Contractor set the house we're buying on fire. Now what?
April 4, 2012 11:03 PM Subscribe
We're under contract to buy a house. Two weeks before closing, a contractor performing agreed-upon presale repairs caught the house on fire. We've got a lot of questions about what happens next.
It's not gutted, but there's fairly extensive damage, especially to the top floor.
Our lender's appraiser was there the day before the fire. Consequently, there's very good documentation of what condition the house was in before. It appraised at $10k over the sale price.
We can't get conventional financing for the house in its current condition, and our lender doesn't offer rehab loans. The listing agent expressed to us that if we stick with the contract through repairs, we might wind up with a better house, including perhaps a head start on some remodeling we had been planning to do. So far we haven't found any other property we want more, so we're staying the course so far to see what happens.
It's now been three weeks since the contractor's insurance adjuster performed an inspection. So far we have had no official news. We also know the owner has lawyered up.
We've read this previous AskMe, so we have some idea of what has to be done to a house that's been through a fire.
So, our questions:
- What can we expect if we see this through? Has anyone gone through an experience similar enough that they know in what order things should happen and what we will need to do?
- We have been inside and there are business cards from restoration companies. We had heard that the contractor responsible for the fire wanted to perform the repairs, but as far as we can tell, they're not professionally qualified to do restoration jobs. How much power do we have to get involved in monitoring the restoration process? Can we help pick the company? Can we oversee the work? At the very least, are the sellers required to communicate with us about what they plan to do?
- We want to do some fairly extensive remodeling. How much of that does it make sense to try to request while the house is being fixed prior to sale? We don't want to overcomplicate things legally or sink a ton of money into extras on a house we don't yet own, but we also don't want to wind up ripping out walls right after they've been put up. If we ask them to fix the structural damage but have them stop short of installing or painting new walls or ceilings, is it possible to negotiate having a check cut to cover a percentage of the work not yet done at closing, given that the work otherwise would have had to be done to restore the property to pre-loss condition? If so, would that check go to us or the sellers? Anyway, is it theoretically possible to get a house appraised for close to its actual value if one of the floors is gutted down to studs?
We're in Oregon, in case that matters.
It's not gutted, but there's fairly extensive damage, especially to the top floor.
Our lender's appraiser was there the day before the fire. Consequently, there's very good documentation of what condition the house was in before. It appraised at $10k over the sale price.
We can't get conventional financing for the house in its current condition, and our lender doesn't offer rehab loans. The listing agent expressed to us that if we stick with the contract through repairs, we might wind up with a better house, including perhaps a head start on some remodeling we had been planning to do. So far we haven't found any other property we want more, so we're staying the course so far to see what happens.
It's now been three weeks since the contractor's insurance adjuster performed an inspection. So far we have had no official news. We also know the owner has lawyered up.
We've read this previous AskMe, so we have some idea of what has to be done to a house that's been through a fire.
So, our questions:
- What can we expect if we see this through? Has anyone gone through an experience similar enough that they know in what order things should happen and what we will need to do?
- We have been inside and there are business cards from restoration companies. We had heard that the contractor responsible for the fire wanted to perform the repairs, but as far as we can tell, they're not professionally qualified to do restoration jobs. How much power do we have to get involved in monitoring the restoration process? Can we help pick the company? Can we oversee the work? At the very least, are the sellers required to communicate with us about what they plan to do?
- We want to do some fairly extensive remodeling. How much of that does it make sense to try to request while the house is being fixed prior to sale? We don't want to overcomplicate things legally or sink a ton of money into extras on a house we don't yet own, but we also don't want to wind up ripping out walls right after they've been put up. If we ask them to fix the structural damage but have them stop short of installing or painting new walls or ceilings, is it possible to negotiate having a check cut to cover a percentage of the work not yet done at closing, given that the work otherwise would have had to be done to restore the property to pre-loss condition? If so, would that check go to us or the sellers? Anyway, is it theoretically possible to get a house appraised for close to its actual value if one of the floors is gutted down to studs?
