ARV way over actual value is it fraud?
Investor · Tampa, FL · Member since 2013 · 20 posts · 6 votes
ARV way over actual value is it fraud?
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Zach SikesBusiness Member
Residential Real Estate Broker · Edmond, OK · Member since 2011 · 452 posts · 183 votesThere'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.
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44 Replies
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes11y
I dont know about a scam, perhaps just overconfidence/incompetence. Never trust an agent or seller about arv, always use your own numbers
- Marietta, GA · Member since 2015 · 117 posts · 23 votes11y
One offer? Ok well maybe the buyer was sharp enough to know thats a slow area. You could reassess and remarket. See what the agent is doing to get your property sold. You might want to look at marketing techniques and see if that agent if using the effective ones. You want to feel comfortable with what you have. The market could have shifted. I believe appraisers have to include one comp that is a foreclosure now. See what you have. It's rare in my experience to see an agent that far off on value. I would take numbers from an agent on market value. But not ARV.
- Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes11y
Originally posted by @Matthew Anderson:
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.Mere puffery, man. Mere puffery. Just like carbolic smokeballs.
- Investor · Round Rock, TX · Member since 2013 · 42 posts · 34 votes11y
It's most likely an agent not having enough experience to comp an ARV. I always try to do my own comps and then my wife, who has way more experience with comps, checks my work. I'm right about 90% of the time, but the 10% of the time I'm wrong doesn't make me stupid, or unethical...I just lack experience.
Another possible reason for overvaluing that I've personally encountered is the market shifted dramatically between when I bought the house and sold it. Sales comps can and do change dramatically in 3-4 months. Usually it goes up here in Austin, but I did have one project where we had to drop our sales price 20k after 3 houses within a block closed at a much lower value.
Nothings fool proof, but only work with agents that own investment property themselves and have 3 years experience as active agents.
- Real Estate Broker · Indianapolis, IN · Member since 2014 · 3k+ posts · 2k+ votes11y
I like to get "quotes" from a few agents that I know/have worked with on what they think the ARV will be. Don't take the high one. Look at what the average is and the data supporting it.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
- I work with a couple of agents that are always on the look out for deals for their large rehabber/investor client base. I love them and think they are good at what they do, but I would never use their ARVs.....and it's their hometown market. I track the deals I sell them. They often manage the rehab for the client and then do the listing. I think they always list too high. It works out for SFHs under $175 because they'll get lots of offers as there are lots of buyers. When they miss the mark over $200-250K, those properties sit.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Richard Redding:
It's most likely an agent not having enough experience to comp an ARV. I always try to do my own comps and then my wife, who has way more experience with comps, checks my work. I'm right about 90% of the time, but the 10% of the time I'm wrong doesn't make me stupid, or unethical...I just lack experience.
Another possible reason for overvaluing that I've personally encountered is the market shifted dramatically between when I bought the house and sold it. Sales comps can and do change dramatically in 3-4 months. Usually it goes up here in Austin, but I did have one project where we had to drop our sales price 20k after 3 houses within a block closed at a much lower value.
Nothings fool proof, but only work with agents that own investment property themselves and have 3 years experience as active agents.
Even with experience, as you point out, there are variables when the re-sale is 3-6 months out that can't be predicted. I had trouble with fully rehabbed comps in 2011-12. There were still lots of foreclosure sales and some REOs. Appraisers were really conservative and sometimes they wouldn't budge from the REO, foreclosure sale or fixer sale price from 3-6 months prior. I'm talking tract house same year, style and sq. ft. I'd have 10 REO comps and 2 rehab comps within 1/10th of a mile from the last 60 days and they would ignore the rehab comps. It was so frustrating. I got two of the deals done with additional cash over appraisal and loan amounts from the buyers. Agents were asking their buyers to make cash over appraisal offers. That really cuts into your buyer pool.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Michael Williams:
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.
You got lots of good comments on the ARV and agent concern. How about we brainstorm on the rehab and the listing and see if there is something going on besides price. Did you accept the low offer? The issue is usuallyprice, but not always, especially in small markets or higher priced homes.
- Cedar Park, TX · Member since 2015 · 377 posts · 200 votes11y
Originally posted by @Bill Gulley:
The flip side is that you aren't Harry Homeowner, Mr. J.Q. Public, you're in the business.
This is an important point. The OP already indicated he is not taking further action.
But just to clarify a point, from what I understand, if you are a professional you have a different level of due diligence that is expected by the courts. If you were just a homeowner, you may have some leverage to seek some kind of action.
However, as a real estate investor, and therefore a professional, the courts expect you to have a better understanding and therefore are less likely to accept that there was fraud involved.
- Investor · Indianapolis, IN · Member since 2013 · 27 posts · 5 votes11y
Originally posted by @Jay Hinrichs:
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.
+1 here.
