Battle for the House

As I've done for many years, I like to peruse the real estate section of the weekend newspapers. I've had my real estate license (although non-practicing) since 1998 and review the MLS for market activity in a several cities at least once weekly. Because I pull up data for only a few key cities in which I am interested, it's good to glance through the print ads to see what's available in other cities. The MLS also doesn't allow you to review headlines quickly as you can in the papers such as "rambling ranch house" (read: single story shoebox) and "walls of glass with to-die-for views" (read: single pane sliders with view of neighboring roofs).

In late December 2001, between Christmas and New Years, I came across an ad for a house in North Tustin. At that time, we lived in our first house in Fountain Valley. We actually liked our house quite well as we had recently finished some minor remodeling. Neither of us was familiar with North Tustin which is actually a large, unincorporated community within Santa Ana. The dimensions of the house were large, close to 3000 sq feet on a 10,000 lot with swimming pool. I decided to drive by the house by myself just to check out the neighborhood. The house ended up being located directly on a semi-major street. It is the beginning of a residential area but the majority of homes are on side streets rather than being directly on the main street. From the front, the house looked rather large and, for the price, I was really curious but needed to set up an appointment.

My sister is a part time realtor and she agreed to show it to me and contacted the owner. My sister had to cancel the appointment at the last minute but the owner suggested that we come over without her anyway. So we drove over to meet the owner and take a look. Both owners were not home but just the wife. She was probably in her early 30s which is very young for the neighborhood which is an established area with larger homes on large lots. Custom, multi-million dollar estates are in the surrounding hills. Our first impression was that the house was vacant. The living room was completely unfurnished and the family room and kitchen just had a small dinette and little Christmas tree. One bathroom had 70s style metallic wallpaper. Upstairs, the large master bedroom (close to 600 sq feet) had a bedroom set and was the only room of the house that looked lived in. The 3 car garage was carpeted with dirty green carpet. It also had paneled cabinets that had been added and prevented use of the 3rd garage space. Another space was taken up by an inoperable junker. The house wasn't a classic, run down fixer, but every room needed some serious updating.

The owner was very pleasant and we ended up chatting with her. The house had belonged to her husband's parents for over 15 years but he had inherited it about 2 years earlier. It was obvious that they were anxious to move as they could not even afford to furnish the place. It doesn't get any more obvious when she told us "if we got any offer, we'd probably take it." The house had been on the market for 3 months and traffic was especially slow because of the holidays. We told her that we'd consider the house.

On the way home, we were quite excited about it even though we weren't even in the market to buy a new house in the first place. The listing price was $435k. The comps suggested that similar homes in the area ranged from $500k-700k. It was by far the lowest price home of its size and amenities in the area. The reasons were that it showed poorly and it was located on the busy street. We decided that we wanted to make a lowball offer and then fix it up for $30-50k and then flip it. We didn't have any experience doing this but were confident because of the minor remodeling we'd just completed on our own house. I called the owner to let her know that we were interested but that the price was out of our range for an investment property because of all of the remodeling that we'd have to do. I told her that I had estimated that it would cost probably $40k to fix up. On the other end of the line, she calculated that $435 minus $40k would leave $395k which would probably be acceptable to them. Lesson of the day: telling the other party the amount you're willing to accept isn't a very good negotiating technique. She sounded really sincere in wanting us to make an offer so I told her that we would think it over.

Making an offer with the goal of fixing it up would have been a big move for us. The next day, I re-evaluated the comps and reaffirmed that at $395k, it would be a good value. We wanted to get an offer written up in a hurry before New Years because we feared that househunters would be out again after the holidays. I asked my sister to write up an offer for not $395k but $365k. She was a little embarrassed and advised us to increase our offer to at least $385k. We held our ground and she faxed the offer to the listing agent with 2 days to reply. We would go up to $395k but not above that because we weren't in love with the house and were only doing this with the hope of making $20-30k in profit from fix and flip. A day and a half later, I got the call from my sister. She was excited and dumbfounded. The listing agent had just called her and was equally dumbfounded that the offer was accepted without even a token counteroffer! Unbelievable! Granted that the real estate market in December 2001 wasn't as hot as in December 2003, it was still an active market.

Over the next two days, we arranged for the home inspection and my sister dropped off the disclosures and deposit check with escrow to open soon thereafter. We started planning the extent and cost of the remodel (which we should have done prior to offer but we were complete amateurs).

Things suddenly came to a halt. The listing agent had called my sister and told her that they received an offer $20k above ours. He faxed her a counteroffer and gave us 24 hours to make a counteroffer! Unbelievable again! Our first reaction was that this wasn't fair. Our offer had been accepted and both side had already gone through the motions of putting it into escrow. We decided reluctantly to just let it go and not make a counteroffer. However, as the hours passed, we realized how unjust the situation was and that we really did want that house for $365k, dammit! At $395k we would let it go but not for $365k. We were going to put up a fight. This is when it comes in handy that your partner is an attorney. He drafted a letter directly to the seller with a cc: to the listing broker (not the agent) and sent to via registered mail to both parties. We pointed out that the offer had been accepted, that disclosures had been provided to us and returned and that the listing agent had our deposit check in his possession. We strongly hinted at legal action if the seller decided not to honor the executed purchase contract.

My sister heard back from the both the seller and the broker the next day and they both caved. The sellers felt that they had received poor advice from their agent but that it was not our fault. They didn't have ill feelings against us but against the listing office. They did receive two offers within days of our offer and the agent had recommended that they back out of our deal. The listing broker ended up forfeiting their office commission to salvage the relationship. I'm sure the sellers will not be dealing with that well known brokerage ever again. Over the next couple of days, we spent a little time in the new neighborhood and decided that we wanted to sell our house in Fountain Valley and move. Thus ends the chapter on buying the house and the longer chapter on the remodel.

To this day, I continue to scan the real estate section for clues like "abandoned, anxious seller, make an offer and vacant."

Total spent today:
$10 Lunch with two ex-colleagues