The Engineer As a Shield, Not a Sword
I had no idea what I was getting into when I traveled to New Paltz, New York, to conduct a real estate closing for 4 friends who had decided to purchase a fraternity house. After months of their disregarding my counsel on the many reasons a fraternity house may not be the best investment, I climbed into the back seat of the car to be briefed on the game plan. “Game plan? We are conducting a closing— what game plan?” I quipped.
My friends were putting no money down to purchase the property. In fact the lender was not only supplying the funds to purchase the property, but had also agreed to pay for all closing costs. In the friends eyes, their personal liability to pay back the loan would be more than covered by the rent collected each month from the fraternity tenants.
“Dan, we want to thank you for recommending that we hire an engineer. We have taken your advice, and are planning on turning it into a money making scheme. You told us that we could get a credit at closing if the home’s systems were not in good working order and if the condition of the house had changed since we signed the contract of sale. Well, we have collected bids to fix everything in the engineer’s report, and we want you to negotiate to get us a credit.”
I continued to warn them; “I would be very careful. Get ready for the seller to bust the closing and retain your down payment and sell the house to someone else.”
Technically, all systems had to be in working order at closing. Since fraternity brothers lived in the house where parties were a weekend ritual, they were able to make an argument that conditions worsened since the date of the signing of the contract of sale.
“We even have pictures of the problems”
Of course they had no interest before closing to even send the engineer’s report to the seller and ask him to fix the reported problems. This was just a money making endeavor, and I was assigned to be the quarterback.
Walking into the seller’s attorney’s office, we met the nicest, sweetest man sitting in a swivel chair in a grey sweater. He had moved from Brooklyn to the country decades ago. He looked liked he attended Woodstock and decided not to leave. He could not stop smiling. You could tell that he knew that he was getting the deal of the century by obtaining such a high price for the house that most buyers passed on, believing that it should be condemned or demolished.
Between his desire to close at all costs and my friends’ desire to leave the closing with money in their pockets, the stage was set for a heated negotiation.
The plan was to ask for a credit and reduced sales price based on the items marked in the engineering report.
As I listened to the detailed plan, I became speechless. Each friend had speaking parts and code words assigned to when to argue and other words for when to walk out of the closing.
If the seller did not agree to credit their repair items, three of the friends would stage a dramatic exit, actually just leaving the closing to get pizza while one friend and I continued to negotiate.
After a lot of peer pressure, I told them that while I would try not to mess up their plan, I expected that it would not be fruitful.
The closing began with silence. 45 minutes later, most of the documents had been signed and one of my friends started asking for concessions.
The seller immediately conceded a few credits, and my friends kept pushing and pushing until the seller drew a limit.
My friends were now both arguing between themselves and with the seller, and eventually, the “dramatically leave the closing to actually get pizza” plan took the three of them out of the attorney’s office yelling that they would not close, while one friend and I tried to save the deal.
Eventually, the seller conceded to their demands, and so the friends returned with the pizza.
$40,000.00 in credits later, the keys were handed over, and the four friends became homeowners. They left with the bank writing them checks for $10,000 each. They celebrated and toasted themselves at a local restaurant.
But the seller actually ended up with the last laughed. Two years later they poured all of the credit money that they had so proudly taken at closing back right back into the house for repairs.
Although they still own the property, it barely breaks even as a result of regular fraternity party damages and other needed repairs resulting from so many people living in the house.
A few years on, one of the friends, Michael, purchased his first home to live in, and of course he tried the pizza plan again. One of the attorneys in my office who conducted the closing related the unusual behavior of my friend. In a tone of shock she reported how he demanded a credit as a result of alleged repairs. The seller would not budge this time, as the seller maintained that everything mentioned in the engineer’s report had been fixed, even providing the bills and cancelled checks to prove this. Facing default and the loss of a really good interest rate, in addition to the possible loss of his deposit of 10 percent of the purchase price, he gave in and closed.
I called him the next day. “I heard that you are disappointed with my office,” I began.
“No, not at all. But your associate could have been a little more aggressive and got me a credit like at New Paltz.”
“Didn’t you do a walk through before closing? Wasn’t everything working?” I continued.
“That is not the point.” He replied.
“Really?” I asked.
Nothing more needed to be stated. He had already learned that the engineer should be used as a shield and not a sword. Not being the place to make a profit, the closing table should be a fair medium where a home’s transferring is the primary object.
“I like feeling like a got a deal” he finished. I think he did too. He gets to sleep in a home he owns for the first time. And when he sells, many years on, I will bet that he will see his profit then. For now, he has a home where his family will live, grow, create memories and celebrate all their triumphs.