I bought a short sale in a neighborhood where my house had better amenities etc, and was an owner occupied flip (I was approaching the 2 year mark). My agent originally suggested a value $30K lower ($220K) then what I originally listed it for ($250K as FSBO). Appraisal was higher than my original list price but I finally sold it for $235k (in the middle) after 6 months. In this case, the agent suggested price was low and the appraisal was high. Most of that came down to location (back yard was to an apartment complex with no privacy fence big enough to help). In the end the buyers were from that apartment complex and wanted to be in that specific neighborhood for various reasons and they wanted the size the house had -- i feel I got lucky. My house was the highest sales price in 2 years in the neighborhood.
The comps would have helped determine if the ARV made sense. In my case, I learned high amenities means very little if the house is already at the top of the comps in the area. I would at least check with some other agents (maybe your next agent for your next flip) and see what went wrong. Good luck on your next one!
- Wholesaler · Culver City, CA · Member since 2015 · 185 posts · 56 votes11y
To answer your question, is it fraud? No, I dont think so...as their ARV is their opinion...and not fact with a guarantee. IMO if an agent grossly inflated the ARV knowing good and darn well that it wouldn't sell for that much, its their loss as much as yours. I don't know, maybe they are inexperienced in your market.
- Newbie Investor
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
The OP says he is losing $30K. So his one offer so far is below asking, but by what percent? Without the numbers, fraudulent intent or "fluffing" by the agent is just guessing. There's an acceptable margin of error for everyone's role in the deal. In a $300-$500K resale, an accepted offer at 10% less than asking is a common occurrence. That $30-50K could be a beginning rehabber's profit and loss. An ARV off by 10%, which is air in some markets, combined with a possibly over-rehabbed property is a deal killer.
Wondering if some of the agents could chime in? @Wayne Brooks
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Hugh Ayles:
Originally posted by @Bill Gulley:
The flip side is that you aren't Harry Homeowner, Mr. J.Q. Public, you're in the business.
This is an important point. The OP already indicated he is not taking further action.
But just to clarify a point, from what I understand, if you are a professional you have a different level of due diligence that is expected by the courts. If you were just a homeowner, you may have some leverage to seek some kind of action.
However, as a real estate investor, and therefore a professional, the courts expect you to have a better understanding and therefore are less likely to accept that there was fraud involved.
Yup. It would be hard to stand in front of a judge and admit you did no valuation due diligence upon purchase, that you understood that the agent's valuation was opinion only but relied on it anyway, and the intent of the purchase was profit. In my courts, unless you could prove fraudulent intent, there would be a condescending or patronizing statement from the judge to the plaintiff and their attorney.
- Investor · Tampa, FL · Member since 2013 · 20 posts · 6 votes11y
I think the main issue is that this was a "professional" with all the tools and training that others in the same business posses.
Those that get upset about my not having done more DD in order to verify the agents overestimation is testament to the fact that there are abuses on a regular basis.
Reread, reread.
Best guesses should be left to clairvoyants and charlatans. When one consults a "professional" it's for their expertise. I guess RE agents aren't really worth dealing with if the investors have to "verify" a best guess. Does this mean we really don't need agents at all? Seems that way if we read those who say we need to check the value for accuracy or "buyer beware".
- Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes11y
Originally posted by @Michael Williams:
I think the main issue is that this was a "professional" with all the tools and training that others in the same business posses.
Those that get upset about my not having done more DD in order to verify the agents overestimation is testament to the fact that there are abuses on a regular basis.
Reread, reread.
Best guesses should be left to clairvoyants and charlatans. When one consults a "professional" it's for their expertise. I guess RE agents aren't really worth dealing with if the investors have to "verify" a best guess. Does this mean we really don't need agents at all? Seems that way if we read those who say we need to check the value for accuracy or "buyer beware".
The agent gave you the benefit of his expertise. By your own admission, there were not good comps. That introduces a great deal of uncertainty, and all you can do is make an educated estimate.
You should take Ms. Poe up on her offer to look at the listing itself.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Michael Williams:
I think the main issue is that this was a "professional" with all the tools and training that others in the same business posses.
Those that get upset about my not having done more DD in order to verify the agents overestimation is testament to the fact that there are abuses on a regular basis.
Reread, reread.
Best guesses should be left to clairvoyants and charlatans. When one consults a "professional" it's for their expertise. I guess RE agents aren't really worth dealing with if the investors have to "verify" a best guess. Does this mean we really don't need agents at all? Seems that way if we read those who say we need to check the value for accuracy or "buyer beware".
The other due diligence you might want to consider is researching how this business works before you buy another property. How did you vet this professional on whose opinion you relied upon in order to profit? Checked his sales records? Checked his other listings? Talked to his many happy investor clients? Made sure there were no Realtor board complaints? Got many referrals for this same agent?
Agents are liable for so very little (IMO) when it comes to valuations and opinions about markets, rents, repairs, lender options, DOM, etc. They have more lawful responsibilities to consumer seller/buyers than investor buyers. What do you have in writing from the agent regarding the ARV of the property? Pretty sure it's nothing. And if you do have something, there are about a dozen disclaimers that you signed where you agree his valuation is opinion and he's not liable for anything you do based on that opinion.
