A quick reminder from a plugged-in reader that entering into a contract without at least an inspection contingency is a recipe for disaster (and competing all cash offers aren’t always what they seem):
I went in escrow [on a property] after competing with a mysterious buyer who was offering $965,000 all in cash and no contingencies. Sellers gave a disclosures report with no number on a 3 years old pest report; I had to find out myself (during the contingency period) that it would cost me $23,000 to do the work, including getting rid of an active termite’s infestation by looking into something like Termite Control Kansas City (if you live near the Kansas area). If you are from outside the area why not check out this termite control los angeles service.
Forgot to add…[seller’s] agent was the brother of the seller; both are members of the San Francisco Realtors Association.
The property is once again active and available (apparently said mysterious buyer didn’t submit an all cash and contingency free backup offer). And as an aside, the property was purchased for $1,005,000 in April of 2006.
UPDATE: The other side of the story from the plugged-in seller’s agent:
I am the listing agent on this property and there was in fact a legit competing offer. This buyer was never countered on his price but rather his terms: ie inspection/contingency periods. The termite inspection company that conducted the inspection in 2006 does not make a price allocation sheet on any of its inspections….The buyer’s allegation that the pricing was hidden from him is thus unfounded and simply the result of a deeply suspicious and distrusting individual.
Okay, so perhaps some competing all cash offers are what they seem. Regardless, the point we’ll hammer home using the words of another: “Waiving contingencies is so 2007.”
The implication is that the all-cash-and-contingency-free buyer was a phantom invented to pressure the plugged-in buyer, correct? And if this is correct, what are the ethical considerations here, given that both seller and seller’s agent are members of the local professional association? Can the plugged-in reader file a complaint with the association, and if so, will there be any investigation by and/or consequence within the association?
Over the time that I have been reading socketsite, there have been several strong defenders of the profession’s ethics who post here. Given the above facts, could someone work out for me the ethical considerations that are in play here if the all-cash-and-contingency-free buyer really was a phantom, and what mechanisms exist within the association (if any) to police its own? For example, is there an equivalent of disbarment among realtors?
PLAIN AND SIMPLE: There was no mysterious buyer.
Given the above facts
How do we know the above are facts? I’m not saying that something like couldn’t or didn’t happen, but are we just to take the word of an anonymous “plugged-in reader”? Sound fishy to me.
Wow, all sorts of typos in the last post. Sorry about that 🙁
isn’t this fraud perpetrated by the seller?
How can you report something like this and not divulge the property’s address? Either keep it to yourself or come clean. As is, this reads like a fishy “look ma, no hands” hatchet job.
Is it common for one buyer to know the details of another buyer’s offer?
Sounds like buyer’s remorse to me. Where was your agent during all of this?
M.R.
Lawyers have a saying: sometimes the best deals are the ones you don’t make.
probably better to ignore it when they say there are other offers, and pretend they don’t exist, which in some cases they really don’t. it has no bearing on your own offer anyway. if the other offer was so good, they would already have gone into contract with it.
Re: “probably better to ignore it when they say there are other offers, and pretend they don’t exist, which in some cases they really don’t.”
But this is the crux of my question: Are seller’s agents who are members of a professional organization permitted to lie to buyer about a material aspect of the transaction?
On these facts, it’s not clear whether seller’s agent was in fact lying about the all-cash buyer. Perhaps the all-cash buyer also backed out as well. But if the seller’s agent was in fact deliberately misrepresenting the situation, what ethical rules come into play here? I can’t believe that a professional association such as the SF Realtors Association is silent on this. Is it the case that there is no disciplinary mechanism here?
I’m more interested in the buyer’s agent – where was he/she in the process? What buyer’s agent would allow their client to sign an agreement without an inspections contingency unless you specifically discussed this with your client. Seems this is the question to ask
[Editor’s Note: The plugged-in buyer did have an inspection contingency, hence the ability to back out. Had the buyer matched the “competing buyer’s no contingency offer,” however…]
@ Mark D.
even if it were against the rules to falsely state that there are other offers, there’s nothing stopping them from getting a friend actually submit a bogus offer for 1 million cash, and then if you don’t bite, the friend backs also.
Why are people assuming the offer from the quoted buyer was made without contingencies? Reading the quote, espcially the phrase “contingency period”, implies to me the buyer did have inspection contingencies, and used them appropriately.
Anyone that would go into escrow without an inspection contingency deserves what they get, in my opinion. Even during the height of the real estate craze, when some agents were advising buyers to waive all contingencies to “get the deal” — um, no. Bad idea. If you really think you need to waive the inspection contingency, pay an inspector to look at the place before you make your offer. At least you’ll know what you are getting into.
But I thought a current pest control report was a legally-required disclosure. A 3-year-old incomplete report wouldn’t qualify, I would think.
As for the phantom buyer, there are sleazy tactics like this that happen all the time. Did you have a buyer’s agency agreement with your agent? That’s a must.
Usually it’s best not to get too attached, emotionally, to a particular property. Offer what you think it’s worth regardless of rumored competing bids. Especially in today’s market, there are lots of properties out there, no reason to get sucked into a fake (or real) bidding war.
Oops, I also misunderstood and thought the buyer had made an offer without contingencies.