We're in Oregon, in case that matters.
Can you (do you want to?) complete the sale at a reduced price, and buy the house as-is?
If you want to spend money on the house, you don't want to undo brand new repairs. I would think there is a lot of scope here for a win-win renegotiation of the price.
I would think that this is a case where you ask your lender to reconsider its restriction, redefine your 'rehab' as something else (if you can), or find another lender.
The up side of this situation for you makes it worth a fair bit of effort to make it happen.
posted by GeeEmm at 11:27 PM on April 4, 2012
If you want to spend money on the house, you don't want to undo brand new repairs. I would think there is a lot of scope here for a win-win renegotiation of the price.
I would think that this is a case where you ask your lender to reconsider its restriction, redefine your 'rehab' as something else (if you can), or find another lender.
The up side of this situation for you makes it worth a fair bit of effort to make it happen.
posted by GeeEmm at 11:27 PM on April 4, 2012
We had situations similar after Hurricane Katrina struck. My neighbor had a contract to sell his home for x amount of dollars. The closing was to take place on August 30, the day after Hurricane Katrina struck. The home suffered major flood damage, but was covered under insurance.
The seller reduced the price of the house by the exact dollar amount the insurance paid to repair the house, approximately $60K, the seller kept the insurance money. The buyers were happy and was able to repair the home for less than the $60k "discount" they received for buying a damaged home.
Maybe something similar would work for you.
posted by JujuB at 2:00 AM on April 5, 2012
The seller reduced the price of the house by the exact dollar amount the insurance paid to repair the house, approximately $60K, the seller kept the insurance money. The buyers were happy and was able to repair the home for less than the $60k "discount" they received for buying a damaged home.
Maybe something similar would work for you.
posted by JujuB at 2:00 AM on April 5, 2012
A car burst into flames in front of our house a week before closing. The damage wasn't too bad, but it melted the siding enough to be unsightly. We got the seller to assign the insurance claim money to us for repairs, but it was an arduously long process of bugging the seller's attorney (who was totally uninterested in doing any work on this after closing). We had the added wrinkle of needing the car owner's insurance pay for the deductible for the seller's house insurance, since he couldn't afford the deductible himself. All in all it took about 4 months to get the insurance money. It was worth it for us, but you'll have to figure out if you can foot the remodel bill while you wait for the insurance money, or if you can live somewhere else until the repairs are made.
posted by banjo_and_the_pork at 2:39 AM on April 5, 2012
posted by banjo_and_the_pork at 2:39 AM on April 5, 2012
Best answer: In a buyer's market like this, there is no reason in the world to buy trouble. Walk away.
posted by jayder at 3:38 AM on April 5, 2012 [7 favorites]
posted by jayder at 3:38 AM on April 5, 2012 [7 favorites]
How much power do we have to get involved in monitoring the restoration process? Can we help pick the company? Can we oversee the work? At the very least, are the sellers required to communicate with us about what they plan to do?Depends how badly the sellers want to keep you as a buyer, which is probably pretty badly. Even in the best case (from their point of view), the sale will have been significantly delayed, so any plans they had for the money they were going to get from the sale will also be on hold. If the deal with you is off, then they're looking at having to put the house back onto what will still be a buyer's market and wait for someone else to come along. During that wait, they'll still be on the hook for their mortgage payments, taxes, insurance, utilities, etc. Losing you as the buyer would be expensive and inconvenient. That's the source of your leverage to get what you want.
- We want to do some fairly extensive remodeling. How much of that does it make sense to try to request while the house is being fixed prior to sale?
I don't know what the best solution is for you, but the sellers have a lot of incentive to want to work with you. Think about what you'd ideally want. Then talk.
posted by jon1270 at 4:17 AM on April 5, 2012 [2 favorites]
Best answer: - We want to do some fairly extensive remodeling. How much of that does it make sense to try to request while the house is being fixed prior to sale? We don't want to overcomplicate things legally or sink a ton of money into extras on a house we don't yet own, but we also don't want to wind up ripping out walls right after they've been put up.
