House #3: Going to Closing

February 23, 2009 · 8 comments

The due diligence period (the time the buyer has to inspect the property and decide to back out of the deal with no penalty) is now finished on The Second Chance House. This means that the buyer finished their inspections, appraisals, and got their financing approved, and we’re ready to go to closing.

The process was very smooth until the last 24 hours. The inspection completed a couple days ago, and I happened to meet the inspector over at the property as he was locking up to leave. He mentioned a couple issues that I (or my GC) should have caught during our rehab, and then a couple minor issues that I would expect the buyer to rectify if he so chose. The inspector was very thorough (I’ll be using him myself on future inspections), and all-in-all, the results were about what I expected; we missed a few little things here and there, but overall the quality of the rehab was top-notch.

About 24 hours before the end of the due diligence period, we got a demand from the buyers to fix a number of issues, including both those that I really needed to fix (safety issues) and some that I didn’t feel I needed to rectify for the buyer.

Among the four issues that I didn’t dispute (and actually apologized for, as I should have caught them myself):

  • Having an improper connection from the gas line to the furnace (a “flex pipe” instead of a solid pipe);
  • Having a spliced electrical connection in the attic that wasn’t properly secured in a junction box;
  • Having a mis-wired electrical outlet (reversed hot/ground wires);
  • Having an exterior door installed with the hinges on the outside (making it easier to break in).

While none of these issues were major hazards, the fact that I had just done a full rehab on this house means that any safety issue that arises I will happily fix without question.

The buyer then asked for several other issues to be rectified, including replacing a torn vapor barrier in the crawl space, venting a bathroom fan out of the house instead of into the attic, and adding more insulation to the attic area. I countered that I was not going to fix these issues, as they were not violating any building codes and were not safety concerns.

According to the agent, the buyer was very distressed over the fact that I was refusing to add insulation to the attic. We explained to the agent that during our original negotiations, we agreed to a relatively low purchase price (10% below the list price, which was already a relatively low asking price) in exchange for the buyer not coming back after due diligence and asking for unnecessary repairs. While I wouldn’t say that insulation is an “unnecessary repair,” it certainly isn’t a major issue that needed to be rectified prior to purchase or by the seller (me).

Anyway, we refused to add the insulation, and the agent freaked out. Personally, I was willing to take the (small) risk that the buyer would back out of the deal over this, just to stand my ground. After some back and forth, the agent requested that we split the cost of the insulation, and that I take half out of his commission. This told me that he was pretty serious about this issue getting resolved (I was VERY surprised he was willing to give up part of his commission for this), so I agreed.

It will cost about $600 to adequately insulate the entire attic space (1000-1200 square feet), and I’ll split that cost with the agent. The other repairs will be minimal, and I expect to have everything completed on Monday.

Hopefully we will close this week, and we can begin the healing process with these agents (we’ve had some rough patches with them, but I think it will all be okay and lead to a good long-term relationship)…

8 responses to “House #3: Going to Closing”

  1. ezra says:


    Sorry, don’t agree with your decision here. If I remember correctly this place appraised for way more than the selling price. I would have pointed that out and said take it or leave it. It’s a beautiful place. No need sell yourself short. I’m guessing the agent assured the buyer you would easily agree to the demands which resulted in a greedy buyer and a freaked out agent.

    Each time you give in/compromise you eat into your profit. You work too hard and produce too nice of a final product to give in like that, IMHO.


  2. J Scott says:

    It boils down to a couple things:

    1) This is a long-term business for me, so keeping both my buyers and the agents I work with happy goes a long way towards helping me be successful long-term;

    2) Am I willing to risk this deal over $300? Given that the agent was willing to reduce his commission over this issue, it must have been very important to the buyer; not worth losing the deal over that much money, even if the risk was small;

  3. Nathan says:

    Somwthing to keep in mind… The appraiser ultimately appraised the house for nearly the purchase proce. It didn’t appraise for any more than that.

    Houses are worth what buyers are paying… A house is worth what it sells for. The houses in atlanta that are “million dollar houses” and are selling for 400k are worth 400K, not one dollar more…

  4. ezra says:

    So you’re saying if a buyer offers you $400,000 for a property and you won’t go below $400,001, you don’t think he’ll pay the extra dollar? Ahhhh, so maybe they are worth $1 more. Do I hear $2? Anyone?

    J, I’m worried long term you’re gonna keep encountering the same realtors again and again. I just don’t want them to think you are soft. Speaking of which, when are you going to start exercising?

  5. J Scott says:


    A couple more things:

    – Remember that these are FHA buyers who are likely scraping together every penny they can for down-payment, and for whom the $600 repair could very well be enough reason to back out of the deal;

    – Agents only make money on commission, so if this agent was willing to cut his commission to get this repair done, he must have believed that it was a risk to the deal. If he thought it was a risk to the deal, it probably was;

    – If a buyer is approved for a loan up to $400K, and you tell him that you require $400,001, he may very well walk away for that extra dollar. Not that he doesn’t have the dollar, but you’re sending the message that you care more about a small amount of money than you do about getting a deal done.

    Remember, there are a lot of sellers out there, and very few buyers…the buyers are making the rules (to some extent)…

  6. hakrjak says:

    Man — that is wack. I’ve sold countless houses with some of those types of issues, and never once has the home inspector ever said a word. On the spliced connections in the attic, usually those would be covered up by blown in insulation anyway, so the inspector isn’t going to crawl around in that stuff typically. Any house over 20 years old is going to be full of crap like that from the previous “do it yourselfer” homeowners… LOL Oh well, sounds like you got the “super inspector” on your back here… Best to just give them what they want and move on to the next project 😉

    – Hakrjak

  7. J Scott says:

    Yeah, this guy was good, Hak…

    In fact, so good that I’ll be using him for half of my inspections moving forward (my current guy is meticulous like that also)…

    He apparently was a former rehabber himself, so I’m guessing he knows the common short-cuts to look for and probably knows the building codes pretty well…

  8. hakrjak says:

    Yeh I would do the same thing and hire the guy! LOL… I’ve had inspectors miss huge things like sinking foundations and cracked walls/ceilings, bad roofs, etc… Most of those guys are just hacks trying to collect their $300 a pop and move on to the next unsuspecting homeowner. If you read the contract you sign with them, it usully says htey are not responsible for anything that they miss…

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