I'm just curious about a transaction that seemed odd between a realtor and a person selling her house. This is a retail/market price attempt at a sale by the home owner. Within 7 hours of the listing 2 offers come in. 1 cash and one conventional financing. The cash offer buyer states he will use the property for a rental property. The conventional buyers are a family. The seller states he specifically would like to sell it to the family because (1) they are offering more ($20K more) and (2) the thought of a long-term family next to her neighbors of 15 years was her goal. The agent acknowledges the seller's goal. During the process of financing, the family ran into 'credit' problems and could not close with 3 days to go to closing. The seller is now in a tight position as she has been working with a builder for house that is ready to go, papers signed, and closing scheduled not-contingent on this sale. The builder and seller were able to work out a 1 month extension. At this time the realtor suggests to the seller to sell her the house at a discount ($22K below recently appraised value), and shows him on paper how, selling it to her at a discount would "Net" her the same amount as if she were to sell to a buyer at retail (commissions, closings, so forth), saving her that amount and walking away with the same amount of money. Her father, will be moving in with her, asbancelled his lease with the retirement facility for the next month. Therefore, the seller opted to take the realtor's now 'investor' price. The realtor made it not contingent on inspection, no closing costs, very attractive. She disclosed it was a 'private' sale and she would not be collecting commissions. The realtor's buyer was her husband. Now, 2 months after meeting, the realtor and the seller are 24 hours away from closing. Contracts signed and only waiting for tomorrow. The seller then gets a call from the mortgage company reveling a 2nd mortgage. This was a 2nd mortgage taken out approximately 2-3 years earlier that the seller had forgotten about. This added just shy of $10K in extra costs associated with the closing of the seller's new house. Seller calls realtor, realtor claims to have never run a title search or any inquires furi month journey to her acquisition of the property. Again, seller is forced into an unexpected financial situation. The seller pleas with the realtor (now investor?), whose selling to her husband, to negotiate on the price of the house ($22K under ARV) to alleviate some of his financial distress. The realtor (even though not the buyer?) states it would not make financial sense for her to come up on her price. Now, approximately 12 hours before closing, the seller is forced to deplete his savings in order to make the transaction happen, so that the realtor didn't take a hit and lose money. Seller expresses clear disappointment with the treatment of him and of the deal, the realtor/buyer/buyer-representative/investor - person, acknowledges this dissatisfaction while closing on her new investment property.
Fact: Net sheet presented between realtor and seller never accounted for the missing $10K
Fact: Realtor never did a title scoop
Question: What's your opinion of this transaction? How often do you seen realtors changing relationship status from client relations to investor-seller relations? Does that role change as fast as this example? Or was the house listed for more that 4 days?
Please ask if any questions, thanks.
Updated over 1 year ago
Just learned that real estate agents do not do title searches. So that "fact" is irrelevant. Sorry about that!
Updated over 1 year ago
Based on initial responses, it appears this behavior happens quite frequently from realtors. It’s interesting that conflicts-of-interest do not exist in RE. For example, RE agents gaining inside information from sellers to then negotiate a price. This seems like shady practices to me but hey that’s reality. Lesson learned: make sure to get a realtor who wants to sell you house, not a realtor who wants to buy it.
Im not exactly sure how a seller just forgot about a 2nd mortgage on the house, that seems kind of odd.
@Russell Brazil , I don't think the seller was denying owing it, I just don't think it was considered by either party. That does lead to a further question (I'm not a realtor so excuse the ignorance), does a realtor have any obligation to do a title search prior to closing? Or is that more of the seller and mortgage company's side of things to discuss and figure out? I only ask because my agent, representing me during a sale, did a title 'scoop' for me before having an offer, just to make sure I knew what I was paying off and what I was going to net. Again, not sure if this was just above-and-beyond work from my realtor or if that is industry standard.
As a realtor, have you ever purchased an asset in this fashion; going from realtor - to - investor negotiations?
Thanks for the reply!
No agents dont do title searches.
@Russell Brazil , you're right. Title companies do. In my case, my realtor was easily able to ask the title company we were going to use, referred by her (same case in this example), so she had access to this information, instantly. Which is my question, if the realtor could have access to the info, why didn't she? The net sheet used in her proposition left out information easily obtainable by her in her profession as a real estate agent. Common practice?
If the seller forgot about the second mortgage, that is their fault no one else's. As for the sales price, the seller got the same amount in her pocket as she would have if she sold it to the family in the first place AND it was $20K more than the original investor's offer (ie not the realtor's husband). I don't know what the price was relative to the list price, but I'm going to guess it was higher since there were 2 offers within 7 hours of listing.
The $10K for the second mortgage is short term as she will presumably be making money from the sale of her home and it doesn't affect the sales price.
Agents don't do title searches. That information is not easily accessible to them. Ive never once done so as an agent over the course of hundreds of transactions. I ask the seller what their mortgage balance is.
@Russell Brazil , you're right, title companies do.
@Theresa Harris , Agreed, no one's fault but the seller's about the 2nd mortgage. I do believe some of your points are not accurate. It could have been my explaining initially. The final sales price offered from the realtor was the lowest of three: (1) Conventional -$221K (2) MLS Cash Offer - $210K (3) Realtor's (now turned investor) no contingency offer - $198K.
The realtor was able to show seller on paper how he could net the same by selling it to her cash and saving all of the closing costs, commission costs, so forth.
The question is, when bound by fiduciary obligations, when should a realtor present the seller with a scenario that actually benefits the realtor, as in this case? And to refuse to negotiate on the price because it's not in the best interest of the realtor?