I don't think you can achieve your second sentence without your first. Purchase and Sale contracts and rights vary widely state to state, IANAL and I'm not familiar with Oregon's, but your first step should be to look there to see what your rights are. Broadly speaking though, my understanding is the house is a kind of deliverable. You agreed to buy This House, they agreed to sell This House. If they cannot hand over to you This House, in the same condition as when you agreed to purchase it, then that frees you of your obligation to purchase, but it doesn't impose on them any obligation to rebuild the house to your standards.
As a practical matter, you may be able to get them to agree to do that --- they're certainly in a tough spot here --- but I think any requests in that regard are likely to go well beyond the stipulations of a standard P&S. You'll definitely need to talk to a lawyer, and will likely need to draw up a new contract. You may also not get your earnest money back if you walk away --- check on that, too.
Anyway, is it theoretically possible to get a house appraised for close to its actual value if one of the floors is gutted down to studs?
Short answer: No. Longer answer: I believe the case would be different if this were new construction or a hone equity line for renovations, but in as far as purchasing existing property, banks are being extremely tight about lending right now, and it's taking a hell of a lot less than "big chunk of second floor burned down" to fuck up appraisals and kill deals. I sincerely doubt that there are three to five other recently sold house of like size and situation nearby which also have a big chunk of their second floors burned down to compare this one to, and that means the appraiser would have to make a ton of fudge-factor guesses about what this one might be worth --- in this lending environment, such guesses tend to drive estimates down, sometimes way down. I think there's a fair chance the bank may deny a loan on the property.
posted by Diablevert at 4:49 AM on April 5, 2012 [1 favorite]
I don't think you can achieve your second sentence without your first. Purchase and Sale contracts and rights vary widely state to state, IANAL and I'm not familiar with Oregon's, but your first step should be to look there to see what your rights are. Broadly speaking though, my understanding is the house is a kind of deliverable. You agreed to buy This House, they agreed to sell This House. If they cannot hand over to you This House, in the same condition as when you agreed to purchase it, then that frees you of your obligation to purchase, but it doesn't impose on them any obligation to rebuild the house to your standards.
As a practical matter, you may be able to get them to agree to do that --- they're certainly in a tough spot here --- but I think any requests in that regard are likely to go well beyond the stipulations of a standard P&S. You'll definitely need to talk to a lawyer, and will likely need to draw up a new contract. You may also not get your earnest money back if you walk away --- check on that, too.
Anyway, is it theoretically possible to get a house appraised for close to its actual value if one of the floors is gutted down to studs?
Short answer: No. Longer answer: I believe the case would be different if this were new construction or a hone equity line for renovations, but in as far as purchasing existing property, banks are being extremely tight about lending right now, and it's taking a hell of a lot less than "big chunk of second floor burned down" to fuck up appraisals and kill deals. I sincerely doubt that there are three to five other recently sold house of like size and situation nearby which also have a big chunk of their second floors burned down to compare this one to, and that means the appraiser would have to make a ton of fudge-factor guesses about what this one might be worth --- in this lending environment, such guesses tend to drive estimates down, sometimes way down. I think there's a fair chance the bank may deny a loan on the property.
posted by Diablevert at 4:49 AM on April 5, 2012 [1 favorite]
Your leverage here is with the seller, which sounds good but is actually pretty far removed from where it needs to be. The contractor's insurance company will want to pay out as little as possible, the seller will want things settled quickly (so even if you walk away, they can still sell close to whatever time frame they have), and their insurance company may not want to go above and beyond dealing with them, as hey, they're selling their house and may no longer be a client.
Dealing with the car fire that banjo mentioned above was a huge hassle. We were the only people invested in getting the damage to the house fixed, but had the least amount of control. I don't think we got close to the amount we needed to properly fix the damage and if we were not able to negotiate some savings with our contractor (we had budgeted for a new roof anyways) it would have been more of a nightmare. And this was just over some melty siding!
