The Trevi Fountain is an iconic landmark in the heart of Rome. As such, it has been the subject of many movies. La Dolce Vita (1960) by Federico Fellini is likely the most famous.
The fountain is also extremely attractive for its business potential. Each year tourists throw in the fountain approximately €1,4M – about $1,624,000, or $4,450 per day worth of coins, which are given to charity.
Because of its profitability, someone did try to sell the Trevi Fountain as investment property. The alleged sale, which was presented in the movie Totò Truffa, features all the elements of a real estate transaction: showing, asking price, negotiations, multiple offers, and collection of the Earnest Money Deposit. Especially the latter.
Did the transaction close? Well, not really. A series of major missteps was made by the buyer. We are going to analyze them, but not before you watch and enjoy the five-minute clip in Italian or with English subtitles.
This is a transaction between a FSBO (Totò, aka Cav. Uff. Antonio Trevi) and an unrepresented buyer (Decio Cavallo). Although not the norm, these deals happen and close. However, if the sale presents potential issues, an inexperienced buyer who has lived many years abroad might not be able to read the warning signs. Which is exactly what happens to Mr. Cavallo.
Mr. Cavallo trusts Totò’s claim of ownership and the desirability of the fountain. Totò makes him believe that the licensing rights are set at L. 100 per picture, or about $1.36 of today’s money. Three pictures equal $5.00 profit. Not bad for a monument that is photographed a thousand times each day!
In the initial phase of any transaction buyers should acquire information through, among others, the words of the seller. However Mr. Cavallo’s information only comes from the seller, and when he sees a conflict with his tourist guide, he simply trusts Totò’s words.
Misstep #1: Research, or lack thereof. Which should be conducted before making an offer. Including obtaining the seller’s disclosure form as a starting point.
Mr. Cavallo now wants to buy the fountain that Totò is willing to part away with. The price is L. 10,000,000, or today’s $136,600. Mr. Cavallo does not negotiate. Perhaps he thinks he is having the best end of the deal.
Totò appears to be a skilled salesman. Mr. Cavallo misses the seller’s claim that the property has been in the family for generations, and does not wonder why, suddenly, it becomes available to him and only him. A below-market asking price for such unique piece of real estate and profitable business might be too good to be true.
Misstep #2: Rush. This is exactly the spin and the pace Totò has masterfully placed on the deal. An asking price that is a perfectly comprehensible number – typical of transactions based on passion rather than reason – and unbelievably cheap. While personal residential purchases can be emotional, business investments should not.
The price is agreed by the buyer, but the negotiations instead focus on the Earnest Money Deposit. This is where Totò’s interest resides – after all, he has no title to sell the Trevi Fountain! Mr. Cavallo proposes L. 100,000 which per today’s standards is a perfectly acceptable 1% of the purchase price. Totò asks for 5% – because he needs L. 500,000.
The plot thickens. Seller turns down the initial EMD offer and insists on the 5%, giving the impression of owning a much sought-after property; and that he is not willing to sell unless under the right conditions. But the negotiations stall nevertheless. Finally Mr. Cavallo is beginning to negotiate, and this might be his only chance to spare himself a very bad deal.
As negotiations take a downturn for Totò, an artificial multiple-offer situation comes handy. Mr. Scamorza, a Totò associate representing alleged American buyers, steps in. Because Mr. Cavallo’s offer has not been accepted yet due to ongoing verbal negotiations on the EMD, Mr. Scamorza contends that Totò is technically free to receive and evaluate any other offer. Mr. Scamorza does not attempt to make any specific offer on the purchase price. Simply, he negotiates a more substantial EMD in order to secure the property. This is when Mr. Cavallo finally agrees to pay L. 500,000 as deposit, in cash, which he carries in his pockets. Such amount is the equivalent of going around Rome today with about a $6,800 money roll. At this point the winning bid is Mr. Cavallo’s, who sets the closing for the following day at the American Embassy. Totò takes the money and promises to meet Mr. Cavallo as agreed.
On the buyer’s standpoint nothing is worst than seeing the collapse of a sweet deal almost in his pocket. Mr. Cavallo last bastion of resistance is now weakened, and his self-preservation instinct cracked. Totò shows his mastery by playing the card of fast pace along that of buyer’s pride.
Misstep #3: The desire of winning at any cost. When multiple-offer situations are not handled properly and buyers rush to outbid each other setting aside logical considerations – as an investment property would certainly recommend – there are risks of making mistakes, and with that, of buyer’s remorse. In this case the single major mistake was handing a hefty EMD. Cash. No receipt. Should we call it “non refundable”?
Misstep #4: Proof of funds. Mr. Cavallo is clearly well off to the point of carrying rolls of cash in his pockets. However, he never wonders why the seller does not ask for proof of funds. The answer is simple: Totò is not interested in closing the sale.
As we know, this transaction never closed.
Misstep #5: Every step of a real estate transaction must be in writing. For example, had Mr. Cavallo made an offer in writing with L. 100,000 EMD, and had Totò countered in writing at L. 500,000 EMD, Mr. Scamorza would have had no business interfering while negotiations were ongoing. At best Mr. Scamorza could have placed a back-up offer. In the very least, a written offer and counteroffer would have taken the time pressure off the hands of the buyer.
Misstep #6: Real estate transactions have a number of factors involved, and not just a purchase price and EMD. What about inspection period, land survey, title work, or proof of funds, just to name a few? None was agreed between Totò and Mr. Cavallo.
The conclusion is that whether you wish to purchase the Trevi Fountain, the Colosseum, or a regular residential dwelling, consider hiring a REALTOR®. If Mr. Cavallo had a buyer’s agency agreement in place, his REALTOR® would have run a simple title search to find out that Totò had no interest in the property and the transaction would have been moot. Sparing Mr. Cavallo the embarrassment of having to be taken away with an ambulance, and a loss of L. 500,300.
Yes, L. 500,300, because he has also paid Totò for his three pictures!
Happy fountain hunting everyone!