Consulting Saves Buyer's Bacon
by Don Dunning, ABR, CRB, CRS
DRE Lic. #00768985
Originally appeared in Hills Publications, Jan. 28, 2005 and
ANG Newspapers (Oakland Tribune, Alameda Times Star, et al), Jan. 22, 2005

We all learn from our mistakes, but how much are you willing to pay for the lesson? Recently, a buyer was referred to me after he had an accepted contract on a local property. That phone call saved the buyer from a blunder that could have cost him hundreds of thousands of dollars.

Consultant vs. agent

In this situation, an agent represented neither buyer nor seller. They knew each other and had negotiated and ratified a purchase agreement on their own. At that stage, my involvement as an agent was not appropriate. The buyer had questions: what was my opinion of the house, the price he was paying and the contract? This is a classic example of how consulting on an hourly basis made sense for both the buyer and me.

See "Related Articles" below for details on the contrast between an agent and a consultant.

The house, price, contract

After the buyer signed the formal consulting agreement I had provided, we went to see the home. With an address in a very popular neighborhood, location was not a concern. The buyer explained the issues regarding the condition of this "fixer" and that he intended to quickly renovate and resell. This gave me a context in which to evaluate the purchase. The fact that it was the first home he had ever bought and that, although he was not a licensed contractor, he planned to do most of the work himself, made me uneasy.

After visiting this 1912 Traditional-style house for just a few minutes, I could plainly see it was a major fixer. Although some of the original charm remained, there were two significant problems: poor condition due to extensive deferred maintenance, and a tasteless, 1970s, contemporary addition. I explained to the buyer that the first issue was curable, at a very large expense. Unfortunately, the out-of-character addition was incurable.

Other value deflators became apparent as I looked around: numerous aluminum windows and sliding doors, incongruous in a charming, older home; an unattractive and poorly positioned exterior wooden stairway and deck; an unappealing front yard that needed a total redo; and a small lot with minimal outdoor living.

In addition, there was a tiny, contemporary master suite with a dysfunctional, badly planned bath that defied a cost effective fix. From floor to ceiling, everywhere I looked needed repair, updating or both. Within the first few hours of our meeting, and after seeing the home, I counseled the buyer to walk away from this purchase; he had offered too much. In fact, this buyer and property were simply not a good match at any price.

The contract was not professionally prepared; clauses were not clear, and neither buyer nor seller was fully protected by this document. This was something else to deal with, but only if the sale went through. As I shared my thoughts with the buyer he listened carefully, but insisted this was a project he wanted to do. The excitement of being a player in the real estate game overwhelmed his common sense and caution.

Inspections tell the story

Other than a termite report, without a dollar cost, the seller provided no other disclosures. Even though this buyer had some generalist contracting experience, he did not have enough to accurately assess the overall damage nor anticipate the worst-case scenario. I proposed he get a comprehensive inspection by a reputable home inspector.

Further, I suggested he have experts inspect, evaluate and give bids on various systems: foundation and drainage, pest control, roof, electric, heating and plumbing. Noting the long-term roof leak, I speculated about the possibility of water damage inside walls and, possibly, mold. This buyer took my advice and ordered the reports.

Once completed, the inspections painted a scary picture: 80 percent of the foundation needed replacement; the termite report was huge; there were three different types of toxic mold on each level of the house; and drainage, heating, electric and plumbing deficiencies were found. The building needed to be stripped to its studs and rebuilt with a new foundation. I felt the repairs would exceed $250,000. Once again, I urged the buyer to forget this property. Undaunted, he decided to bargain with the seller.

Negotiating with the seller

This buyer had a number of disadvantages in getting the seller to agree to a much lower price: The house had been a rental and the seller did not have a burning need to sell now; it had not been listed and actively marketed, so the seller had an incentive to go through that process before agreeing to, what to him would be, a low price; and, other contractors had expressed interest in the home. After reviewing all his findings with the seller, the buyer was given a one-week extension on his inspection contingency. He asked for more than a 50 per cent reduction of his original offer. To me, even if the seller acquiesced, that was still too much for this particular house, but he was not ready to quit.

In the end, another contractor offered more and the seller agreed. This buyer now realizes that, at the time the seller ratified his offer, he had only a fraction of the information and knowledge he needed to make an informed choice.

Final thoughts

Note that, as a consultant, I dealt only with the buyer and had no interactions with any third parties. This is one of the key differences between working with clients as a consultant, rather than as an agent. This distinction is not widely recognized by the public or real estate licensees.

Be aware that many agents, even those with newly printed licenses, have the word "consulting" or "consultant" on their business card. This does not signify that they know anything about consulting or the business.

If consulting seems like a good fit for you, look for an experienced, competent Realtor who does consulting on a regular basis. After all, anyone can give advice; you want good advice. Most buyers and sellers need professional assistance in today's complicated and expensive market. Usually, this means the traditional agency relationship. Sometimes, as in this instance, hiring a real estate representative on an hourly basis is the most logical thing to do.

Related Articles: Consultant or Agent?Consulting Helps Couple Avoid "Money Pit"Hourly consulting: Great idea whose time has yet to comeHourly real estate consultants: Still hard to findBerkeley seller applauds hourly real estate consulting

Don Dunning has been a full-time, licensed real estate agent since 1979 and a broker since 1982 and is past president of the Oakland Association of Realtors. He provides sales and hourly listing or consulting services with Wells & Bennett Realtors in Oakland and is an expert witness in real estate matters. Call him at (510) 485-7239, or e-mail him at , to put his knowledge and experience to work for you.


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