I thought it would be neat to start a set of real estate “war stories.” This first one nearly bit a recent client of mine, but thankfully the final result was all good.Client was a buyer, looking for homes in the $1M to $1.3M range here in the general Palo Alto/ Menlo Park, CA area. Problem was — and to some extent still is — there were lots of other buyers out there looking for, and bidding on, exactly the same type of home.After two whipsaw experiences of finding a home, falling in love with it, bidding (in one case against 12 other intrepid souls) … and losing, said clients were (understandably) getting discouraged.Third time lucky, however. We got the property (in that case against only 4 others) and were solidly in contract. Everything was going smoothly…until about 3 days before the close of escrow.

I got a nervous phone call from the listing agent: “Ah, Kevin, I got bad news. Turns out my client has a pre-payment penalty of $12,000 on the loan, and that penalty expires 7 days after our scheduled close.”

Translation: Houston, we have a problem. If we close on the original date, my seller will be stuck with a $12,000 bill (more accurately, would net $12,000 less than what he had planned on).

Our options:

1) Tough luck. A deal’s a deal’s a deal. We’ll close as scheduled, and your client will just have to suck it up. This is something they should have noticed well before. Not the way I like to operate, however, and not the way my client wanted it either — you know, golden rule and all that.

2) Ask the bank for some grace. Fat chance. Bank wouldn’t budge.

3) Delay the close of escrow by a week, saving the seller $12,000. Not so easy, however. We had a tightly choreographed 3-week lineup of tradespeople lined up to do some work on the property, starting the day after the close of escrow, with my clients moving in immediately afterwards.

Fortunately, we found a way to make choice 3) into a win-win. We delayed the close of escrow by a week, so the seller saved his $12,000. In exchange, the seller reduced the sales price slightly to make up for the inconvenience to my clients, the buyers. We tightened up the tradespeople timetable, had them start a day before the close of escrow (that’s a whole other story), and figured out a way for my clients to move in only a few days later than originally planned.

Everybody won: Seller saved a good chunk of change; my buyers got a bit off the sales price, and started their new mortgage payments a week later, a not insignificant savings for a $1M+ property.

Morals of the story:

• Always check for a pre-payment penalty clause before putting your home on the market
• If something’s going to go wrong in a deal, it’s not going to happen at a convenient time.
• Creative and cooperative thinking often leads to a better outcome for everybody