Sellers Beware: Surveys Can Kill Deals

If you are selling your home, you want everything to be smooth.  You could be selling for any number of reasons — upsizing, downsizing, moving out of state, moving to senior living, or even because you are just ready for a change.  After all, you went to all the trouble of putting your house on the market, procuring a buyer, dealing with the buyer’s inspection items, waiting for the buyer‘s mortgage to be finalized, and meeting with your attorney to sign a stack of papers.  And now finally, finally, finally, you have a closing date on your calendar.  Just a few more days, and you will be on to the next chapter of your life.

Or so you thought. . .Everything was fine. . . And then your survey came in.

In a typical residential real estate transaction, the survey is usually one of the last things the parties actually get their hands on.  Very few sellers choose to order the survey early. While a residential survey is good for six months, people often wait to order it because they want to make sure the deal is going to go through. Why spend the money on a survey if you can’t even reach an agreement on inspection issues? Why spend the money on a survey if the buyer‘s lender doesn’t seem to have their act together?  Home selling is already an expensive proposition, so delaying a costly document you may never need is not unusual.

That is, of course, until this strategy backfires.  There are exceptions to every rule, and any imaginary rules about surveys are no different.  While it may seem prudent to wait to order a survey, if the survey comes back with a serious problem, you may be unable to sell. Worse, you may already have moved out and just be waiting on the funds from the sales transaction so you can move on with your life.

Why am I writing about this today?  Well, of course, because it is fresh on my mind.  LITERALLY just this morning one of my clients, a buyer, canceled her purchase transaction because of a survey issue.  Her closing was scheduled for TOMORROW.  When I looked at her survey yesterday afternoon, it turned out she was not getting the two full lots she expected to come with her north suburban home.  Rather, one of the lots had a large, triangular chunk chopped right out of it. It must be about a third of the lot, if not more.  Initially, I thought it was a surveyor mistake, but it turned out that is the actual shape of the lot.  She is getting a significantly smaller piece of land than what she bargained for. Needless to say, my buyer was not happy with the situation and canceled the contract.  She was losing way too much yard space, and that mattered to her.

Obviously, this is not a good situation for the seller either. Had we received the survey earlier, my client probably would still have canceled, but the seller could have moved on sooner also.  In this case, the late receipt of the survey has negatively affected everyone.

I have more fun examples too.  Some years ago I had a client buying a house in a northern suburb that had a detached garage in the back, and there was no alley. The garage faced the front of the lot. The driveway was on the right side of the lot, and was only about 8 feet wide. We received the survey at the closing, and it turned out that more than a third of that driveway was actually on the neighbor’s lot.  Effectively, the neighbor could curtail the homeowners’ vehicular access to their own garage.  Again, the survey came in so late that it was not possible to resolve the issue.

Another time I had a client buying a small apartment building in Chicago.  Less than a year before my client’s purchase, the next-door neighbor built a new garage. Unfortunately, a sizable chunk of that garage was actually on the lot my client was buying (how the neighbor got a permit and why the city never inspected this is a subject for a whole other article). We got the survey shortly before closing, and in that case, my client did go forward with the purchase.  However, the seller ended up taking a haircut on the purchase price as a result of this.

One of my all-time favorite survey issues occurred, if I recall correctly, back in 2009.  I had a buyer who was purchasing foreclosed property from a bank. Unlike most sellers, banks don’t provide surveys, but my client was prudent and decided to obtain one on his own.  And, boy, was that a good call. When the survey came in, we figured out the bank had only foreclosed half of the house.  Apparently the other half was still owned by the original homeowner (who probably didn’t even know that he still owned it).

So how can sellers protect themselves and keep their transactions from falling apart because of survey issues?

1. First, they can look in their file from when they purchased the property and inspect the survey they received at that time. Make sure the key attributes of the property are correct. Nine times out of ten, this will probably be enough legwork to protect the seller‘s interest.

2. If the seller does not have a recent survey in his possession, he can order one before he even puts the house on the market. This is especially important if the seller has purchased property out of foreclosure, a short sale, an auction, or in any other manner where the seller did not end up with a survey when purchasing. Of course, this means the seller will have to pay for one survey and possibly even another one before closing.  Regardless, if the seller has any reason to believe there might be an issue or just doesn’t have a prior survey to look at, this would be the safest bet.

3. Of course, if it is too late to do either of the first two options above, the seller can choose to order the survey early in the real estate sale process, as soon as possible after the contract is signed. That way if something crazy does come up on the survey, the parties have more time to deal with it.

Having said all of this, it is important to know that most of the time, surveys come back just fine. There might be minor issues here and there, but nothing that cannot be handled by a competent real estate attorney and a competent title company!