Cancellation of Escrow

Deal Shattered

A few weeks back, I posted a blog entry about an escrow I’m in where it was discovered that the septic system had failed. We spent about a week on pins and needles, waiting to hear back from the sellers about what they were going to do about it. Apparently, they were working on something, but they never communicated to us what they were looking at. My buyers have an urgent need to move into another home soon, and of course, a home isn’t really habitable without a working septic system or sewer connection, so this issue was of utmost importance.

It is pretty difficult to sell a home without a working septic system, so it was kind of a no-brainer that the sellers would do something – the question was, what? In the end, the sellers got a slightly cheaper bid from another local septic company here in Santa Cruz, to do a traditional leach field system (versus the pit system recommended by the contractor who we had look at it). I’m still wondering where that leach field is going to go, since there’s not much land at all to work with – I’m thinking they’ll have to tear out the driveway.

After we received the news that the sellers would, in fact, be putting in a whole new septic system, we proceeded to do more inspections. We called out a home inspector, who, of course, flagged a number of items for further review. Chief among these items was the electrical system – it was pretty wobbly. My buyers also decided to bring out a general contractor, to review the other items flagged in the home inspection, as well as the termite inspection which the sellers had prepared. The termite inspection report the sellers provided indicated that there was about $10,000 worth of repairs to be made, including a fumigation. The report was issued by a reputable, respected termite inspector.

Point. Click. Offer. Sell.

If you’ve seen a few termite inspections, you’ll know that they often say “Will Bid” for many items, or “if upon further inspection additional damage is discovered…”. That’s reasonable – many times, wood gets damaged in areas that cannot be easily inspected, without tearing into the drywall, etc. The general contractor, though, came with a metal probe (same as the termite inspector uses, normally), and virtually everywhere his probe went, he found rot. Lots of it.

It was his opinion that everywhere the termite report said “if additional damage is found…” that there was, in fact, lots of additional damage. He put together a bid which, he stresses, was a conservative one: about $140,000 to repair the damage. He also said it could be far worse than that, in fact, he said, it could be so bad that it might be better just to tear down the house and begin anew.

I raised my eyebrow at that one – with construction costs at around $350/square foot, that’s about $420,000 to rebuild a 1200 square foot house. That’s a pile o’ dough, and to me, it didn’t look like the house was going to need that kind of work. 🙂

My buyers were then in a sticky situation: either cancel the contract, or ask re-negotiate the purchase price with the sellers. My buyers weren’t going to ask for the full $140K – instead, they were asking to lower the purchase price by $70,000. Sounds reasonable, but of course, that is a big chunk to swallow on the part of the seller’s part – that on top of the new septic system they were putting in.

Everyone wants to know…

I drove out to the seller’s agent’s office (his office is out-of-the-county), to present our case in person. I didn’t have a lot of hope that I’d be able to convince him of the righteousness of our request, but I did want to show that we were acting in earnest, that this wasn’t just a shakedown for $70K, that we did, truly, believe that the house was badly damaged and we wanted to buy it, but we needed to adjust the price. I did stress that we’d be open to having the sellers bring their own contractors out (as they did with the septic system) to get a second opinion.

But no second opinion would be forthcoming. A couple of hours later, I got a call from the seller’s agent who informed me that they’d lower the price a tiny bit, but nothing like the $70K we were requesting. However, what we were offering was our best offer, so yesterday, I faxed over the Cancellation of Contract to the sellers.

I wish the sellers the best of luck with the property. It is a cute house, and it’s got a sweet location. Given that it’s been on the market for months already, and we’re heading into the slow(er) time of year, I suspect it will be a while before they find another buyer at their asking price. I’d be curious to hear what they say to future buyers who ask why the last escrow fell apart.

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About the Author
Seb Frey helps long-time Bay Area homeowners make their next move easily the next one yet. If you're looking for a minimum of hassle, maximum net cash on sale, and certain results, contact Seb today.