ARV way over actual value is it fraud?

44 Replies

Hi all. I have a deal I'm I have listed with the agent that brought it to me. Originally listed as a rather heavy rehab deal. I got the job done just a little over budget and the hold was longer than expected but otherwise not too bad. Now here is my issue. The house just got an offer way below the a ARV the agent said we could get. It's the only offer in three months. I feel like I have been scammed by this agent. Inflating the ARV to get me to buy the place and now getting killed by the actual ARV. Please refrain from saying anything about checking ARV on my own. This deal was in area that had little activity, and local knowledge was "key". The comps really didn't show the size of the deal or the amenities we had. I'm going to lose about 30K on this deal really feel like I got scammed. So back to the original question. Is it fraud to have an agent grossly over estimate an ARV? Lets say the number is about 80K over actual ARV on a 400K home.

How experienced was the agent?

It is possible they just didn't have the background to give a good ARV. I guess in an area you didn't know a lot about an appraisal would have been nice.

503-871-2961

There's not really much you can do to the agent.  That was his opinion unfortunately. 

Another flag here is the lack of activity in the area.  If there isn't enough activity to get good info, there's probably not enough activity to do a flip.

Zach Sikes, Real Estate Agent in OK (#157234)
(405) 471-1205
Of course you should always speak with a licensed attorney for specific legal questions, but my instinct is that you would not be able to sue for fraud. Sales people are allowed to engage in with the law called "puffing". So they have some latitude and talking things up. Agents can also give you their opinion, which may or may not be fact. The basic bottom line and real estate law is caveat emptor, or buyer beware. So essentially the law blames the buyer, unless you have some other exception. Secondly most fraud cases require that somebody actively cover-up, mislead, or or engage in some dishonest act. If you could have reasonably discovered the fact on your own, it would be difficult to maintain an action in fraud. Now perhaps you could claim breach of fiduciary duty, but I would have to do some legal research to see if there's anything actionable there. My instincts tell me no

@Michael Williams

 I'm a Realtor/Investor.  This sounds like it could be one of three things..... honest mistake, incompetence, or outright fraud.  It would be hard to determine which it was without knowing the agent's history.  I had some trouble with this before I got my license but fortunately, I'd been investing long enough to see the problem before it got out of hand.  It's always best if you can get raw solds data from the agent and analyze it yourself.  That way you'll have first-hand knowledge of the values.

Here's what I would suggest you do....

1) Have a frank conversation with the agent and ask them pointedly "what happened". See if you can extract any sense of the direction of their moral compass with your conversation.

2) If you aren't satisfied with the agent's response, find out who their managing broker is and have the same conversation with them.  

3) If this person has no managing broker or you're not able to get anywhere with them, you can file an official complaint with the FL state board of Realtors.  If they're not a member of the board of Realtors (i.e. if they're an independent agent and not a "Realtor") you will probably need to file the complaint with a different state agency that regulates them.  There will be SOMEONE overseeing their business at the state level so you might have to do some digging to figure out who it is.  FL takes fraud very seriously so you will likely find someone that will help you.  I lived in Port Charlotte for about three years and was always amused that they post felony descriptions on signs on the sides of the Interstate.  After a few months of living there, I saw why they do that.  It's a BIG problem down there!  Good luck!

Fraud, no. An ARV is an opinion. Now, do some agents come up with some inflated numbers?...sure. I had an owner call me from some marketing, on a flip they couldn't sell, that their agent talked them into. After a quick look at the subdivision sales, I had to tell her that her Acquisition price, pre rehab, was the highest $/SF paid in that neighborhood over the last year....not much hope for a sale price on the back end 50% above that. There won't be any legal recourse, from the courts or from FREC for fraud with an inflated value opinion.

ARV opinions made verbally where I am from that are off by 80k can get a licensed agent in trouble. The person who you gave the opinion to can make you confront the real estate tribunal. No laughing matter in Toronto. We take real estate seriously. Wholesalers don't even exists here let alone many private deals.. Finding ownership of property is private and not public. Ownership of property used to be disclosed to agents but now its not unless you have the actual listing of that property..

What is the property listed at?  What was the offer?  Can you lower your asking price enough to break even and get other offers?

Buyer beware.

Sorry that this happened, that sucks...

But taking an agents opinion on ARV at face value is never a good idea. Sure you want to find someone that has good local knowledge if you aren't that familiar with the area, but you still want to try to verify what they are telling you. Minimum you should ask for the comps they used and if it isn't clear ask them how and why they came up with that number. Maybe there IS some unique insight they have as a local to the area or maybe they are just pulling a number out of their a$$.