So buyer makes offer, offer is accepted, problems are found during inspection, seller doesn’t want to fix problems, buyer backs out. This is not a remarkable story, happens every day, it’s just the way things are supposed to work in this situation.
anonn: I realize the posting is strictly a secondhand anecdote at this point, and may seem like a swipe at your profession, but why not answer the part of the question about self-policing at the SFRA? Being reassured on this point with whatever information you can share will only be positive for you and your colleagues.
and MysteryRealtor: I think buyer’s remorse is when you buy something, and later regret it. Seems like the reverse is the case here, on both points.
Unless the “rules” have changed since I sold my place, a material defect discovered and documented by the buyer during the contingency period would have to be added to the disclosures should that property fail to close. In practice that means any other buyers in a backup position are informed even before the property closes, especially if negotiations are still somewhat active.
So, it’s quite possible that the other buyer backed out on seeing the pest report (paid for by the first buyer). But, are all-cash no-contingency offers really that common any more? That’s what would set off alarm bells for me, not the subsequent events.
@Dave, For some reason I also thought pest disclosures were legally required. Evidently not (PDF).
Although the State of California regulates structural pest control firms, it does not require a Wood Destroying Pests and Organisms Inspection Report prior to the sale of property. However, prior to lending money on a property, a financial institution usually requires an inspection report to ensure that the building is structurally sound.
More often I hear what is probably better described as “BS” than “lies” regarding the interest of other buyers. “I have it on good authority that an offer is in the works and will be presented later this week.” It takes half an hour to write up an offer so the realtors who say an offer is coming through in upcoming days are always full of it.
I suspect that saying that another offer has been made when it has not is a more serious ethical issue. But at the end of the day it’s an ugly game out there and buyer beware.
“Is it common for one buyer to know the details of another buyer’s offer?”
Definitely not unusual. In almost every offer I’ve made, my agent coached me about the “number to beat”. But I never saw all of the competing bids’ details.
“probably better to ignore it when they say there are other offers, and pretend they don’t exist”
Very good advice. If you have a solid, objective valuation method then it doesn’t matter at all what the other offers are. This is probably the best way to avoid the winner’s curse. I came up with a scoring system that essentially put a dollar value on about 20 aspects of each property. That made a good guide for placing a bid.
Most buyers are not nearly as calculated. They see a lot of houses and place bids on the ones that they fall in love with. When you’re emotionally involved in a decision like that, it is easy to get caught up in a bidding war.
When using an objective valuation strategy you get outbid often by the more emotional competition, especially during a seller’s market. At first it is discouraging that you lost “that great home”. That feeling goes away once you find an even better home later on in your search and realize that despite being a limited supply, there are plenty of homes in SF and all you need to do is to wait for the right conditions to happen.
Milkshake, Id love to see your 20 point evaluation?
Waiving contingencies is so 2007.
@ Po Hill Jeff,
I realize the posting is strictly a secondhand anecdote at this point, and may seem like a swipe at your profession, but why not answer the part of the question about self-policing at the SFRA? Being reassured on this point with whatever information you can share will only be positive for you and your colleagues
Self policing does go on. Nepotism-based failure to disclose is a big deal.
But what are we possibly policing, here? An unnamed poster claimed something happened to him at an unnamed property through the fault of an unnamed realtor and his unnamed brother. And Socketsite ran with it.
He not only ran with it. He set it up with words that read like that of a wise sage giving a bit of friendly advice. “All cash offers are not always what they seem.” Sure to include this tho, “both are members of the San Francisco Realtors Association”
I mean, come on. Jouralism this is not.
I am the listing agent on this property and there was in fact a legit competing offer. This buyer was never countered on his price but rather his terms: ie inspection/contingency periods. The termite inspection company that conducted the inspection in 2006 does not make a price allocation sheet on any of its inspections. The company is called Three Counties Termite Control in Redwood City tel (510) 793 2906. The buyer’s allegation that the pricing was hidden from him is thus unfounded and simply the result of a deeply suspicious and distrusting individual.
I have contacted this disgruntled buyer’s agent and provided all the documentary proof and will expect a full recant of this posting in the very near future.
It’s a slow day at my (non-real estate related) job today, so I’ve done a bit of searching on the web re my question above about ethics and the mechanisms for self-policing in the San Francisco Association of Realtors.
I take anonn’s point that all that is known now is that “an unnamed poster claimed something happened to him at an unnamed property through the fault of an unnamed realtor and his unnamed brother.” But let’s assume that the implication of the initial posting in this thread is correct – that seller’s agent has invented a phantom all-cash-no-contingency buyer that wasn’t real and informed real buyer of phantom buyer in order to exert pressure on real buyer to up his offer. What are the resulting ethical considerations and self-policing mechanisms?
