Real Estate Practice Principles – Underhanded or Good Salesmanship?
Principles Real Estate Practice
We got an email from a local Realtor® with a list of the REOs his office had sold. The intent was to show, and prove without a doubt, that all their deals sell at the listing price or higher. Frequently we hear Realtors® touting that they sell everything at full listing price or higher. Actually it can be true – but not because of the prowess of the Realtor® or his company.
In the case of REOs or single family homes, selling at or above the listing price is VERY easy. All that has to happen is the listing agent reduces the listing price to the selling price, or below, as soon as it is under contract or after it closes. When we first saw this happen, we were outraged as the contract price we had just agreed to suddenly was $5,000 above the “new” listing price. I think it is misleading to the public, and it helps an investor to make a decision to cancel his contract. But it makes for great advertising for the Realtor®.
I look to see how many price decreases an REO has had before I bid on it. This is actually a criteria I use to determine how “negotiable” the asset manager will eventually be. Many times there are three or four decreases. Occasionally there are as many as nine (9). If you got to the property too early in the spiral down, how much could you have over-paid for it? Again, the listing agent could say it was sold at full listing price and be correct. But then was it really a deal for the Buyer?
Think about this – if you were a homeowner listening to a Realtor® trying to sell you on using him to list your property because he said he sold everything at the listing price, wouldn’t you think he may have listed them too low? But the more common tactic of “selling the listing” by exaggerating the property’s possible sales price, usually blinds a seller to reality anyway.
There is no doubt that many REOs get bid up as soon as they are listed. This happens because automated bidding systems and asset managers purposely underprice some of them to get a bidding war going on between investors. This “low-ball” pricing works because so many investors are on autoresponders for new REO listings on the MLS®. They get the notice of a new listing and throw in bids. This is one operation that can be done with Virtual Assistants who are overseas. The property will go under contract but about 60%+ of these offers don’t close. They are then ripe for a price decline.
I was going to show you the examples that the Realtor® sent with the previous price declines to enforce the premise that not everything sells at full listing price until the price is reduced. However, my attorneys said I could “slander” the Realtor® in question. What slander? The Realtor® was “correct” in that the properties sold at or above the FINAL listing price, but you know attorneys.
If you do not have access to the MLS® to see the Price History of a property you are bidding on, you can get it at no cost on Trulia. Work your way down the first page to Price History and it will show the price history of the property. If there have been no price decreases, there will be none listed. However, once it goes under contract and is removed from the MLS®, the price history disappears from Trulia. Otherwise, the dates and amounts of each price decrease will show. In some cases we have seen nine price decreases and the property is still not sold. Warning – these are the properties where investors who simply offer a percentage of the listing price get stuck with overpriced deals.
I have been told that once a property goes under contract it should say so in the MLS®. This is not the case with most of the properties we see. When we ask the Realtor® about this issue, they are quick to say that “Investors never close so we have to keep taking back-up offers”. I would ask, “Who is buying all these junker REOs?” Could it really have something to do with the listing agent just building his buyers list? … hummmm.
Another increasingly common tactic is for a Realtor® to tell a prospective buyer the other competitive bids on a particular property. For example, the listing agent says there are offers at $56,000; $57,500 and $61,000. He then says that if you come in at $63,000 he can get you the deal. If you are duped into coming in at $63,000, sometimes there are suddenly multiple offers that just came in and you’ll need to go to $75,000!
Isn’t there a fiduciary duty to the seller not to disclose other bids to buyers? Would you want to work with that Realtor® who disclosed your offer to a competing investor? Maybe, the other bids weren’t really there? Likely, it is a ploy to get the buyer to raise his bid for the sake of making a few extra commission dollars – or is it more sinister? Which is better – lying about the bids or disclosing them? Just good marketing or is it unscrupulous?
We are also seeing more and more bids not being sent to asset managers. How do we know? We contact the asset managers and ask about our bids. Yes, they can be contacted by email and/or telephone. They are always very interested in hearing about our situation with the bid – even if it didn’t have a chance of getting accepted. Some Realtors® reply that the asset manager won’t take less than 80% of the listed price. But that’s not what we have been told from the asset managers. They seem to want to see all the bids. It appears in some cases this 80% criteria is a filtering device by the Realtor® to deter new bidders on the properties.
The dreaded “zero-day” inspections for REOs are seldom what they seem to be. The Addendum from the Asset Manager clearly stipulates a seven day inspection. Ask for the Addendum to clarify this “disparity”. In over 300 properties that I have seen with zero day inspections, only one actually had a zero day inspection in the Addendum.
Remember, the Addendum overrides everything in your contract. Again, what is the purpose of this misleading practice? The inspection period is primarily for the inspection of the title work and lien or code issues. Only remotely is the physical condition of the property all that important. This inspection is relatively simple and quick. When will Realtors® understand this?
One disgruntled REO broker asks almost every investor who bids below his listing price if he is a member of DREIA or has been trained through our mentoring program. He is vehement and actually makes himself look foolish to the people who have mentioned his name to me. This isn’t because their offering prices are ludicrous. It is because I rejected him from joining our mentoring program. I told him I don’t take everyone and I am still glad I didn’t take him. But I just didn’t expect his childish behavior to continue so long.
We are also seeing Realtors® asking for deposits as much as double what the asset manager is asking – particularly with FNMA properties. In a recent case the 10% FNMA deposit should have been less than $10,000 and the Realtor® was asking $20,000. Are these Realtors® running interference and giving the deals to some favorite investors and not the public? Does FNMA know about these practices? Can’t tell, but we will continue to report what we see as abuses first to the asset managers and then the Fraud Department of the banks.
On another note, a student asked about a property and I said I didn’t think it was an REO. When he checked in the public record, he saw that an investor bought it in a land trust using the address of the property (the old way to do it) as the name of the trust. What had him confused was that the listing on the MLS® was advertising it as an REO – but it wasn’t anymore!
To your limitless success,
Real Estate Mentor Program Founder