Listing Agent Dishonest About Current Rent

6 Replies

I'm currently buying a partially occupied duplex. The listing agent prior to me making an offer informed my agent that the occupied side rents for $700 per month. I crunched the numbers and eventually put in a full price offer based on the value of the home and the current rent. Everything was going smoothly until we saw the lease and it stated that the current rent was actually $100 less than what I was originally told. The lease was 8 years old so I assumed that the rent must have been raised as some point during that timeframe. So I request, via my agent, further proof that the rent is in fact $700. My agent responded, including a direct quote from the listing agent, with something along the lines of... 

The vacant side was renting for 699 so the agent assumed that was rent for the other side as well: 'It was $699 on the other side. (Deleted) thought they were both that. Sorry'.  

I reply to my agent the following: 

That's a huge oversight on the part of the agents. How are we going to resolve this $1,200.00*30 yr "misunderstanding"? An additional $100 per month is not negligible.

Please provide your professional opinion on an appropriate course of action to rectify the mistake. I understand the "sorry" but I don't understand how they plan to address the issue.

He still hasn't responded and this was sent several days ago. To make matters worse, I promised the 70+ yr old widow tenant that she would not be forced to move once I took over the property (Awesome tenants who takes really good care of the unit). But not so awesome at $600. 

Is this a legal issue, if yes, do I have any recourse? Or have you ever experienced anything like this and what was the outcome. Thanks in advance! 

Unfortunately, it's not abnormal for items to surface during due diligence. I'd recommend going back to the seller with an appropriate new offer based on the results of your due diligence. I'm assuming that you inspected the lease and found this out within your contractual due diligence period. With a duplex and the value based on comps rather than NOI, it's a little tougher to justify price based on rents but it is part of the equation. If they don't go for it, you will then have to decide if you still want it. Purchasing a below market rent unit can be a good opportunity...just proceed as if you would have know this upfront and make a new offer accordingly. Take the emotion out of it. IMO, going after the seller's agent is fruitless and will only frustrate you.

Regarding the existing tenant, if $700 is the market rate, the existing resident will have to understand that an owner can't afford to rent the unit below market and will certainly learn that when they shop. REI is hard enough without subsidizing the resident regardless of their age or personal situation.

Good luck and keep us posted. Powering through these kinds of things is why REI returns are higher than other asset classes.

Thanks for the response. 

If rent was $600 8 years ago I would suggest you get a better handle on the present market rents. Purchasing a property without knowing the market is ridicules. If you are telling us you placed a offer based only on what you believed the tenant was paying you may not actually be ready to invest. I don't think you know what you are doing and it might be wise for you to step back and rethink your position.

Originally posted by @Thomas S. :

If rent was $600 8 years ago I would suggest you get a better handle on the present market rents. Purchasing a property without knowing the market is ridicules. If you are telling us you placed a offer based only on what you believed the tenant was paying you may not actually be ready to invest. I don't think you know what you are doing and it might be wise for you to step back and rethink your position.

I'm not sure if you read the entire post or just didn't understand. I believe I told you that I considered the current rent in addition to the value of the property. I considered the current rent because I plan to occupy the other side. Conveniently, the property had a long term tenant that would be paying a large portion of the mortgage. My review of the market indicated market rate rent to be around 750+. My issue is that I will most likely lose the stable tenant if I now have to raise the rent a $150. Thanks for the criticism, I will try to grow from it! 

Echoing what @Mike Dymski said, a material misrepresentation of the current rental situation is a 100% valid reason to renegotiate price. And this is why we have due diligence periods, so good on you for catching it in time @JW Terry .

Don't do $1200*30 as your math, RE insiders mostly consider 'multiply by 30 years' to be a drama llama tactic because the average length of ownership is about 7 years, and the average life of a mortgage is about 5 years. 

Instead, figure out what the cap rate you thought you were buying at was, and do the algebra to back into a price that yields that same cap rate given what you now know about the rental situation.

Make that your starting point for re-negotiations. 

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