Per the SF Association of Realtor’s web-site:
-“REALTORS® must adhere to the strict Code of Ethics of the National Association of REALTORS®…Standards of Practice relating to the Code of Ethics clarify the ethical obligations imposed by the Code.” (www.sfrealtors.com/dw_ethics.html)
-“Each local association bears responsibility for conscientiously enforcing the Code within its jurisdiction.” (http://www.sfrealtors.com/dw_grievance_procedures.html)
Per the Code of Ethics of the National Association of Realtors (www.realtor.org/MemPolWeb.nsf/pages/COde), the following seems on point:
-“When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS® remain obligated to treat all parties honestly.” (Article 1)
-“REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.” (Article 2)
-“REALTORS® shall not be parties to the naming of a false consideration in any document, unless it be the naming of an obviously nominal consideration.” (Standard of Practice 2-4)
-“REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations.” (Article 12)
-“REALTORS®, in response to inquiries from buyers or cooperating brokers shall, with the sellers’ approval, disclose the existence of offers on the property.” (Standard of Practice 1-15).
There is also a “Grievance and Arbitration Procedures” section of the SFAR web-site (www.sfrealtors.com/pdf/forms/before_you_file_an_ethics_complaint.pdf), which outlines the procedures for a “Disciplinary Complaint” to be used to allege violations of the Code of Ethics. The SFAR states that “when a Disciplinary Complaint is received, it will be reviewed by the Grievance Committee. The Committee will decide whether or not to refer the complaint for hearing before three Professional Standards panelists. If a hearing is called for, the respondent will be informed, and will be given an opportunity to submit a written response. You [the complainant] will receive a copy of the response if one is submitted, a hearing will be arranged, and all parties will receive at least 21 days’ notice of the date.”
Finally, it should be noted that in Item 8 of the form for a Disciplinary Complaint (www.sfrealtors.com/pdf/forms/complaint_form.pdf), the complainant is required as part of initiating the complaint to agree to the following: “I understand that this complaint may not result in a hearing. It may result in a fine being imposed on the respondent(s), the respondent(s) may attend an ethics class in lieu of a fine, respondent(s) may have a circuit court hearing where they may argue for a reduction in fine or the matter may go to a full disciplinary hearing. I also acknowledge that these proceedings are confidential and that I have an obligation to maintain and protect the confidentiality of these proceedings and resulting decision. I hereby agree to do so unless authorized by the Association’s rules and procedures or required by law to do otherwise.”
To summarize:
(1) Misrepresentation by inventing a phantom buyer is contrary to the obligations of honesty and truthfulness as set forth in the Code of Ethics.
(2) There is a disciplinary complaint procedure within the SFAR to respond to allegations of ethical breaches.
(3) The results of the SFAR’s procedures appear to be only fines; in other words, there appears to be no equivalent for realtors of disbarment for lawyers.
(4) Even if a fine is imposed, the SFAR imposes confidentiality obligations on all parties, and thus self-policing through disclosure and the “disinfectant of sunshine” does not appear to be occurring here.
Re anonn’s point that “Self policing does go on. Nepotism-based failure to disclose is a big deal,” I am curious to know from individuals in the industry (i) whether the above procedures are in fact used and (ii) whether they are in fact effective.
If not, will you sue for defamation?
read it again, Mr. Listing Agent. he didn’t allege that “the pricing was hidden from him”
he wrote:
>Sellers gave a disclosures report with no number on a 3 years old pest report
why are you so defensive?
Ha.. I will sleep so much better at night once I read a full apology with regard to this house for which we never even knew the address.
All is fair in love and war. If you are relying on ethics to save your ass when making huge financial decision than you are taking huge risks.
So the buyer backed out after finding it’ll cost him $$$ for the repair. He’s telling us not to get suckered into making no-contingency offer. I don’t see anything to recant there. The real question is, if there was a legit competing all-cash-no-contingency offer, why is this property back on the market?
Thanks Mark D for posting up, and yes I feel that the Code of Ethics is adhered to in full by most of the people in this industry; I’d say 90%. The other 10% may bend the rules of ethics but rarely if ever, the law. I resent the general undercurrent of distrust towards real estate agents that is evident on this site. Nonetheless, I read it daily and find this forum very useful and informative, even if I find myself playing defense today. I have been in this business for 13 years and can honestly say I have never done anything of questionable ethical content. Period. I would hope that most of my collegues in this industry could say the same. Remember that we are licensed by the State of California, that license is revokable for behavior that is deemed against CAR ethics,codes and/or law.
The buyer decided not to come back. They wanted to focus on single family homes instead of condo/flat, they came back in 3 days after the mutual recission and then informed us they were no longer interested. Frankly, I’m surprised they even came back once to look around. I would have felt pretty insulted if I were them having our all cash deal shunned from the outset. In retrospect, we should have stayed with the all cash offer which was $20K less than the poster. The seller was already listing at a loss to the 2006 purchase amount, if the deal had been in the black, I would have advised the seller to take the smaller price with less risk.
Re “Remember that we are licensed by the State of California, that license is revokable for behavior that is deemed against CAR ethics,codes and/or law.”
Thanks dalowdown. I should have figured as much, but I did not in fact know that the license is revokable for bad behavior, and that therefore, there is an equivalent to disbarment.
Query: Do such revocations actually occur? By your rough estimate, 10% of the industry is to some degree quasi-bad-apple. Do you (or anyone else in the industry) know of a case where a license was suspended, where the procedures I outlined above were followed, where a fine or mandatory ethics training was imposed, etc.?
Thanks for asking first of all: I’d like to put a link the Code of Ethics for all California Association of Realtors. (40 pages)
http://www.sdar.com/pdf/legal/CAR_ethics_manual.pdf
Suspensions and revokations happen all the time, I am looking for a link on the site to get that info.