- Professional · Jacksonville, FL · Member since 2015 · 397 posts · 34 votes11y
Originally posted by @Michael Williams:
I think the main issue is that this was a "professional" with all the tools and training that others in the same business posses.
Those that get upset about my not having done more DD in order to verify the agents overestimation is testament to the fact that there are abuses on a regular basis.
Reread, reread.
Best guesses should be left to clairvoyants and charlatans. When one consults a "professional" it's for their expertise. I guess RE agents aren't really worth dealing with if the investors have to "verify" a best guess. Does this mean we really don't need agents at all? Seems that way if we read those who say we need to check the value for accuracy or "buyer beware".
That is correct! Many may heap the entire blame on you and barely look the direction of the Realtor and the cruel fact is that you may have indeed been a victim of fraud.
An investor isn't necessarily an appraiser nor is the Realtor's conduct acceptable just because you were an investor. Investor or not, it helps to verify information of this sort but people do rely on a Realtor's judgment of value to make a buying decision -- which appears to be what you did here.
If the Realtor's estimated ARV is/was grossly inflated, they may have some explaining to do but only if you were to start asking some questions.
Its not whether or not you can sue. Folks have been sued for less than $30K in a real estate or other business transaction. Also, the problem with just dismissing issues of this sort and counting it as "another experience" is that others may also have been defrauded by this person or the firm he or she works for.
As a business or "professional", they may have insurance policies in place which may help lessen your loss and also give them an incentive to provide better information to the public. For what you got, $30K might have been an overpayment of sorts regardless of the lesson.
These are some interesting cases/issues:
- 11yEric FernwoodBusiness MemberRealtor · Las Vegas, NV · Member since 2014 · 995 posts · 1k+ votes
Hello @Michael Williams,
I can't speak for what the situation is in Florida but in Nevada only written documents are enforceable when it comes to real estate. So, if you have written documents containing the stated ARV, maybe you can do something about it. It would be interesting to see if this agent has prior complaints. In Nevada these would be listed with the Nevada Real Estate Division. You might check to see if there is a similar organization in Florida. If there is and the agent has prior complaints, you might want to file a complaint too. In Nevada, you could then go before the Real Estate board. If they determine the act was part of a behavior pattern or you have sufficient documentation that he sold you the property under false pretenses, then they can take action including having the agent pay a penalty. The advantage of this approach is that the standard of proof is lower than it would be in a court and the cost is very low (no lawyers involved).
I am impressed by your statement, "I realize this was my mistake..." Well done! It is too late for this property but I may be able to offer some advice on future flips.
In order to make money flipping you have to buy the right property, in the right market, in the right location, at the right price with the right team. Yes, ALL of these things must go right to make money. Here I will only talk a little about the location and the market. In this post I went into more detail about the other critical components.
The first step in successful flipping is to determine if flipping is possible. In some locations/markets it is almost impossible to flip a property and not lose money. Below are some of the factors that I would consider:
• The price difference between trashed homes and homes in market ready condition must be significant. If there is a small difference, you need to look somewhere else. What I have been doing is to use software we developed to search for properties that are at least 20% below the sales comps of similar properties. Note that 20% is not a "magic" number. But, if you can't find properties that are priced significantly below comps, you need to look somewhere else.
• Seller's market. If you are in a buyer's market, it is unlikely that you will be able to sell the property quickly at the predicted sales price.
• Sales volume - There should be frequent transactions of similar properties. Not only will this increase the probability of selling in the shortest time, it will enable you to get reasonably good comps. Do the comps yourself, do not depend on others. (If you are not comfortable doing comps, let me know and I will explain how.)
• Skilled trades people are available at a reasonable price. A huge part of being successful is high quality, reasonably priced, readily available skilled workers. The skills you need will vary greatly but if you can't put together the right skills team, you are in serious trouble. Most people will work with a contractor or someone who will provide the overall quote and manage execution. Significant errors in your estimates could turn a profitable flip into a financial disaster.I used the term "market ready" instead of rehab/remodel because I wanted to emphasize the importance of making the home similar to other homes selling rapidly in the local area. There is no universal "standard" for market ready. It depends on what similar properties are like. For example, if the vast majority of properties for sale have vinyl flooring in the kitchen, vinyl is what you should install. Installing tile might result in the property selling faster but it is unlikely that it will increase the price by the additional amount you spent. However, if similar properties have tile and you installed vinyl, your property will likely take longer to sell and will likely sell for less than market value.
You need to get the property to market ready, not less not more. Spend time looking at properties in the area to learn what is considered important by the local buying population and do not go beyond what is required.
For more details on my process you can refer to this post. It seems to me that in your case the location characteristics made it very difficult to make money.
FERNWOOD Team, KW VIP Realty520 Reviews - Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes10y
Originally posted by @Michael Williams:
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.
Hello! The contract could help you but your words alone will not matter much in court. You have to learn from this and don't make the same mistake again. Yeah your agent may have lied so now you know he is typically one you don't listen to. You can not rely on other people. Good luck!
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