Beware the listing agent and don't trust what they say - they're not the ones who will have to live there or negotiate with the bank, insurance, and contractors.
posted by robocop is bleeding at 5:09 AM on April 5, 2012
Dealing with the car fire that banjo mentioned above was a huge hassle. We were the only people invested in getting the damage to the house fixed, but had the least amount of control. I don't think we got close to the amount we needed to properly fix the damage and if we were not able to negotiate some savings with our contractor (we had budgeted for a new roof anyways) it would have been more of a nightmare. And this was just over some melty siding!
Beware the listing agent and don't trust what they say - they're not the ones who will have to live there or negotiate with the bank, insurance, and contractors.
posted by robocop is bleeding at 5:09 AM on April 5, 2012
No way would I go through with this. Would you have gone shopping for a discounted fire-damaged house before this chain of events? If not, you shouldn't buy one now. Walk.
posted by zvs at 5:55 AM on April 5, 2012 [5 favorites]
posted by zvs at 5:55 AM on April 5, 2012 [5 favorites]
Best answer: I agree with jayder and zvs. WALK AWAY. (Consult with your own attorney first.)
Of course the listing agent wants the sale to go through and will say anything, but honestly, there is a good chance you will not wind up with a "better house." Fire damage is hard to repair and contractors muck it up all the time and the insurance company will lowball the owners. You will get a worse house.
posted by stowaway at 7:05 AM on April 5, 2012 [1 favorite]
Of course the listing agent wants the sale to go through and will say anything, but honestly, there is a good chance you will not wind up with a "better house." Fire damage is hard to repair and contractors muck it up all the time and the insurance company will lowball the owners. You will get a worse house.
posted by stowaway at 7:05 AM on April 5, 2012 [1 favorite]
That listing agent is not your friend or representative at all of your interests.
posted by jerseygirl at 7:12 AM on April 5, 2012 [2 favorites]
posted by jerseygirl at 7:12 AM on April 5, 2012 [2 favorites]
We closed on our house the day after Hurricane Irene came through the area, and learned only at the closing that the finished basement was flooded. (We'd had to skip the final walkthrough because we got rear-ended as we were pulling into the driveway, and spent the day in the ER instead. It was a crazy week.) By that point we were really emotionally attached to the house, and sick of going through the buying process, so decided to close on the place anyway.
We should not have done that. We've sunk more money than I care to admit into gutting that basement, mold abatement, resealing the foundation, etc etc etc -- repairs beget more repairs, and the costs add up far more quickly than you expect. If we'd been thinking clearly, we should have walked away from the table the instant we learned about the flooding.
The listing agent just wants to sell the place. They are not your friend. Do not trust them.
Run away from this place and don't look back. In this market there are going to be plenty of houses you can buy, at reasonable prices, that have not been gutted by fire. If you already have sunk costs, well, consider that a small price to pay to not have to spend the next n months dealing with contractors and living in a house that will always, always smell faintly of smoke.
BUT, if you choose to ignore that advice and buy the place anyway: do not let the current owners handle any of the repairs. They will have it done as quickly and as cheaply as possible, and you will be disappointed in the results. You want to be in charge of the restoration; do not leave it up to the sellers.
If you truly love this place and would not be satisfied anywhere else, you need to immediately renegotiate the house an as-is sale -- find your own contractor who will do the repairs, get them to write up a realistic estimate, and knock that amount off the sale price. Approach this as if you were just now seeing the house for the very first time.
How much power do we have to get involved in monitoring the restoration process? Can we help pick the company? Can we oversee the work? At the very least, are the sellers required to communicate with us about what they plan to do?
In a buyer's market like this, you have as much power here as you choose to take. Take control of the process, don't sit back and let realtors tell you everything is going to be okay.
posted by ook at 7:31 AM on April 5, 2012 [9 favorites]
We should not have done that. We've sunk more money than I care to admit into gutting that basement, mold abatement, resealing the foundation, etc etc etc -- repairs beget more repairs, and the costs add up far more quickly than you expect. If we'd been thinking clearly, we should have walked away from the table the instant we learned about the flooding.
The listing agent just wants to sell the place. They are not your friend. Do not trust them.
Run away from this place and don't look back. In this market there are going to be plenty of houses you can buy, at reasonable prices, that have not been gutted by fire. If you already have sunk costs, well, consider that a small price to pay to not have to spend the next n months dealing with contractors and living in a house that will always, always smell faintly of smoke.
BUT, if you choose to ignore that advice and buy the place anyway: do not let the current owners handle any of the repairs. They will have it done as quickly and as cheaply as possible, and you will be disappointed in the results. You want to be in charge of the restoration; do not leave it up to the sellers.
If you truly love this place and would not be satisfied anywhere else, you need to immediately renegotiate the house an as-is sale -- find your own contractor who will do the repairs, get them to write up a realistic estimate, and knock that amount off the sale price. Approach this as if you were just now seeing the house for the very first time.
How much power do we have to get involved in monitoring the restoration process? Can we help pick the company? Can we oversee the work? At the very least, are the sellers required to communicate with us about what they plan to do?
In a buyer's market like this, you have as much power here as you choose to take. Take control of the process, don't sit back and let realtors tell you everything is going to be okay.
posted by ook at 7:31 AM on April 5, 2012 [9 favorites]
If you're not going to bail, sit down with your contract for sale and read it over very, very carefully. If it was drafted by anybody who knows what they're doing, it should cover a lot of possibilities -- for example, what happens if the house is damaged while it's under contract and who pays for what. That's what a well-written contract does -- it lays out the parties' responsibilities under a lot of if/then scenarios. As others have mentioned, you have the leverage here if you want it, so if some of those terms don't cut in your favor, feel free to try and negotiate your way around them.
That said, I'll chime in with the others when they say "run."
posted by craven_morhead at 8:42 AM on April 5, 2012
That said, I'll chime in with the others when they say "run."
posted by craven_morhead at 8:42 AM on April 5, 2012
Sounds like you'd be walking into a lot of potential issues.
Seconding some of the above - the listing agent isn't working for you and don't take their word (who's representing you and your interests - your agent, a lawyer?), if you let the sellers do the repairs you have little control and could very well get poor work. You should control the repairs if you absolutely have to have this house.
This sounds like trouble upon trouble to me.
posted by mrs. taters at 10:34 AM on April 5, 2012
Seconding some of the above - the listing agent isn't working for you and don't take their word (who's representing you and your interests - your agent, a lawyer?), if you let the sellers do the repairs you have little control and could very well get poor work. You should control the repairs if you absolutely have to have this house.
This sounds like trouble upon trouble to me.
posted by mrs. taters at 10:34 AM on April 5, 2012
The listing agent expressed to us that if we stick with the contract through repairs, we might wind up with a better house, including perhaps a head start on some remodeling we had been planning to do.
If you go through with this purchase after the extensive fire damage, I guarantee you everyone involved will regard you as colossal fools/chumps and this listing agent will regale admiring crowds of fellow agents for years about how, in a terrible market, she still managed to close a sale even after a fire had swept through it and caused major damage. This will be one of those war stories recounted at real estate sales conferences and motivational meetings. "If Sally could close on a house that was extensively damaged by fire weeks before clisinglass, don't tell me you can't close that sale!"
posted by jayder at 12:45 PM on April 5, 2012 [1 favorite]
If you go through with this purchase after the extensive fire damage, I guarantee you everyone involved will regard you as colossal fools/chumps and this listing agent will regale admiring crowds of fellow agents for years about how, in a terrible market, she still managed to close a sale even after a fire had swept through it and caused major damage. This will be one of those war stories recounted at real estate sales conferences and motivational meetings. "If Sally could close on a house that was extensively damaged by fire weeks before clisinglass, don't tell me you can't close that sale!"
posted by jayder at 12:45 PM on April 5, 2012 [1 favorite]
Best answer: IANAL, but I'm having trouble seeing how any contract you may have been under is still binding. The house you contracted to purchase no longer exists. Even if repairs are made, it will still be a house that was in a fire, and that's not what you signed up for. Beyond structural issues from the fire, there could be smoke damage, there could be water damage (mold, mildew) that crops up down the road from when the fire was extinguished.