10% sounds like an amazingly high number to me. I too would be interested in hearing what proactive steps CAR is taking to manage it’s membership.
“In retrospect, we should have stayed with the all cash offer which was $20K less than the poster.”
I’m no RE or finance professional, but faced with two offers like this then clearly the choice is to take the $20K lower but much less riskier offer. $20K is nothing compared to the sale price.
I really don’t understand how the seller being underwater has any relevance to the decision process here. The goal is to maximize return and the seller’s cost basis doesn’t even figure into that equation.
Milkshake,
I would argue that return and basis are by definition, linked.
OK, so let me get this straight, one offer would have required $23K in repairs, but was $20K higher, and so your advice was to kill that offer on the hope that the second offer “might” come back for a net total $3K gain?
Sounds like a completely true story to me!
Buyer killed the deal even after all his requests for credits/reductions were met. I’m not going to get too much into the transaction details here guys, bec. it is sensitive to me and the buyer and divulsion of too much info. might step on someone’s toes including my own. You all have the general facts plus one or two.
Another lawyer’s saying: “when you’ve dug yourself a hole, quit digging.”
“I would argue that return and basis are by definition, linked.”
Maybe I am a financial idiot, but isn’t the cost basis fixed in this case ? Something that happened in the past, water under the bridge.
When making decisions, factors that cannot be changed like the cost basis don’t effect the outcome. An offer $20K lower will result in an additional $20K being covered by the underwater seller, period.
To me the decision should be made on a probability weighted calculation of return. The decision should be based only upon the factors that you can control. In this case, the decision to go with buyer #1 or #2.
Here’s how I see the probability of return calculated in a normal RE contract :
probableReturn = (salesPrice * (100% – probabilityOfContractCancellation)) – transactionCost – costBasis
For simplicity, lets assume that transactionCost is fixed. So in this situation the sellers have the choice of two contracts, each with different salesPrice and probabilityOfContractCancellation.
contract #1 : salesPrice = X (lets call it a cool million dollars), probabilityOfContractCancellation is somewhere in the area of 5-15% since this buyer has an inspection contingency.
contract #2 : salesPrice = X – $20K = $980k for example, probabilityOfContractCancellation is basically zero since there are no contingencies and you should be able to have both parties signed on a contingency free contract within a day or two.
The seller is underwater, so lets say that their basis is $1.1M just so we have some real numbers to look at. And call transaction costs a fixed $60K though this will vary slightly with the sales price.
The probable returns are :
contract #1 : -$210K (5% probability of cancellation) or -$310K (15% probability of cancellation)
contract #2 : -$180k
So contract #2 looks like the winner, even in the conservative 5% probability of dropout in this example.
You can plug in any number for costBasis and contract #2 will always be the winner, even though it is negative.
See, the costBasis does not affect the decision at all.
(I’d be interested in hearing from any more financially savvy readers as to whether my analysis is coherent or muddled. Really – because if I’m using the wrong model then I gotta tune it up !)
Wow, the seller turned down all cash, no contingency offer in favor of 2% more with loan/contingency? Exactly who was advising this seller?
I would just like to offer my personal experience. When I bought my place, the seller’s agent told my agent there was another offer on it. I told my agent I had no intention to enter a bidding war. It was the last I heard of the other interested party.
Milkshake, you are right, except with a low probability of 1% cancellation, then option 1 is better, so option 2 is not always a winner.
you can even clean up your analysis further by eliminating the basis and hassle of dealing with negative numbers and only look at the highest expected proceeds. For you are spot on — sunk costs are sunk and no longer affect the economic decision going forward.
If you are in the hole and have to come up with 20,000 more out of pocket, why wouldn’t you go for the higher offer, uncertainty and all? We don’t know how much the seller is in it for. If he bought it with 5 or 10 percent down, he may have to come to the table with cash because he’s going to have to pay something like 50,000 in commissions. 20,000 more lessens the blow.
Fishtarian,
Let’s assume the seller just had is 3/1 ARM reset higher and is flat broke. It will be difficult to bring any cash at all to the table. If that were true, the seller’s agent would be perfectly rational in accepting the higher offer and then trying to play it against the other to get the higher offer to remove the contingency.
In fact, that’s the ONLY scenario I can see under which the action of the seller made sense.
Draw your own conclusions about the seller’s financial situation.
Option #1 (all cash) had a contingency for inspection so it was not a 0% probability for cancellation. Can you calculate that for all of us? Seriously, nice analysis Milkshake, but you kinda have to be there to assess other variables that go into it in addition to the hard data. This was not a financing issue, this died at the inspection round which it very well might have at with either buyer.
mac – sorry to have missed your earlier question.
My 20ish category scoring system is in ice as I’m not in the market now. But it worked like this :
Each category was eligible for 1 to 8 “points”, effectively allowing each category to carry differing weights. For example, whether or not the property had a wood burning fireplace could get zero or one point. The floorplan size however could have a greater effect. Tiny places received zero points because they would be difficult to live in. Larger floorplans could get up to 6 points. There’s an upper limit on the floorplan points because a really huge place would be more than needed and besides chances are really low that the price would be in my budget anyways. So comparing those two aspects, I considered the floorplan size to be six times more important that the fireplace. A fireplace is a nice amenity, but I can live without it.
