House #27: Learn From My Mistake

October 7, 2011 · 6 comments

I consider myself to be a pretty competent and successful house flipper these days, but that doesn’t mean that I don’t make mistakes, and sometimes those mistakes are more costly than others. If nothing else, hopefully my mistakes can help my readers avoid making the same mistakes themselves.

Here’s my latest mistake that is costing me about $1500…

I mentioned previously that The Waffle House was originally under contract by an investor I was representing (I was his buyer’s agent). He backed out of the deal, and in an effort to maintain a good relationship with the listing agent and the bank, I decided to take the deal myself (it’s not a bad deal, but won’t be overly profitable).

When I offered to take over the deal, the listing agent went to the asset manager (the guy at the bank who deals with selling REO properties) and the asset manager provided a new addendum to the contract with my name instead of my investor’s name. At first glance, it was exactly the same as the one that my investor client had received, and I had read that one word for word to ensure that there was nothing out of the ordinary. I made the mistake of assuming that this new one was the same as the previous one, with the exception of me being the buyer (all other terms of the contract were the same).

Because I made that assumption, I didn’t reread the new contract addendum carefully and I missed the line that the asset manager that essentially said, “Because the buyer is a licensed real estate agent, the buyer agrees not to take an commission on the purchase of the property.” Because my wife and I were representing ourselves for this purchase, I expected that I’d receive a 3% commission from the bank; but this addition to the contract meant that we wouldn’t be receiving any commission on the purchase!

So, I basically flushed $1500 down the toilet by not reading the new contract addendum carefully enough. While it was a bit shady of the asset manager to throw that change into the contract, it was 100% my fault for not catching it…hopefully others can learn from my mistake here. Always read your contracts!

6 responses to “House #27: Learn From My Mistake”

  1. Stephanie says:

    Reading contracts word by word could sometimes be very annoying, but it could save you a lot of headache as well. While the asset manager should have at least notified you of the change, we really need to trust only what we see in papers in this business. To be honest with you, i would assume the same thing as well if this happened to me.

    Thank you very much for sharing such a wonderful tip
    M Stephanie

  2. steve says:

    I had this happen to me before because the signed for the Buyers entity was related to listing agent. I tried to fight it and they said take it or leave it.

  3. ezra says:

    You need to stick it to them at a later date!

  4. Joe says:

    I just dealt with a bank on a REO that I purchased. After that one transaction I have a certain disdain for banks that I never had before. Here was a small part of my transaction that I didn’t think was right. The bank agreed to my offer price and then countered with a Seller Addendum. The original Texas contract said the Seller was to provide a survey and if one wasn’t provided then the Buyer would obtain a survey at the expense of the Seller. The addendum only said the Seller would not provide a survey. I argued with the Title company for an hour that the Seller was suppose to pay since I had to obtain the survey. The best I could get the Title company to say is that the “intent” of the addendum was that the bank would not provide OR pay and they basically refused to move the cost to the Seller’s side of the HUD-1. It still hacks me off, but I wanted the house so I paid.. 🙁

  5. Joe says:

    Actually I mis-typed part of above. I meant to say the Seller countered by accepting my offer price with an enclosed Seller Addendum.

  6. J Scott says:

    Hey Joe,

    Actually, this is pretty much the way 100% of REO purchases will work — the Seller will verbally accept your offer, and then require you to sign an addendum that is very geared towards protecting the interests of the Seller. In fact, in some cases, the addendum basically says that the bank has the right to drag out the closing as long as necessary (even if they can’t get clear title), and tie up your earnest money the whole time; if you try to back out, they can keep your earnest money, despite it being them who can’t close the deal.

    Unfortunately, this is just a reality of buying REO properties — while you can get them for a decent discount, you’re going to be playing by the Seller’s rules… 🙁

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