Photo (cc) by Images_of_Money
I recently received this email from a reader. If you’ve ever sold a house, perhaps you can relate.
My house is on the market, and an offer just fell through because of a strange issue with the Due Diligence. I reluctantly accepted a sale price a bit lower than I wanted, but both my realtor and I were shocked by the buyers’ stipulation of a 60 day Due Diligence period, followed by 11 days before the settlement date, but they refused to make a Due Diligence deposit! This basically holds my house hostage for more than 2 months, with no good faith commitment from the buyers that they will not walk away if they find a different house they like, and it’s not likely my house will be shown to other buyers while under contract.
The buyers said their lender told them to make the D.D. period 60 days, so I thought maybe this is something new with mortgages in general and called my credit union to ask. They had never heard of a 60 day D.D. period, and indicated all their mortgages go through in 30-45 days, tops. The consensus was that this is either specific to the lender (Chase) or to the buyers’ situation. Since the buyers indicated they had been pre-approved for a loan, something seems off here.
Have you ever heard of buyers demanding such a long Due Diligence period with no deposit? They offered an earnest money deposit, but that is of no value to me since I don’t keep it should they flake! Which says to me maybe they were planning to flake. I just wonder if this is some sort of scam in the housing market: stringing the seller along for months until he is packed up and vested in the sale, then after 2 months the buyers admit their finances don’t quite meet the price listed in the contract, why don’t we just reduce the price at this point?
Given the rude attitude and pressure tactics the husband used in negotiations (he was insulted in principle that I made a counteroffer), I felt a little too suspicious of this odd maneuver to agree to no deposit so they walked away. It really stinks that I had to price my home to compete with foreclosures when this is not a short sale. It stinks worse that a bad economy brings out the worst in people. There is no excuse for poor manners even in a poor housing market!
I would be interested in your thoughts on what was really going on with these buyers, and if you’ve seen anything similar.
While this predicament is certainly not funny to this reader, I had to smile when I read it.
I bought my first house in 1979 when I was 24. It was a four-bedroom, two-bath with a pool in Tucson, Ariz. Price? $85,500. The seller, a doctor, owned the house free and clear and was going into the Army for five years. I wrote the contract pretty much by hand: It required me to put down $5,000, but make no monthly payments at all for two years. Two years after the closing date, I had to come up with another $7,000, and on the fifth anniversary of the closing, I had to pay the remaining amount of the purchase price.
I mention this to illustrate that terms between buyer and seller are limited only by your imagination. The reason I structured the above deal the way I did is that the seller was stuck on price: While he didn’t need the money (the Army was going to take care of his housing for the following five years) he insisted on getting $85,500 for his house. Fine. I gave him the price he wanted, but structured the terms so that I made no payments whatsoever for two years. Since I was collecting rent from three roommates during that time, I was essentially buying the house for way less than $85,500 – something he obviously didn’t get his mind around.
I’ve also made offers similar to the one our reader is describing above. He’s right: Those buyers were simply tying up the house with no risk to them. They could be making a dozen similar offers to other sellers, then simply picking the best deal. Heck, since they’ve got the house tied up and off the market for 60 days, they could even be trying to resell it at a higher price before they buy it. As for the buyer saying “their lender told them to make the D.D. period 60 days,” this is either a lie or they have an exceedingly stupid lender. Either is equally likely.
Rude – or shrewd?
Whether it’s a low price, favorable terms, or long due diligence period, there’s nothing rude about a buyer making an offer, even one that’s seemingly ridiculous. Nor is the seller rude when they laugh at said offer and remind the buyer that while they might have been born in the morning, it wasn’t this morning.
This is the art of the deal, and I’ve been on both sides of the table.
As a buyer, I want to get the best possible deal, and if I can determine what the seller wants (much more difficult when agents are involved) I’ll try to give it to them, while structuring another part of the deal in my favor, as with the example above. As the seller, I’ve received insulting offers, but rather than getting mad, I simply counter-offer. If the buyer won’t bite, I wave good-bye and wish them luck.
In short, gentle reader, this isn’t a scam, nor is it rude. It’s life. If you don’t like what the buyer’s offering, counter-offer (something you apparently did here with no luck) or simply say no thanks. You’re certainly right to turn down this silly offer. But remember these and other techniques when you’re the buyer.