Stuff that I scored on was RE district (for example Buena Vista would score higher than Lower Haight), the block where the home was located (quiet street with trees, or busy street ?), number of parking spots, size of home (unwarranted footage received fewer points than warranted), condition of property, lot size, quality of view (none, peephole, or jaw dropping), number of bedrooms, bathrooms, amount of storage space, etc.
The price required to “win” the property also affects the score. I started with a normalized price that had zero point effect. If the property could be had for less, then it garnered points. If it went for over, it received negapoints. Of course it requires a little bit of guesswork to figure out that price, but it did provide some really great guidance on what to offer. It also allows me to determine how much a “point” was worth in dollars. As for the price, I also add the cost of any necessary repairs. So if a property required $100K of foundation work, that increases the property’s cost in my thinking.
This feedback between the cost points and the attribute points allowed me to tune the system somewhat to align it with the reality of how I value properties.
It isn’t perfect and hardly scientific but it does provide somewhat of an objective reference point for making decisions. Usually my gut feeling about a property was well aligned with its scorecard. Once and a while they were out of whack. Most often this was because I overrated or underrated my gut response to some aspect. Less often I found a problem in the scoring and then adjusted the criteria or weighting.
I should mention that on top of this scoring, I do like probably everyone does and narrow my search to only suitable properties. Places missing some crucial element (I really really need an indoor archery range for example 🙂 or where in the wrong neighborhood were rejected outright.
@ Mark D. at June 1, 2009 4:04 PM
There are cases where the state revoked real estate agents’ licenses, but the violations would have to be pretty egregious.
Some may have heard of the Crisp & Cole case in Bakersfield. These two were responsible for “at least 139 Crisp & Cole-related properties with loans totaling more than $82 million which have been foreclosed, defaulted or sold “short.” Most are single-family homes in the Bakersfield area.”
http://www.bakersfield.com/news/business/local/x361189222/Cole-still-hanging-around-real-estate
Whoa! Coming in late on the game. If I can follow the thread correctly, both seller agent and seller are real estate agents? I wish we could get names so we would never use them.
Not only can’t they buy something for themselves that is “non-pesty” and easy to sell, but they should know as agents that not taking care of inherent problems with their own property is a major no-no.
And, as tipster was saying, if they didn’t finance it well for themselves in the first place and are now “flat broke”, would you want someone like this representing you in a deal? Looks like they may need to take some lessons in finance.
Maybe the seller needs to find another agent in the 10% margin dalowdown was siting to represent her so she can unload her property a little faster, since dadownlow is so ethical.
dalowdown – OK, then I was working with the wrong assumptions then. I was going by the original tipster’s statement :
“after competing with a mysterious buyer who was offering $965,000 all in cash and no contingencies”
So either the tipster lied here or his agent left out a crucial piece of information : that the competing all-cash offer also had a contingency.
Given that the all cash buyer also had a dropout risk, it makes sense to go with the higher offer since the dropout risk is essentially equal. I see no reason why an all cash buyer would invoke the inspection contingency any more or less than a buyer getting a loan.
What we don’t know is whether the buyer getting the loan also had a funding contingency. That could tip the balance back to the all cash buyer. I’m assuming that the earnest money is large enough to take the pain out of a default.
“So either the tipster lied here or his agent left out a crucial piece of information : that the competing all-cash offer also had a contingency.”
Sounds like the tipster’s offer was countered to limit contingencies which was either expressed or interpreted as the competing offer was contingency free.
“This buyer was never countered on his price but rather his terms: ie inspection/contingency periods.”
@milkshake —
I think you’re missing the likely sequence of events, assuming the all-cash 2nd buyer is real: once the first buyer documented the pest problem, the pest report had to made available to the 2nd buyer, who could then choose to alter his offer to include inspection contingencies, a price change, or to simply withdraw.
If I understand correctly, dalowdown is saying that the first buyer withdrew, then the second (all-cash) buyer also withdrew. It sounds like the seller’s final offer to the 1st buyer was $23,000 effective price drop, but with inspection contingency waived.
So, assuming the above is correct, they tried to pressure the first buyer from a weak position, and lost. Meanwhile that new pest report is now part of the disclosures. Right?
What property are we talking about her? I don’t see how exposing that information is really a bad thing since it’s back up on the market.
Tipster,
“the seller’s agent would be perfectly rational in accepting the higher offer and then trying to play it against the other to get the higher offer to remove the contingency.”
Except that the seller accepted the higher offer without successfully removing the contingency.
This isn’t exactly an all-or-nothing football game where it makes sense for the losing team to throw a hail mary. I just can’t think of any circumstance in this market, under which the seller should sacrifice the bird in hand in favor of 2% in the bush.
“I just can’t think of any circumstance in this market, under which the seller should sacrifice the bird in hand in favor of 2% in the bush.”
How about when the seller needs 2% more cash, which he doesn’t have, to close the deal?
“How about when the seller needs 2% more cash, which he doesn’t have, to close the deal?”
That’s a hail mary for the losing team. I’d talk to my bank, because the buyers sure as hell won’t care whether I need 2% more or not.
