Buying or Leasing a House Sight-Unseen

on 12 July 2019

In the early part of my career as a residential real estate sales-and-leasing agent, I occasionally found myself selling to a buyer, or leasing to a renter, a home that they had agreed to take without having first seen the property in person.

This happened for a variety of reasons, but when this occurred, I reluctantly agreed to the process only to serve the informed consent of my clients. Intuitively, one should know that such practice is fraught with potential problems, and therefore, usually best avoided.

Now, 26 years later, I do my level best to avoid this situation, but I now also support real estate agents in my brokerage that have varying degrees of experience and skills, thus the primary reason I'm writing this blog, to inform the uninformed.

While I do not usually work personally with buyers, sellers or landlords anymore, occasionally this still happens. Recently it did happen. My wife and I are a broker-owner team, and like me, she usually serves only in the capacity of managing broker, and does not entertain clients in the field. The couple that wanted to buy, in this case, were close family relatives. They strongly persuaded us to help them. Their objective was to move from out-of-state to retire here in the Atlanta area. They were anxious to get started looking for a home to purchase, while at the same time wrapping up their careers before moving.

The buying process would start some 3 or 4 months prior to their anticipated arrival date. Their vision was to receive their last paycheck and move in to their new home the next day. The problem we encountered was that they didn't want to invest time in coming to Atlanta. Over our professional urgings, they really thought they could pick out a property using pictures, and of course, they "trusted" us to do a great job advising them. No matter our protests to better wait until they arrived and then begin the serious searching, they insisted on doing this long distance. They gave us their specific shopping parameters and we went to work searching for and sending them listings that mostly met their expectations.

This process quickly became tiresome. Every other weekend for months, my wife and I were out in the field doing face-time showings with our buyers. We would show dozens of homes and, over time, write 3 contracts that went binding, all to have them fall apart in due diligence, because the buyers changed their mind. Cold feet or buyer's remorse, you pick.

After multiple failures to close, we finally convinced them that they had to personally visit Atlanta if they were ever to succeed in buying a home. The husband came to town, and in 3 days, found a house and bought it. It would close on schedule. The home they chose scarcely met any of the search parameters that they had given us to locate their dream home. Case in point, picking out a house on-line or sight-unseen is not a great idea.

In our market, my advice to sellers and to my agents is to strongly consider declining any offers for which the buyers have not personally seen the property. I felt really badly for those sellers that lost the deals because of my buyer's impulsive change of mind.

There is sometimes another more sinister motivation behind this sight-unseen process. My buyers were just wishy-washy, they had no insincere intent, but there are a large number of investors in our market that will throw reasonable-looking offers out there, snag a contract in a multiple-bid situation, fully intending to renegotiate the price in due diligence. I don't believe that's ethical. It's truly unfair to the sellers that accept their offer in good faith, and especially in consideration that in many, if not most cases, the sellers declined 1 or more other good offers that probably would have stood. Now the preyed-upon sellers have lost marketing time and suffered all of the inconvenience and lost opportunity cost that accompanies dealing with sight-unseen buyers.

As far as my private buyers were concerned, I was actually happy in the end, for both them and us, that they terminated the first 3 contracts. I can only imagine how unhappy they might have been had one of those deals actually closed. We will never know, but at least they are happy now and we have preserved the family relations.

As for the investors, our agents are faced with working with both sides of this problem. It's hard to deny investors that want to buy 10 houses over the next 12 months, and they like this sight-unseen technique (many of them reside out of state or even out of the country). But the outcome for our participating agents is similar to that of the failure of our private home buyer. The difference is that, in this case, the agents themselves also become the victims. How many dry wells can they dig without a earning a paycheck? For them, I would suggest that they obtain a sizable retainer for all of the anticipated unpaid labor. As for my agents working with the victim sellers, they just need to fully and clearly explain and disclose the potential outcomes. If there are multiple offers, some from sincere buyers willing to pay fair market value, I would recommend putting the investors at the bottom of the stack, even if their offer price is higher.

Now, as for residential tenants renting sight-unseen, the story is similar but with a few unique twists. Tenants oftentimes have a lot less at stake than home buyers. Sometimes it's only a nominal application fee. It's easy for tenants to change their mind when there's only $100 or less on the table. I should caveat that though because the reality is that if the tenants genuinely believe that they are going to take occupancy, they probably have also put into motion a series of logistical events in preparation for the move-in. This could include things like utility deposits, and furniture moving costs. Those are likely nonrefundable expenses. They also might not have another place to go on such short notice. So it's not without total pain for tenants either.

If the property managers are smart about it, they will get the tenant applicants on a reservation agreement. Reservation agreements come at a cost to the tenants, usually of some amount of nonrefundable money. Normally the deposit is applied to the rent if they actually take possession. Each property management company will have its own policy on how much money that deposit should be. My suggestion is that if an applicant wants to commit to a property sight-unseen, then the standard deposit should be 2 or even 3 times the standard amount.

However, there's an undeniable problem with forcing tenants into a property that they do not want to occupy. They will probably be very unhappy about the whole situation, and even though the property managers are operating lawfully, within the terms of the reservation agreement and in good faith, the property managers are going to be stuck with these unhappy tenants for a year or more, in many cases. It's no fun working with people that are unhappy.

Bottom line for me is to follow my suggestion of demanding 3 times the reservation deposit, not because we really want to make that deal, but because don't want to. Forcing their hand is going to do one of two things, coercing potentially unhappy tenants into the property or discouraging them from even trying. It might also make it more attractive for them to suffer the costs and inconveniences of making an effort to actually preview the property. In the end, that's what a property manager should wish for. By the way, if we do agree to take more than the ordinary reservation deposit, we can stipulate that the overage will be fully refunded upon taking possession.

 

Daniel R. Wilhelm
Master Property Manager
3 Options Realty, LLC., CRMC®

555 Sun Valley Dr, STE B4

Roswell, GA 30076
678-397-1282
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