DON'T LET "BUYER'S REMORSE" STOP YOUR HOME PURCHASE
As we approach the end of 2002, it's time to check up to see if our goals were accomplished. For many renters, their goal was to "Stop wasting money on rent, take advantage of low mortgage interest rates, and buy a house or condo."
If that was your 2002 goal, perhaps it's good if the dread "buyer's remorse" disease afflicted you. Although 2002 was a great year to buy a home and begin enjoying ownership benefits, mortgage interest rates have plummeted lower, and today is an even better time to buy than earlier this year.
Surprisingly, falling mortgage interest rates are bad for home sales. When interest rates drop, prospective buyers wait to buy, thinking rates will fall even lower.
That's hard to believe. But a real estate saleswoman recently told me, "I wish interest rates would go up a little so my hesitant prospective buyers would buy before it's too late."
The two types of home buyer's remorse. Just in case you don't have a clue what buyer's remorse disease is all about, there are two types. One is very serious and can lead to devastating, adverse financial consequences. The second type is curable and usually leads to many years of happy homeownership.
Potential home buyer's remorse can be financially costly. Renters who continue to pay rent month after month, with nothing to show for their "investment" but a pile of worthless rent receipts, know how frustrating that can be.
Of course, there are many good reasons for renting an apartment or house, such as temporary residency in the vicinity, insufficient income to buy a home, and goals other than homeownership, such as starting a business. When I asked a recently divorced friend who is "between wives" if he planned to buy a house or condo, he replied, "Why should I? I'm having too much fun."
While I was in college and later at law school, homeownership wasn't on my radar screen. But after I graduated and settled down, I realized the benefits of buying a home.
With the help of a $5,000 down payment loan from my parents (which I repaid!), I bought my first home. It was a dumpy $28,000 triplex, and I lived in the old two-bedroom house and rented the two rear apartments for income, which paid most of the expenses. I was so poor in those days, I had to go to the nearby "Thrift Village" to buy a used stove and refrigerator.
Before I bought that modest property, I lived at an upscale apartment complex with a roommate to share the rent. It was fun, especially watching all the cute girls around the pool. When I moved out of that apartment to buy my first home, my roommate thought I was crazy.
Although I hesitated and caught a modest case of potential buyer's remorse during the home-buying process, I realized how costly renting an apartment was and how I could instead start building modest equity in my own property. Eventually, my old roommate bought his own home, too.
Actual home buyer's remorse disease is serious. A more devastating variety of the dreaded buyer's remorse disease is the strain that strikes buyers who are in the process of home purchase. Rather than asking, "Should I buy a home?" (as I did), they ask, "Am I making a big mistake buying this particular home?"
To prevent this variety of buyer's remorse from striking, smart buyer's agents anticipate the problem. Experienced buyer's agents know how to protect their buyers, such as by including appropriate contingency clauses in the purchase offer.
For example, when a buyer hasn't already been preapproved in writing by an actual mortgage lender, sharp buyer's agents include a finance contingency clause. If the buyer is already preapproved, then only a contingency clause for a satisfactory lender's appraisal is needed.
Another contingency clause to help prevent buyer's remorse is for the buyer's approval of a professional home inspection report. That means the seller accepts the purchase offer, contingent on the buyer's good faith acceptance of a professional home inspector's report on the residence. This is ultra-important because the inspector's satisfactory report greatly reassures buyers.
Smart buyers and their agents always accompany the professional inspector. Sellers and their listing agents are welcome to also attend.
Since the buyer is paying for the report, why not check up on the inspector? This is a great opportunity for the buyer to ask the inspector lots of questions about any home defects discovered that weren't included in the seller's written defect disclosure report. The more reassurance a buyer has, the less chance the buyer's remorse disease will cause serious infection.
Can a buyer be forced to buy? Even after the buyer and buyer's agent have done everything possible to prevent spread of buyer's remorse disease, it occasionally strikes. As experienced realty sales agents know, for unexplained reasons, a few buyers change their minds even after (1) their purchase offer was accepted by the seller and (2) all the contingencies have been satisfied.
If the buyer absolutely refuses to proceed with closing the home purchase, the seller has several choices.
One is to obtain a release from the buyer and put the home back on the market for sale to another buyer. If the home sells for a higher sales price, the seller should be thankful the first buyer backed out.
Another choice is for the seller to put the home back on the market for sale and, if the home sells for less than the first sale, sue the first buyer for the lost profits.
Still another alternative, if there are no other potential buyers and the home languishes unsold, is for the seller to sue the buyer for specific performance of the sales contract.
Only in vary rare circumstances can a seller get a court order forcing the buyer to buy. The leading case is B.D. Inns vs. Pooley, 218 Cal.App.3d 289, where the seller built an 840-unit hotel to the buyer's specifications. When the buyer refused to complete the purchase, the California Court of Appeal ordered him to buy because monetary damages were an inadequate remedy since there were no other potential buyers.
Mediation or arbitration might prevent a lawsuit. When a home buyer suffers a serious case of buyer's remorse, before resorting to a lawsuit for monetary damages or specific performance, there are other alternatives.
Non-binding mediation is an attempt to resolve the dispute by hiring a professional mediator. Advantages include a quick, inexpensive resolution to the disagreement. Possible disadvantages occur if the mediation is unsuccessful and the parties wasted their time and money.
Binding arbitration, however, should only be agreed upon with an attorney's advice. Buyer and seller should understand they give up their right to (1) a jury trial, (2) appeal of the arbitrator's decision, even if contrary to law, (3) discovery procedures, and (4) court evidence rules, plus other safeguards.
Summary. Buyer's remorse is a potentially serious disease that home buyers, sellers and their real estate agents should not ignore when the symptoms occur. Fortunately, buyer's remorse can often be anticipated and prevented by skilled real estate agents who know how to handle and overcome home buyer objections. As a last resort, a real estate attorney should be consulted about the legal consequences of a buyer's default.
This story appeared on Page T23 of The Standard-Times on December 14, 2002.
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