Sorry, I might also a be a financial idiot, but can someone explain to me what incentive a seller has in investing all cash in a deteriorating real-estate market?
I have always wondered that.
Threefourteen, the term “all cash” is a misnomer. What it means is that there will be no financing contingency. What that translates into is that if the property doesn’t appraise, the buyer has to increase the downpayment by the shortfall.
Example, my bank requires 20% down. I make a $1M all cash offer. The appraisal comes back and its for $950K. Simple: my bank will loan me 80% of $950. I need to come up with the rest. In this case, 950*0.8=760. I need to put $240K down instead of $200K.
With a financing contingency, because the bank won’t do the loan according to its minimum terms, the buyer walks, or more likely, because no one else could get the loan either, beats the seller down to $950K.
With an all cash offer, that opportunity is not available, and you have to come up with the remaining $40K down. In NEITHER case will the buyer show up with a suitcase full of cash.
All cash = STUPID, STUPID, STUPID. Upon receipt of an all cash offer, the seller should counter another $50% higher because he knows he has an idiot for a buyer. Anyone whose real estate agent allows such an offer should immediately fire their agent. In this market, an all cash offer, like a no inspection contingency offer, is for someone who has more money than brains and wants to rectify that problem very rapidly.
Dalowdown wrote:
> I feel that the Code of Ethics is adhered to in full by most
> of the people in this industry; I’d say 90%. The other 10%
> may bend the rules of ethics but rarely if ever, the law.
Last time I looked there were just over 500,000 licensed real estate professionals in California, but only about 150,000 were Realtors © (with any kind of code of ethics)…
> I resent the general undercurrent of distrust towards real estate
> agents that is evident on this site. Nonetheless, I read it daily
> and find this forum very useful and informative, even if I find
> myself playing defense today.
I’m a licensed real estate broker (but not a Realtor ©) and when I was working full time selling property I had to make a living and like every other person I’ve ever met selling anything from wine to cars I did what I could to make the sale. I don’t want to pick on real estate agents, but just point out that 99% of real estate salespeople will not tell the people at their open house about a bigger place that costs less, the guy in the Napa tasting room will not mention the Sonoma cab with the Parker score of 98 that costs half as much as his stuff that Parker gave an 88, and the Ford salesperson will not mention that the new Camaro (that costs the same as the Mustang) has over 100 more horsepower (I’m looking at the cover of the new Car & Driver that just came in the mail today). I never had the best listing on the market, but I sold them anyway (if you want to make a living as a salesperson you need to say anything that will close the sale)…
> I have been in this business for 13 years and can honestly say I
> have never done anything of questionable ethical content. Period.
Would you consider telling a client to take a higher offer (to increase the odds that there will be enough cash to pay your fee) with a lower chance of actually closing unethical?
Most of us are willing to believe that the all-cash buyer was a “phantom” buyer because of bad experiences with realtors in the past. I have a good, honest, ethical realtor now, but in the past I have been blatantly lied to many times. It’s not as uncommon as the NAR or CAR would have you believe. The “ethics” in this “self-policed” industry suck, pure and simple. The NAR spends many millions of dollars lobbying and making political contributions to make sure that the industry stays “self-policed,” and also to try to defend their ridiculous commission structure.
There are good, honest, value-added realtors out there and hopefully this downturn will shake out some of the others. But I have been blatantly lied to by “top producers” before. How much sense does it make that the largest single purchase people will make in their lives is without any rules or oversight?
amen to that ethics. I finally got so fed up with unethical behavior that I got my own license to handle my own transactions and those of friends and family.
All cash = STUPID, STUPID, STUPID. Upon receipt of an all cash offer, the seller should counter another $50% higher because he knows he has an idiot for a buyer. Anyone whose real estate agent allows such an offer should immediately fire their agent.
That was all pretty nonsensical. 50% higher. “allows” etc. No clew.
Regarding all-cash: what do retired people do who can pay cash on a home but are not working and can’t document income for a mortgage. Can they still get a mortgage? Also, this may be dumb, but why is all-cash dumb? I can think of several reasons offhand, but want to see if I”m missing anything.
Regarding all-cash: what do retired people do who can pay cash on a home but are not working and can’t document income for a mortgage.
They rent a place at half the carrying cost (or less) and let someone else eat the depreciation that is coming. After all, they didn’t retire early by making sucker financial decisions 🙂
yup, “self-regulated” and clearly looking out for the consumer . . .
http://www.nytimes.com/2006/01/12/business/12realtors.html?pagewanted=all
http://chartingtheeconomy.com/?p=839
The Realtors association is also one of the most powerful lobbies in Washington, spending nearly $94 million annually. It dates back almost 100 years. And it has an iron grip on its members. For access to property listings, individual agents and the brokers who employ them must belong to the national association and their state and local affiliates. Even the term “Realtor” is trademarked for use by members only.