Issues I think you had were:

- Not much action in the area, what is the DOM?  Is 3 months a long time to be sitting on it?  If the average days on market are over 100 it isn't.

- You said the comps didn't show the size and amenities you have.  That says to me that you have a house that is bigger and nicer than anything in the area.  That usually means you will sell SLOWER not faster.  People looking for that kind of house aren't looking there.

- In addition to the last point if you are the biggest and nicest place in the area then any ARV is just a guess. He seems to have guessed way to high. I'd tend to shoot for just a little bit more than the highest actual sold even if this place was much bigger and nicer. No way to know if anyone will be willing to pay a big premium in that area. At least make sure if you only sell a touch above the other solds you don't get killed, if you want to shoot for the moon when you list that is fine but if you have to set the market by 30-40% then don't be shocked if you get killed.

What has the agent said to you since it has finished? If he said to list it 10% under the ARV he told you originally to start I would be a lot more pissed than if you ask about lowering the price and he is like "I still think we are priced right".

He still might be totally nuts in the price but at least if he isn't hot to drop the price he believes he is right (hence definitely no fraud).

Shaun Reilly, Real Estate Agent in MA (#9517670)
1-800-774-0737

Trust

Envolves

Authentication

Measures

When working with a trusted team you've done business with before there is always some level of ambiguity with estimating ARV and or sales comps. However, if you've never done deals with a person you bring on as a part of your team, particularly when it comes to such sensitive issues such as costing repairs, and the resulting affects on exit values its purely on the investor to make such assessments and determinations to insure the project is/will perform as prescribed.

How would one prove fraud in this case? You would have to prove the agent mislead you by producing evidence the comps or other on market availabilities (for extrapolation purposes) where not fact. That s/he grossly mislead you or lied to you about a fact or facts to induce you into closing.

As others have also stated, ARV is a subjective opinion and as such it may be impossible to prove a fraudulent behavior.

The question has not been asked, but is a worthy question, did you improve the property with the appropriate level of improvements to command the price YOU approved to be the ARV?

It really does suck you're facing a loss. After revisiting this situation would some additional improvements to the property get you closer to or more than the original ARV? Instead of taking a loss, is it practical to turn this into a rental?


Sorry this happened to you friend. 

His information on what a house COULD be worth is no different than using Zestimate or lousy comps for the same information. It's not fraud, it's just someones best guess based on the information they have. Could he have been mistaken, sure. Could he just have been bad at estimating ARV, absolutely. Could have inflated his ARV to close a deal and get paid, of course. DID HE HAVE ANY MONEY AT RISK? NOPE.....

It seems you know what the problem here is but we aren't allowed to talk about it......

Originally posted by @Michael Williams :

Please refrain from saying anything about checking ARV on my own

Originally posted by @Christopher Telles :

Trust

Envolves

Authentication

Measures

When working with a trusted team you've done business with before there is always some level of ambiguity with estimating ARV and or sales comps. However, if you've never done deals with a person you bring on as a part of your team, particularly when it comes to such sensitive issues such as costing repairs, and the resulting affects on exit values its purely on the investor to make such assessments and determinations to insure the project is/will perform as prescribed.

How would one prove fraud in this case? You would have to prove the agent mislead you by producing evidence the comps or other on market availabilities (for extrapolation purposes) where not fact. That s/he grossly mislead you or lied to you about a fact or facts to induce you into closing.

As others have also stated, ARV is a subjective opinion and as such it may be impossible to prove a fraudulent behavior.

The question has not been asked, but is a worthy question, did you improve the property with the appropriate level of improvements to command the price YOU approved to be the ARV?

It really does suck you're facing a loss. After revisiting this situation would some additional improvements to the property get you closer to or more than the original ARV? Instead of taking a loss, is it practical to turn this into a rental?

 Envolves?

Originally posted by @Richard C. :
Originally posted by @Christopher Telles:

Trust

Envolves

Authentication

Measures

When working with a trusted team you've done business with before there is always some level of ambiguity with estimating ARV and or sales comps. However, if you've never done deals with a person you bring on as a part of your team, particularly when it comes to such sensitive issues such as costing repairs, and the resulting affects on exit values its purely on the investor to make such assessments and determinations to insure the project is/will perform as prescribed.

How would one prove fraud in this case? You would have to prove the agent mislead you by producing evidence the comps or other on market availabilities (for extrapolation purposes) where not fact. That s/he grossly mislead you or lied to you about a fact or facts to induce you into closing.

