December 3, 2005 (Original publish date) • By Dennis Beaver
At no time in recent memory has the real estate market in the San Joaquin Valley been as hot as it is now. New and re-sale homes, as well as lots suitable for construction bring prices that could hardly have been imagined just a few years ago.
This real estate boom has interesting side-effects, as one Hanford real estate broker observed in an e-mail. “We have private sellers, real estate agents, brokers and developers at times doing anything to kill good deals that are already in escrow, knowing they will be able to squeeze more money out of a new sale of the same property. Ethics and morality often lose out to greed, and a lot of very disappointed people now have an even lower opinion of this profession, than in the past, I am sorry to say.”
Within the past few weeks, I have spent a great deal of time on the phone with two readers who would completely agree with that statement. This is the story of Terry and the very nice custom lot she and her husband contracted to buy near the J. Simas Elementary school in Hanford.
“There are about 30 lots in this subdivision, and we fell in love with the location and planned development. Years ago we purchased a house from the developer. I will call him Rusty, but that’s not his real name. We trusted him and immediately agreed to his asking price for the lot. An escrow for the lot was opened, the requested deposit paid and an architect hired to draw plans, which cost us over $4,000. This was more than just a vacant lot; we made an emotional investment in the location,” Terry stressed.
It Began With a Phone Call
Terry purchased the lot for $80,000. Her deposit was delivered to the escrow company, and she expected it to close by the beginning of September. Then came the phone call.
“A message was left on our answering machine to the effect that we had to pay $4,000 more if we wanted the lot. So, we called Rusty, and he gave us some strange story about the city wanting him to do another soils compaction test, as the first one he did was not acceptable, and he was passing the cost along to all of the buyers – about 30 of us. I said this did not seem to be our problem – as we already had a binding contract, and if there was a problem with city approval, this was none of our doing, and we expected him to honor his contract,” she told me.
Unfortunately, the developer had a very different view of what it means when you sign a contract. “Listen,” he shouted at Terry, “Either you pay more or I will tell the escrow company to pull the plug. Don’t make me laugh talking about ethics or legalities. I am not going to be out over $150,000 because the first soils guy I hired did a lousy job, and I do not care about what the contract says, because I can sell it for more to someone else. Take it or leave it!”
At that point, Terry e-mailed me, asking if Rusty could legally cancel the deal. Without reading contracts, escrow instructions and speaking with the developer, I could not confidently answer the question. The next day her husband dropped by my office with everything I needed to examine.
Legal Analysis – The Developer is Wrong
Based upon what I read, in my legal opinion there was no way this character could get away with this. He signed a contract, opened the escrow, and knew that my readers had invested money in house plans for this particular lot–plans which would have to be redone should they find another location. My calls to his office–and requests that he call me left on his answering machine–went unreturned.
While it appeared that Rusty was clearly wrong, there are usually two sides to every dispute, and I needed him to answers these questions: (1) If what I have been told is correct, how can you justify insisting that my readers pay one cent more? (2) Let’s say the city required that you have additional soils work performed, but this was months after the sale was entered into. Unless your contract permits passing along those costs, how do you ethically and legally explain what you are doing? Finally, do you understand what a contract is, and that once signed, your obligations are pretty well set in concrete?
Unexpected Turn of Events
Our developer was not a happy camper and, I was informed, in addition to a seriously strained sense of right and wrong, he also has a loud mouth and a temper. Terry and her husband involved the title company and their own agent–and let it be known that I was interested in the outcome. For some odd, reason, Rusty was made at a lot of people, me included, but then something nice happened. Something completely unexpected.
Terry’s agent phoned the developer’s agent, and said, “Agent to agent, how can your client possibly refuse to honor the contract? It is unethical and possibly illegal to raise the price in the middle of a deal. This just isn’t right. We have to fix this.”
The developer’s agent could have ignored those comments. But he agreed and made an extraordinary offer. “I will give up my commission–around $3200 if you do the same, then the deal will sail through. It’s the right thing to do,” he said.
So, here we have two real estate professionals who placed the interests of the buyers above their commissions. No one forced them to do so. They saw the legal issues, and more importantly, the ethical and moral issues involved.
One of them told me, “There was no justification for what the developer was trying to do. The contract did not permit passing along these costs. To anyone looking at his tactics, the word extortion would immediately come to mind. It was so unfair to Terry and other buyers in the same position. I felt disgusted and was not going to let these innocent buyers get hurt.”
Terry and her hubby will soon start to build their home. They need a nice place, a little slice of calm in a rough world. Terry is a Parole Officer and her husband is a Correctional Officer, and two of the nicest people you could ever meet. But don’t get Terry mad at you; this lady has a sense of justice and fair play that is so old fashioned. And so very, very right.
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.