Of course they can. Just because you’re retired doesn’t mean you can’t document income. You just supply the statements from your Social Security (hah!), 401(k) and IRA disbursements, etc. My father’s been retired for over twenty years and got a mortgage this way.
wow, anonn, Im surprised you are saying this about all cash offers. you are pretty savvy on re investing. Let my clear things a bit for everyone. All cash offers are made by individuals with obvious strong captial resources. They are intended to make the deal happen today and blow out the competition. Those people are then going to refinance the house after the close of escrow. It is not an indication that they dont know what the hell they are doing.
tipster: what you are referring to is “non-contingent financing” – not all cash. Cash means cash = no loan. There are three term to identifying financing terms:
1. contingent financing
2. non contingent financing
3. Cash ie no loan
sorry anonn you were refering to Tipster’s remark.
Dalowdown wrote:
> Cash means cash = no loan.
With the exception of buyers “trading down” to a smaller home about 90% of cash offers have what most people would call a “loan” (e.g. borrowed the money from Mom & Dad, paid with a line of credit, or had a brokerage firm write a check secured by an investment portfolio). The number of people with enough liquid cash sitting around to buy a home (especially in SF) is very very low…
Sorry, but my Realtor wrote several all cash offers that he knew I had no intention of funding myself. As long as I was obligated to come up with the cash, no one really gave two hoots how I was going to get it. Whether it came from my bank account, my parents, or a different source such as a bank, nobody cared. The offers were all cash.
My mortgage broker told my Realtor that I would easily qualify for a far higher loan. So we wrote them as all cash offers. The offers were for more cash than I had.
FormerAptBroker,
4 of the last 5 places I sold were all cash. No loan, cut a check, close escrow (after inspections). Of course they can go get a loan, and in one case they looked into it per there financial advisor (with the expressed clarification that they would get one only if it didn’t slow the process), it was going to slow the process so they went cash.
“I have a good, honest, ethical realtor now, but in the past I have been blatantly lied to many times. It’s not as uncommon as the NAR or CAR would have you believe.”
Agreed. And of course the lying is usually verbal so that there is no paper trail. I’ve lost count of the number of times, after I’ve shown interest in a property, that I’ve been told an “offer is coming in” only for said offers not to materialize. Sure, some of it may just be hopeful thinking on the part of the realtor ™, but the pattern happens so frequently that it’s just amusing.
aptbroker I dont know what youre talking about; there are cash deals happening all the time, especially in District 3, 10 in the SFR market.
ALL CASH OFFER means you actually have the money. Most good listing agents will require you submit proof of available funds at the time you present the offer or within 24hrs. This cuts down a lot on the bullshit factor. (see above).
“They are intended to make the deal happen today and blow out the competition.” – dalowdown
And you had your seller turn this down in favor of 2% more in the bush? I’m still waiting for explanation.
Fish,
Remember that agents simply advise, consult and guide their principals through a transaction. We do not pull the strings that create the market. We act on behalf of our principals; the buyers and sellers in the market. Ultimately, every decision is made by either a buyer or seller. Assuming that “we as agents” are calling all the plays in the flow of a transaction would be to presume a pall of naivete emcumbers the people who own and buy real estate. This is hardly the case in my experience…well maybe for first time buyers.
To answer your question, the decision was made collectively. Since when is $20,000 an insignificant amount of money? If it is for you, that’s a great position to be in, I wish I could say the same.
If you think 2% is significant, think of 6% that the seller has to folk over. I would’ve offered to cut my commission by 1% and asked the cash buyer’s to do the same to make the deal happen. 2% commission is certainly better than 0%, isn’t it?
The agents simply advise? Come on. I was in the market for a SFH a couple of years ago. A house on the L-Taraval line near West Portal was came on the market at $850K. One realtor walked over to the listing agent and I overheard her whisper to him what it was going to go for. He stated around $1.2. She then walked over to her client and stated that if they wanted the house they would have to bid 1.25.
So I guess that is not creating a market or pulling strings, just advising on how to get the house, and completely ethical by some opinions. Specially since they were both working for the same realty company. And an fyi.., not a novice at real-estate here, just learned to watch out for my own best interests and see realtors for what they are and not what they pledge to be during their real-estate licensing classes. Some are good and some are bad, but they all swim with the sharks.
viewlover,
What was the address, what did it go for?
One realtor walked over to the listing agent and I overheard her whisper to him what it was going to go for. He stated around $1.2. She then walked over to her client and stated that if they wanted the house they would have to bid 1.25.
Are you certain you have all the roles correct there? He-she-listing agent – realtor whisper statement… huh?
>Are you certain you have all the roles correct there? He-she-listing agent – realtor whisper statement… huh?
Looks like the statement is a bit confusing just because it is worded poorly, but the roles/gender are consistant.
“One realtor walked over to the listing agent and I overheard her [first realtor] whisper to him [listing agent] (and ask) what it was going to go for. He [listing agent] stated around $1.2. She [first realtor] then walked over to her client and stated that if they wanted the house they would have to bid 1.25.”
The only way it is muddled is if you don’t realize the “what it was going to go for” is what the she realtor, asked the he realtor.
sorry for the “poorly” worded example and appreciate some that maybe read it twice as opposed to dismiss it as HUH? Gender confusion.
I don’t know what it went for and it was a brown house with a newly planted garden on the north side of the street about two blocks away from the west portal muni stop. I told my agent about it and she did’nt seem to have a problem with it. I told my agent( I didn’t keep her) that this was creating a market and it was collusion as far as I was concerned. But no, it’s a pricing strategy to get to buyers in and then let the market determine the price, seems pretty reasonable from that perspective I guess. But that’s why I love Shakespear, even the villians have a lovely reason for their actions. And yes, the listing agent has had his picture on Real Estate Times as a top producer before.