As others have also stated, ARV is a subjective opinion and as such it may be impossible to prove a fraudulent behavior.

The question has not been asked, but is a worthy question, did you improve the property with the appropriate level of improvements to command the price YOU approved to be the ARV?

It really does suck you're facing a loss. After revisiting this situation would some additional improvements to the property get you closer to or more than the original ARV? Instead of taking a loss, is it practical to turn this into a rental?

 Envolves?

 Typo, should have been "Evolves". Unfortunately I can't edit it now.

Sorry IMO you should have done your own research or vetted the agent better. There are lots of agents that make all kinds of claims. Are they fraudulent? I don't know because that is more of a legal term. Puffery? You bet!

John Thedford, Real Estate Agent in FL (#BK3098153)
239-200-5600

Any chance you could post the agent's name on here so others can be cautious if they have dealings with this agent? 

I'm assuming the agent has it listed on the MLS, what else is this individual doing to sell the property? If you want a non-biased opinion on the ARV feel free to PM me the address.

(727) 475-0107
I just saw an investor pay almost $90,000 for a house nearby that I was kind of watching and waiting for the price to drop. I think the house is worth about 50 it would've been a good deal in that range. It has An arv of about 140. So I was wondering who would buy that house in overpay like that. This flipper has now listed it for sale for over 200 grand. It'll be interesting to see what happens. There is no substitute for knowing the market. Otherwise you will get burned. In the last two houses I sold the agent thought it would be worth about 10 grand less then I got on both. It is surprising how wrong agents can be on value. But and after repair value based on comps as opposed to an off the top of the head assessment, should not fluctuate that much, especially if you figure conservatively

All excellent replies, this forum is the best I have been on in a long time. Thank you all. I'm not looking at any legal action. Not a fan. I realize this was my mistake. I have taken notes and moved on. The main reason for posting was to feel out others who may have been down this road before. I see many many "wholesale" deals with crazy ARV numbers I know aren't real. I wonder how these people get away with it. I've been around the block a few times so it's not a total newbie mistake.

Yes it's a lower volume area and the house is really nice, especially after rehab but no way the nicest house. One quote I recall "someone" saying during this deal, about the ARV, was "you have to trust the realtors, they know the market". Being new to the area and a serial entrepreneur (risk taker) I jumped right in. No more trusting any realtors or "professionals". Don't trust, just verify.

Shaun; we have dropped the price rapidly since people love it but no offers and the carry is not comfortable. Priced by the foot we are the cheapest or at market with other non rehabbed comps. I asked about lowering price and there was no resistance. The proof in the pudding is that the only offer is way off the alleged ARV.

I'm over it.  Win some lose some.  Lesson learned.  Thanks again to all who replied.

Sorry to hear your story @Michael Williams

I have also been on the receiving end of dubious ARV estimates from realtors. It happens all the time and in the vast majority of cases, it is a simple case of an agent providing an overly optimistic opinion.

You can kick up a ruckus as per @Michael Woodward ´s suggestions if you are convinced they purposely took you for a ride. Very difficult to prove, but you can certainly cause some damage to their reputation if you wish. Either way, this is going to be an expensive lesson. 

Try not to feel too bad about it though. Anybody who has been in this game for a while will have deals where they lost a lot of money. Just keep moving forward. 

Originally posted by @Michael Williams :

...  I realize this was my mistake....

That is perhaps the most candid response that you could have made. Just because you got an ARV estimate from a Realtor, does not mean it is correct. You can always inquire that they justify or explain how they arrived at the number. If there really isn't any activity in the area and you planned on going into a $400K rehab deal, it may have been beneficial to check with an appraiser. Not only are some Realtor's not well versed with pulling comps (so it could have been a mistake), they sometimes typically have too much incentive to inflate the numbers as it affects their earnings.

Look on the bottom of a MLS listing... Says this information has been verified but is not guarantee to be accurate. There is roughly 2 million real estate agents... There is around 100k give or take certified residential & certified general appraisers... Almost anyone can become an agent these days. For new loans the bank only trusts licensed appraisers... I understand some agents are great just like some appraisers don't have a clue. However, if your appraisal was off by $80k you'd have a shot to do something about it. With the real estate agent... Nothing you can really do.

Wholesalers are notorious for inflating the ARV and downplaying the repair costs. That is just part of the game. Knowing that ARV is highly opinionated, I would suggest have an official or unofficial appraisal and ask the appraiser to give you an ARV. Again this is an opinion, but he/she has no skin in the game, and they price houses based on opinion for a living!

