Distressed Property/Other Professionals
Brenda wanted to invest in fixer-uppers. She knows there is a lot of money to be made in real estate, and she is willing to put in the work to learn real estate and make simple repairs herself. Although she has modest funds and a good credit score, she’s nervous about starting without experience and losing all her money.
Brenda signs up for a real estate brokerage course at a local community college and passes. Although she qualified to take her broker exam, she decides not to do so. Brenda then contacts Bob, a local real estate broker who advertises “Fixer Uppers Are My Specialty.” Bob explains that he has several distressed properties, some of which are bank-owned, which require “tender loving care.” Brenda is quite interested, and because she has a broker course under her belt, she asks to see several of Bob’s listings.
The first listing that Brenda inspects interests her. It’s 900 square-foot brick-and-frame ranch over a full, unfinished basement. The house has five rooms, two bedrooms, and a bath. The listing is small relative to its neighborhood and requires several repairs. The owner is a bank, and the property is currently vacant and has been winterized. The water pipes have been drained and anti-freeze has been poured into some pipes and fixtures (it’s currently winter in the Midwest).
As Bob shows Brenda the house, he explains, “The bank has assured me this house is in good structural condition. I have a letter here from a contractor assuring us that this house only needs minor cosmetic repairs. A do-it-yourselfer such as you shouldn’t have any trouble fixing it up and flipping it quickly.”
Brenda is uncertain, but she is eager to buy a house and start working- she wants to make money. She trusts Bob implicitly.
When Brenda wants to hire a home inspector, Bob just hands her a copy of the contractor’s report. “Why waste all that money on a home inspection when we have this inspection already?” he says. “Besides, we’ll get an appraisal soon. The appraiser will inspect the house.” Brenda relents and accepts the contractor’s report.
Because the house was built in 1950, Brenda thought the paint should be tested for lead. After all, she learned in her brokerage course that houses built before 1978 might contain lead. Bob explained that this was not a significant issue and that, if the house tested positive, Brenda would need to either remove the lead or disclose the lead-based paint to future prospective buyers and tenants. She would need to do the same if the property was tested for radon. Brenda decides not to pursue the lead testing or radon testing.
Brenda makes an offer, which is immediately accepted by the bank. Bob congratulates her on “starting the path to real estate riches.” Brenda’s full-time day job starts to take up all her time. Her boss insists she work a great deal of overtime or “I’ll find someone who will.” Brenda has very little spare time, and her new investment sits and languishes for several months. The neighborhood owners’ association is impatient and tells Brenda that her house is a boarded-up eyesore in the community. Brenda calls Bob for advice only to find out Bob no longer works at the brokerage. The sponsoring broker isn’t interested in talking to Brenda due to irregularities associated with Bob’s employment.
Brenda calls Patrice, a broker recommended to her by a friend. Brenda explains that she is losing money supporting her investment and does not have the time or money to fix it anymore. “I just want to sell it ‘as-is’ and break even,” she says.
Patrice explains that selling “as-is” is not an acceptable option and recommends that Brenda consult a real estate attorney before proceeding.