes
    8y

    @Account Closed Fortunately for me, the new contract says for them to repair it within moisture inspection standards, so I’ll give them a couple days (Wed) to take the deal with repairing it to pass an inspection or walk and keep looking. I’ll post an update when I have one. Thanks for the great input. 

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    No one mentioned just ask the seller to give you a small prom note at 50 bucks a month with no interest.

    few years you get even .. and most people can afford 50 a month.

    My wife and i chat about this a lot.. this should easily be both brokers chipping in a little to make this work.

    but brokers on both sides yours and the other side won't give and inch and would rather lose the deal.. the listing agent may know he will get paid eventually probably.. 

    Lori and I its common for us to throw in a water heater or what have you from the commissions.. our clients like it we do far more volume than the average agent.. so i guess we can afford it.. but i think if more agents just made deals work instead of focusing so hard on their commissions it would be better for all.. Just our thoughts.. others may have a different opinion of course. 

  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y
    Originally posted by @Jay Hinrichs:

    No one mentioned just ask the seller to give you a small prom note at 50 bucks a month with no interest.

    few years you get even .. and most people can afford 50 a month.

    My wife and i chat about this a lot.. this should easily be both brokers chipping in a little to make this work.

    but brokers on both sides yours and the other side won't give and inch and would rather lose the deal.. the listing agent may know he will get paid eventually probably.. 

    Lori and I its common for us to throw in a water heater or what have you from the commissions.. our clients like it we do far more volume than the average agent.. so i guess we can afford it.. but i think if more agents just made deals work instead of focusing so hard on their commissions it would be better for all.. Just our thoughts.. others may have a different opinion of course. 

     Alot depends on the volume the agents are doing.  Agents like myself or your wife are empowered to pretty much make any kind of deal we want.  Some part time agent doing a couple million in volume who is making a 50% split might not have the same empowerment to make it work either from the numbers or from their broker

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