For the past several months, Pierce, a real estate investor based in Northern Virginia, has been chronicling the ups and downs he’s encountered in his effort to renovate and double the size of his Temple Hills house for a fall sale. He endured several more challenges, but finally was able to sell the house in January.
After nine months of work and numerous delays, I was at long last able to finalize the sale of my pop-top project last month.
We had finally listed the house for sale in the middle of October for $239,900. I had missed my Oct. 1 deadline by nearly three weeks, and based on the light showing it was clear that we were in the tail end of the fall market.
The light showing was frustrating because I felt I had priced the house very well. Comparable homes within a half mile had sold within the previous six months for more and comparable active listings were as high as $270,000. In fact, my house was just about the cheapest active listing on the market and it was nearly brand new competing with remodeled properties.
Selling requires matching the right home with the right buyer. This task is more difficult when there are fewer buyers out looking.
Despite the light showing, I had an offer on the house within about three weeks, which isn’t bad. We ratified a contract on Nov. 16 for $240,000, requiring that I pay $7,200 of the buyers’ closing costs and that I pay the buyers’ agent a $3,000 selling bonus only if the deal closes in 45 days.
The closing was set for Dec. 20, and things started out great. The home inspector did a thorough job and all of the items he noted were easily remedied. The appraiser gave the house a value of $255,000. That was $15,000 more than what the buyers were contracted to pay for it.
This was shaping up to be smooth sailing. But, of course, nothing can be that easy. Just when I thought things were going great the silliness began. The buyers had selected a mortgage broker that I had never heard of. Communication seemed to break down between the agent, mortgage broker and lender.
I was frustrated when we were just a week away from closing and the lender decided that another appraisal was needed. I had owned the house for more than six months by the time we ratified the contract and the house had been significantly improved. Both of those facts were easily documented and normally either one would alleviate the need for a second appraisal. And if they still wanted another appraisal they should have thought of it sooner.
Then the lender noticed that on our building permit a Prince George’s County employee had described the work we did as a 24- by 28-foot second level and a 14- by 8-foot deck. It didn’t say anything about the addition on the back. No problem, I thought, I’ll just send the lender the approved plans showing the county stamp and details of all the work that was approved.
This was not enough to satisfy the lender. I explained that the county only has a single line on the permit to describe the work being completed. The approved plans show the details. Also I told the lender that the employee probably assumed that you would know that it would be difficult to build a second level that size without expanding the main level to support it. We went back and forth on this for a couple of weeks and finally I just didn’t hear anything else on the matter.
The second appraisal came in. I was never told what value that appraiser gave the house but it sounded like it too came in significantly above the contract price. Finally, we seemed to be getting somewhere.
We were already past the original closing date. The lender told us we were cleared to settle but we would have to wait until after Christmas because they could not fund on the day before or the day after Christmas.
On the Friday after Christmas the buyers’ agent said they needed until the following Friday to close the deal and I was never really given any good reason for this. I really wanted to close before the end of the year so that deal would add to my gross business in 2013. I’m trying to increase my lines of credit and borrowing capacity so I wanted this deal to go into the books in 2013.
I did not sign the extension and I told them they needed to get the deal closed before Jan. 1. Still, Friday, Jan. 3 came and they were not ready to close. They asked for another extension because they needed further documentation on a company that one of the buyers owned. Again, this was another issue that should have been dealt with weeks earlier.
At this point, the buyers’ agent was out of her bonus but that was the only real penalty. Here’s why it is so very important to choose your home buying team wisely. The team includes your real estate agent, real estate attorney and your lender. I had an incentive to get the house sold quickly because of the year-end deadline and that is the nature of my business. But I also had an appraisal for $15,000 more than the current contract and once we’re past the holidays the real estate market typically picks up again. It’s easier to find buyers and easier to get top dollar.
The buyers were moving into a house with $15,000 equity and I paid $7,200 of their closing costs. Losing this deal could have cost the buyers $22,700 in equity and closing help. No one on the buyers’ team, other than the agent, seemed to be too worried about the fact that I, at this point, had no contractual obligation to close this deal. I could have canceled the contract at any time or demanded to modify any of the terms.
On Jan. 3, we made the listing active again in MRIS and raised the price to $255,000. Finally on Jan. 8 — 53 days after the contract was ratified — the buyers informed us that they were ready to settle. I was more interested in moving on to other projects than getting an extra $15,000, so I agreed to settle. I did save the costs of the bonus to the buyers’ agent since we exceeded the 45 days closing limit.
This project took about two months longer than I would have liked but still nine months for a renovation of this size is not bad.
So the numbers look like this:
• The $240,000 sales price,
• minus $22,000 in closing costs, seller concessions to buyer and Realtor fees,
• minus $99,000 in renovation and holding (taxes, insurance, interest, utility) costs,
• minus the $59,000 purchase price,
• equals a $60,000 net profit.
An investor on this deal provided me with $145,000 for 50 percent of the profit. So she made about $30,000 or just about a 20.5 percent gain on her investment.
In the end, this still turned out to be a pretty good win-win deal and despite the bumps in the road I still had a lot of fun and made some money.
Follow Pierce on Twitter at @justinpierce1.
Read Pierce’s previous posts: