Murphy's Law in real estate

First of all, let me start by saying that I am of Irish-Scot heritage. So the thought of a law about bad luck being named after an Irishman is somewhat disconcerting. Whether this adage gained popularity because it was easy to blame the hapless Irish for things that went awry, or whether it was named in honor of an actual Mr. Murphy who identified a fourth law of thermodynamics, 'what can go wrong, will,' this popular phrase serves well as a cornerstone of modern real estate practice.

Recently, while going through some old papers belonging to my parents, I came across their original purchase contract written in 1957 for their house in the Parkside District of San Francisco…it was one page long! Today, the Residential Purchase Agreement (RPA) from the California Association of Realtors is ten pages long, plus at least another twenty pages of advisories and disclosures. Just about every clause and caveat in that document is the result of someone suing somebody over something that went wrong in a previous real estate deal. We can thank Mr. Murphy and his law for this abundance of paper and clauses and cautionary advice.

What could possibly go wrong?

Real estate offers fertile ground for unexpected and unwanted obstacles to sprout along the path to a successful close. These can come in the form of tragic events, such as last year's Napa quake that shook many escrows apart. Obstacles can also come in the form of seemingly simple (and avoidable) miscues, such as the buyer purchasing a car or losing a job during escrow. That long, ten page contract you signed tries to anticipate all of these things by outlining who is responsible for what, and under which circumstance a contract may be canceled (if at all).

Most buyers and sellers are familiar with contingencies, the various conditions that are part of the buyer's offer. 'I'll buy your house for X amount of money IF I can get a loan, IF the house appraises, IF the house isn't falling apart, IF there aren't any liens against the property, IF it's not in an flood zone, IF there are permits for the kitchen remodel, IF, IF, IF…'

Each 'if,' or contingency, allows the buyer the opportunity to change their mind about the purchase and cancel the contract within the specified time frame. When a buyer doesn't get their loan approved on time or notify the seller that they're satisfied with the condition of the house on time, then the seller is allowed to cancel the escrow and move on to the next buyer. This ability for a seller to boot out a buyer is small comfort when they've just spent three weeks in escrow and were expecting to move in the next ten days.

But things happen even with the best managed escrow, and timing seems to be the area where our friend Mr. Murphy likes to wreak the most havoc—especially since patience is often in short supply. These are the moments when I want to disavow my Irish heritage and let Murphy take the blame for everything. However, a little better planning and communication can offset a lot of these timing issues.

Recently, I dealt with some very nervous sellers. Anxious to get their move underway, they started packing before the buyer had released the inspection contingency. Not realizing my clients had prematurely started packing boxes, I was caught off guard as they went into a tailspin of panic when the buyer found a few things about the house they didn't quite like. Now convinced the buyer was trying to find ways out of the contract, anytime I called them they were suspicious and distrusting, certain anything that could possibly go wrong was about to do so. They were waiting for Murphy to show up so they could look at me and say, 'We told you so.' In the end, the escrow closed and I realized my sellers might have been spared some of that anxiety with a better understanding of all of those pesky 'ifs.'

Even after escrow closes

While nothing in life may ever be certain, we can help minimize the effects of the unexpected by being better prepared. When buying or selling real estate, the house itself is the key component, and having to deal with repairs can make or break the deal. Protecting the house with a Home Warranty is good for both the buyer and the seller, and it mitigates whatever Murphy throws your way.

A home warranty is an insurance policy that covers the major components of the house for one year, including furnace, water heater, stove, electric and plumbing fixtures. If something breaks, the home warranty company will send a technician to evaluate the problem and make necessary repairs for one low service fee of about $60. The policy isn't perfect and it may not cover everything, but it's great protection against the water heater that decides to spring a leak the day the buyer moves in. Depending on which policy you choose, the premium runs between $250 and $450. Ask your agent for more information. There is even an option of having coverage during escrow.

So next time Murphy shows up, you can say, 'I'm covered for that!'