I love Shakespear, even the villians have a lovely reason for their actions.
All except for Iago. He’s just mean.
Thank you for the expliction, Rillion. So, viewlover this example makes me think you had a problem with a)the intentional underpricing of recently past era, b)listing agents letting it be known that the market would be competitive in same and C)realtors suggesting to their clients that only a competititve sum would win in a competitive market.
Hey Fish,
FYI, most real estate commmissions are no longer 6%. They are predominantly 5%, only listings under $500K command a 6% commission, and you want to know why? -Because regardless of the size of the deal, the workload in the same size headache!
Actually, the issue is the notion and apparent belief that the reators simply advise.
The problem I have with the example is called collusion, or price fixing. The mere fact that the discussion occured is a problem for me. It created a new price point, although unofficial, by which there would be a subsequent frenzy fed by the realtors in order to get a sale made. Maybe symbolic of a recent past, but the tactics evolve to the moment. Just look at the fake auction by Brown.
I also looked at a house on Clipper that was listed for 1,150,000. It had been on the market for a couple of months and no offers. I wanted to make a less than asking offer and the listing agent (which later turned out was engaged to the owner or something) stated the seller would only accept over asking offers, and really wanted something north of 1.3. I told my realtor that did’nt make any sense, why would anyone bid over asking for a place with no offers in over 60 days. I talked about an offer with my agent at 995K which she said she would see what the listing agent would say to that. The reply, a couple of days later, it got an over asking price from a guy that was just moving in from New York. I can’t be sure but I will bet that the poor fellow was told there was interest (me) and that I was already made aware that the new price had to be X, and I was about to make an offer. Which was sort of true, I guess, but I was not interested at 1.3. Wonder what that place is worth today, this happened in 2006. Ouch.
Again, I’m not really bashing all realtors, I’ve learned good and bad from them. But really, to even consider onself as just an impartial intermediary between buyers and sellers and the headaches they create is quite a stretch imo. Just saying.
Not all sales are distressed. By that I mean that just because the proprty was on the market, does not mean that the Seller needed to sell the property for any particular reason.
Sellers, esp. those in good financial positions, will test the market, in that they will sell if they get their price. Sometimes this is a reasonable market price with valid comp support. Others times it is not a reasonable figure and has no bearing to what the true market value is. It sounds like this guy had a price that was firm and he got it. I also frown upon deceptively low listing prices and find that in the period of time that occured; it wasted a lot people’s time and effort: agents and buyers. Pricing a property 5% under what the anticipated sale price is ethically fine with me. The price garners attention; the alleged frenzy happens quite organically. Buying property is not like going the supermarket and buying a carton of milk; its a commodity with fluctuating value based on the supply/demand principle. Its more like buying a gallon of gas.
Its more like buying a gallon of gas. Man these analogies get better by the minute. Buying a gallon of gas based on the market manipulations of future traders, secret energy policy, and the like, well, maybe it is just like real estate.
And if the above is in reference to my second example, yes, the owner got his price, but the methods are the ones that I question and don’t consider to be organic price discovery. There was no frenzy, there were no offers until the sucker showed up after 60 days. Why would anyone overbid when you are the only bidder? Why? Because the realtor “advised” him.
It’s interesting how this thread started with an advice on contingencies for novice buyers but very quickly became sharks infested water.
For once that we have a forum to share buyer/seller experiences, it is quickly monopolized by agents coming up with the same sick rethoric over and over again? I believe there is the usual sites for that…
You go “viewlover”!!
“They are intended to make the deal happen today and blow out the competition.” – dalowdown
And you had your seller turn this down in favor of 2% more in the bush? I’m still waiting for explanation.
FIshtarian…..looks like we’re all looking for better explanations from dalowdown. He always dodges all the important questions the readers want to know about.
Remember that agents simply advise, consult and guide their principals through a transaction. – dalowdown
It seems like you didn’t advise your client very well and your client, being an agent themselves, didn’t do a great job of it either. Why should we listen to anything you have to say, since it seems nonsensical?
Not all sales are distressed. By that I mean that just because the proprty was on the market, does not mean that the Seller needed to sell the property for any particular reason.
Sellers, esp. those in good financial positions, will test the market, in that they will sell if they get their price. – dalowdown
Unless you bought a long time ago, who would try selling now unless they had to. The object is to buy low/sell high, no? Your seller paid $1,005,000 during the peak and received an offer for $965k. Not to mention your seller now has a $23k pest problem too that scared off 1 if not more potential buyers! And you don’t call that distressed?
Give us a real tip “dalowdown”, your name and the property you’re representing, so everyone can steer clear.
Funny. Long winded, but very funny. FormerAptBroker is pretty much right on.
The mere fact that the discussion occured is a problem for me. It created a new price point, although unofficial, by which there would be a subsequent frenzy fed by the realtors in order to get a sale made.
I don’t think so. In this instance, which is 850K generating 300K+ overbids, it takes more than two to tango. All whisperings aside. The listing agent only went there because he knew there were numerous other agents with interested clients.