@Michael Williams

  at the end of the Day Agents don't set values ... the market does... willing buyer willing seller.  your a willing seller no doubt.. but you have no willing buyers... at your price point. your price point is too high as your surmising.  your agents opinion of were to start marketing the home is usually based on some sort of research... 

however it sounds like you have some sort of outlier project were advanced knowledge of the end sales prices was not possible to establish with any certainty .

One thing we all have seen if your in the RE brokerage business though is homeowners interview 3 realtors.. and they list with the one who told them the highest price.. happens often.. and there is no question some realtors will high ball in the hopes of getting price reductions as time goes on... instead of being realistic out of the gate but stand a chance of not being picked as the agent to start with.

There is a lot of advice on here saying that there are no options for you legally; that is not necessarily true.  You should talk to a local attorney if you have any interest in seeking damages for your losses in this deal.

Generally speaking, fraud requires the defrauder to have had the intent to defraud the person -- which can be difficult to prove without any specific evidence of bad faith.  However, constructive fraud is where someone who is in a fiduciary, confidential relationship -- a real estate agent for example -- makes a misrepresentation to his client that is a breach of his or her duty to the client.  In that kind of situation there CAN be a successful claim against an agent even if it can't be proven that the trusted party intended to defraud the client.


Just thought you might want to know about this type of fraud whether you decide to seek counsel or not.

Thanks again everyone.  I am genuinely surprised at the response I have gotten and do not want to escalate this any further. No I'm not going to publish a name, etc.  I'm commiserating with comrades only.   Yes, in hindsight and to help others considering house flipping, get an appraisal. I heard from another agent, one of the best I have spoken with to date, who told me what I "wish" I had heard before I got into this deal.  Exactly the market knowledge and professional insight we dream about but rarely receive.  I have to say I spoke with two broker/agents who redeemed my faith in the system yesterday about this deal.  

I'm purposefully omitting details as locals can probably narrow this down to names and I'm not trying to hurt anyone. As I mentioned above, just commiserating. 

"Look on the bottom of a MLS listing"... did you know if you read that backwards in latin you'll start the apocalypse :) ?

I'm looking forward to my next deal and consider this a $$K lesson, although I would have preferred a mastermind in Vegas for that kind of outlay.  In closing my previous deal was a grand slam. I have to say in my 20+ years of investing, RE is by far the most lasting best way to create wealth.  For new people to the business my advice is to partner in a "small club" deal to work out the kinks, learn and if there is a loss it's not the end of the world.

The word you're looking for is "fluffing" an exaggeration made to induce someone to act. Was the agent "fluffing" the deal? That can have consequences. I wouldn't take it up in the forums so much as with the agent's broker. If you can document what you were led to believe and what the realistic value should have been (that would take an appraisal, I'd say) then you have a beef with that broker.  Also, as a complaint to the Board of Realtors and the RE Commission. 

The flip side is that you aren't Harry Homeowner, Mr. J.Q. Public, you're in the business. 

Clearly you didn't do your due diligence being in the business. Already mentioned was the slow activity in that area. The lack of the ability to transfer title easily and within a reasonable period of time pushes prices down. RE 101.

How did you vet this agent, or did you at all? Experience, in years, not months, but that won't tell you they are any good. What's their sales volume? What other contractors have they worked with, any references? Have they had any complaints filed against them? What about the broker? What's the reputation of the broker and that agent. You can be 500 miles away and still research these aspects on the phone or on line.

Next, you ran over budget on this project. Why? I understand change orders, deciding half way through to do something else, but those decisions are based on the market too, and it was a slow market! But, if you went over just because of poor planning and costing, who goofed? 

Did you save $350 by not getting an appraisal to get stung for $40,000? 

Did you not verify the comps, look for other comps in that area? Slow or not, they are there and time can be factored in to a 2 year old sale. (That doesn't meet appraisal guidelines, but it can give you a better idea in a slow market). 

Seems you're upset because of lost perceived money, if you got out with your costs and something in your pocket you're lucky considering your due diligence and ability to stay on budget. 

I don't see fraud here at all, maybe ineptness, errors in judgment, poor business practices perhaps, maybe a sales pitch, but not fraud. 

Agents are held to a higher standard dealing with J.Q. Public, not so much with commercial dealers in the industry as they are expected to know what they are getting into.

I suggest you take it to the broker and dump everything out and see what they say.  But I doubt you can put it all on the back of the agent. Better luck next time. :)   

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