Pay Heed to the Tin Can Rule

By WILLIAM DEVINE
Reprinted from the San Francisco Chronicle, 1/19/03

was the night before the meeting at which the Snowdens would receive offers to buy their house, and all through dinner they wondered how many offers soon would be there.  Newspapers brimmed with tales of houses commanding multiple offers.  A stroke of luck had enabled the Snowdens to contract for a new house at a below-market price. Now they hoped to sell their current house at a premium. Visions of bidding wars danced in their heads.

In fact no bidfest materialized, but they received two offers, the higher of which exceeded their asking price by $18,000.  The offer contained only one contingency—property inspection, to be removed in three days.  The buyer wanted an engineer to check the foundation.  Knowing their foundation was fine, the Snowdens accepted the offer, opened a bottle of Chardonnay, and toasted their conquest of the market.

During the next two days they told parents and friends, “It’s all set—in two weeks we sell this house, buy the new one, and leave on vacation.”  Since they could use proceeds from the sale to fund the purchase, they withdrew their application for an interim loan.  They sent their mover a non-refundable deposit to secure their moving date.  And at 3 pm three days after they sipped that Chardonnay, the buyer used the inspection contingency to terminate the contract.

The couple contacted the person who made the other offer.  He dropped his offer by $7,000, to a number $32,000 below the first buyer’s.  He would not close for 60 days. Bent on terminating their encounter with the real estate market ASAP, the Snowdens accepted these terms, paid the fee to revive their interim loan application, paid the fee to reschedule their moving date, and postponed their vacation.

What would the Snowdens tell S. Clark from Marin?  Ms. Clark writes, “My agent placed a “Sold” sign over the “For Sale” sign outside my house.  Escrow doesn’t close for three weeks, but she says we have a done deal.  Is that true?”

The Snowdens would say that a deal is not done until you cash the check, see the bank clear the check, put the money in a tin can, bury the tin can in your back yard, wait six months, dig up the tin can, and see that the money is still in there.

The Snowdens would be citing the Tin Can Rule, which, if not the most important truth in real estate, is certainly right up there with location location location.  The Rule applies to all transactions in all markets, good and bad, and if you fail to live by the spirit of it, you enter a dimension dominated by pain and surprise.

Gearing back up to find a new buyer, seller or loan when you thought you had one often feels like punishment.

Taking an unanticipated financial hit to save a transaction you thought was set may seem less punishing than gearing back up, but it still usually feels like blackmail.

Realizing that you have spent savings in expectation of receiving money that will never arrive can haunt you for months, or longer.

o avoid playing punishment-blackmail-haunted-checkbook roulette, you need to know what hurdles stand between you and the transaction’s completion.  Read the contract. Talk to the agents, the escrow officer, and perhaps an attorney.  In a typical transaction, the hurdles consist of the inspection, financing and title contingencies, the funding of the mortgage loan, and the recording of the deed and mortgage.

You also need to understand that if any part of your transaction is unperformed—even the execution or delivery of the most harmless document—that’s a hurdle on which the transaction could perish.

A signed contract with a buyer who calls his inspection contingency a mere formality, for example, is not a done deal—under a standard inspection contingency clause, a buyer can walk away from a contract on a whim, deposit in hand.

Nor is a contract with all contingencies removed, legally speaking, a toys-already-under-the-tree sure thing.  The buyer’s loan might fail to fund, in which case the seller might only have a claim for damages, not a done deal.  The seller might try backing out of the bargain, in which case the buyer might have a lawsuit for specific performance, not a done deal.

Seeing a transaction clearly is one of the most valuable gifts you can give yourself, regardless of the season.  Agents, opposing parties, and even the optimist in you can skew your vision.  If you feel perspective slipping away, make a list of your transaction’s hurdles, check it twice, and live by that list until the deal is done.