As others have said, it's a buyer's market. I can't imagine why you'd want to buy trouble. Say there's a new car sitting on the lot that you're just about to buy, and some drunk driver jumps the curb and plows into the side of it. Even if the body shop makes all the necessary repairs, are you going to buy that car? Of course not. This is not the house for you.
posted by xedrik at 1:14 PM on April 5, 2012
As others have said, it's a buyer's market. I can't imagine why you'd want to buy trouble. Say there's a new car sitting on the lot that you're just about to buy, and some drunk driver jumps the curb and plows into the side of it. Even if the body shop makes all the necessary repairs, are you going to buy that car? Of course not. This is not the house for you.
posted by xedrik at 1:14 PM on April 5, 2012
What does your attorney say? You have one, right?
Dealing with a fire restoration and the insurance process is a pain in the ass even when there's no sale in progress. Hell, my own house caught on fire 4 months AFTER the sale closed, and it was hard enough.
The cause was something documented to have been repaired during the contract period, but that had demonstrably (the fire demonstrated it) to NOT have been repaired.
My insurance company took 3 goddamned months to agree to pay an amount almost equal to what it actually cost to repair and restore to original condition. I had to live in a hotel. The parking the insurance company would pay for was 6 blocks away from the hotel. I had to chase down the restoration company and the contractor and subs and the F&$%#g insurance adjuster. Multiple phone calls every day for months. Near daily visits to the house, to hardware stores, to carpet stores, to tile showrooms. I had to hire a lawyer to ensure the F&&%#g insurance adjuster adhered to my policy.
My insurance company sued the seller and the seller's contractor to recoup their loss. I had to talk to arson investigators. (Not because there was arson, but because the insurer's attorneys wanted an investigation as to cause before knowing whom to sue.)
Are you ready for all this--on top of whatever it would take to ensure you could get a loan, remodel to your specs, and do it on your schedule?
If so, you're a hale and hardy person, and I salute you.
posted by ImproviseOrDie at 3:59 PM on April 5, 2012
Dealing with a fire restoration and the insurance process is a pain in the ass even when there's no sale in progress. Hell, my own house caught on fire 4 months AFTER the sale closed, and it was hard enough.
The cause was something documented to have been repaired during the contract period, but that had demonstrably (the fire demonstrated it) to NOT have been repaired.
My insurance company took 3 goddamned months to agree to pay an amount almost equal to what it actually cost to repair and restore to original condition. I had to live in a hotel. The parking the insurance company would pay for was 6 blocks away from the hotel. I had to chase down the restoration company and the contractor and subs and the F&$%#g insurance adjuster. Multiple phone calls every day for months. Near daily visits to the house, to hardware stores, to carpet stores, to tile showrooms. I had to hire a lawyer to ensure the F&&%#g insurance adjuster adhered to my policy.
My insurance company sued the seller and the seller's contractor to recoup their loss. I had to talk to arson investigators. (Not because there was arson, but because the insurer's attorneys wanted an investigation as to cause before knowing whom to sue.)
Are you ready for all this--on top of whatever it would take to ensure you could get a loan, remodel to your specs, and do it on your schedule?
If so, you're a hale and hardy person, and I salute you.
posted by ImproviseOrDie at 3:59 PM on April 5, 2012
Response by poster: Just to double back and close this one out: Thanks to all who weighed in on the side of sanity. We didn't take the house, which I think suited the sellers just fine since they didn't appear inclined to do the remodel to our specs, and since they seemed to relish the idea of putting the house back out on the market at a higher price afterward (based on secondhand accounts of conversations between our realtor and their lawyer). But we found a better house. Yay!
posted by treblemaker at 9:43 PM on April 27, 2012
posted by treblemaker at 9:43 PM on April 27, 2012
This thread is closed to new comments.
posted by dudeman at 11:13 PM on April 4, 2012 [1 favorite]