@Angelo Aguirre As I understood it while the investor's offer was lower, the net to the seller was the same. So the $221K after commission and other fees would be $190K (I'm making up numbers) and the $198K without commission would also be $190K.
If the seller netted the same amount either way AND knew that the second investor was the husband of the realtor, then I don't see a problem.
@Theresa Harris , thank you, I appreciate your feedback!
@Angelo Aguirre While not typical, an agent buying the house for the Same net price (or for less since the seller agreed) is not an issue at all. And it is Not the issue here.
The issue is that the Seller “forgot” about the $10,000 2nd, and would have had to pay this no matter who bought it....neither of the other two buyers would have changed their price.
How much a seller owes has no bearing on how much a buyer “should” pay. If she magically owed $10,000 less, would she have lowered the price?
Title companies don’t typically do title searches until near the end of the transaction....the agent prepared the seller’s net sheet (with pay off amounts given by the seller) when listing the property.
This is absolutely, positively on the seller.....there’s no way to twist this around to being anyone else’s fault.
@Wayne Brooks , I think my overall question is the realtor became a "buyer" somewhere in their relationship. If I wanted to be the realtor that obtained information (ie conditions of the house, results of inspections, appraisals, personal information of seller - seriousness of sale, desperation of sale, and so forth) for free at the expense of a different, ultimately un-bankable buyer, and then make my own beautiful contingency-free offer, when can I do that? Right when we list it?
@Angelo Aguirre Give it up already.....the seller had no problem with the agent’s deal...their Only problem was at the end because they “supposedly forgot” about a second loan they had. The seller would have the same problem with either of the other two offers. The seller is trying to blame everyone else except themselves....and you seem to be encouraging that for some reason.
the Seller decided the agent’s offer was the best course (it was because the Net was the same, no contingencies for inspection or financing for the sale to fall apart).
You clearly have a relationship seller and have tunnel vision. The net was same to seller. That should be the end of it. The realtor/buyer didn’t plan on the original buyer doing the inspection and then backing out so that was of no benefit and the seller would have most likely shared that with and new buyer. What if the second mortgage your slow friend forgot about was 50k. Should the realtor/buyer raise her price 50k? Would that family if their finances went through raised their price 10k you think? The seller was well aware of all parties and motives, they were just mad they had to pay back the 10k they borrowed and promised to pay back years back.
I am not sure I understood you question. I personally did several offers on a property, and after the offer is accepted I said that I am not taking commission but we subtract from the sales price. Why? Because I don't want to pay uncle Sam 30% on my commission. It's all normal.
@Josh C. , I'm glad you checked with this realtor/buyer to confirm that they didn't plan on having original buyers do inspection. Original buyers did not back out, they failed to close due to financing. Realtor also reasoned that she could not negotiate on price because the SFR ‘apprised' lower when calculated as a rental. Correct me if I'm wrong please, only commercial RE can be appraised based on rents and income generated, SFR appraisals are only based on what the market will pay, income is irrelevant.
Account Closed, thanks for your reply. I does sound normal when you explain it that way. Thank you!
Yes, this "relationship switch" happens. My husband is a realtor. We send out letters farming for multi-family properties. My husband represents both the seller and buyer (us) in the transaction. We get a discounted sale price because he doesn't collect a commission, and they either get the same price as listing on MLS but with less hassle ( not showing the property many times and we don't haggle over inspections) OR a bit higher sale price because they don't pay commission.
Sometimes we Farm someone who has a whole portfolio to sell. We will buy one ourselves, and he becomes the listing agent for the other portfolio properties.
That said, he runs all of the paperwork on these by his broker to ensure that we are not unfairly taking advantage of the relationship. Some people are very ignorant, so it’s a grey line between good business and exploiting someone.
In your case, I don’t think the realtor did anything wrong. It is not her responsibility to run a title search OR to somehow know that the seller had a second. It’s insane that someone “forgets” they have a second mortgage. First, the seller should know this. Secondly, the lender should see it on the credit report. Finally, the title company will do a search. Honestly, the realtor is the only innocent one in the situation!
And it is definitely not the realtor’s responsibility to pay more for an INVESTMENT property because the seller is out-to-lunch. The point of the property is to make money, hence the word investment. And it sounds like the realtor was initially trying to help the seller out of a tough situation (first deal falling through and already having a new home to pay for). It sounds like the seller is bitter and is misdirecting their frustration at the realtor. But I don’t hear that she did anything wrong.
@Alissa Engel , That's a perfect explanation. Being new, I am not sure of the lines between realtor-seller relationships and when roles can change. But, offering the seller a price that nets them the same dollar amount, and when fully disclosed as an investment property, it is hard for the seller to build a case against them, or anyone in this situation. I completely agree, the 2nd mortgage is 100% on the seller. No one else. My general questions were about realtor roles/responsibilities/fiduciary responsibilities (and when those stop). But your answer makes complete sense and I totally agree! As long as a seller accepts an offer, any other circumstances that arise (2nd) is only the seller's responsibility. Thank a ton for your response!
I think a realtor can turn into a buyer whenever they see it beneficial for both parties. When is that time? That’s up for subjection, case by case at best. It’s more than fair for an agent to switch from realtor to buyer as long as both parties can agree on a price. In the end of the day it’s
all about selling the property. I don’t think it
matters who buys the property.
@Nick Rutkowski , That's a good point, no matter what, in the end if both parties agree there should be no problem. I appreciate you taking your time to respond. Thanks!
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