Bad Advice From REA Leads To Disaster-Help!
Here is my dilema. I am new to this type of transaction. In Jan I purchased a SFD, price was 192K. Subsequent to this purchase, I had a REA do a CMA for this property, under the pretense that I would be upgrading it for resale. The object was to put 40K in materials into the place (and about 4 months of my time-I have been in remodeling for over 30 years) and make it pop. Which i did. Everyone that has seen it has been impressed with the house. Totally upgraded and updated, using top quality materials. The original CMA done for the property comped houses at the 325-350K range. The expected resale price for it was 319K. Turns out, the CMA was seriously flawed and the consensus now is, that this is realistically a 280-290K house. The listing broker/agent have admitted to making a mistake and have offered to concede a portion of their commissions towards compensating me for the mistake. My question is this.
1. Does anyone have advice/experience in a situation of this type and what might you consider my legal rights regarding this issue?
As the deal stands, if i sell the house for 280K i will be at a break even point (not considering my time) which is a value to be considered. Should I hold out for a total concession on the brokers portion or is that expecting too much. Obviously, it will depend on whether the sale is a result of a sole or co-brokered deal as to what the brokers portion of the commissions will be, but It will either be around $4.5K for a co-brokered deal or 9K for a sole deal. Any advice will be greatly appreciated.
Dave
Here is my take on this. A real estate broker's agent is essentially an entrance level position requiring little more than a weeks' worth of concentrated education (having more to do with regulatory compliance and avoiding liability than the practice of real estate) then sitting and passing a test, paying fees, and showing up.
Unless specifically designated as such, an agent is not an appraiser.
If a licensed and certified appraiser used flawed methodology, you might have a case. But you asked an salesperson, untrained in the mechanics of appraisal technique (irrespective of the agent's experience)
for their opinion.
Sorry you got burnt.
In the future, when purchasing a property and having paid for a mortgage origination appraisal, you might consider paying a bit extra to the appraiser for his/her opinion as to the future value in an as-repaired condition.
That information may have prevented the over-improvement of that particular property.
For example, a 6 bedroom, 4 bathroom house in an area of 3 bedroom one bath houses might be an overimprovement.
[addsig]
Well a couple of questions to start,
Whats a SFD?
Who is REA?
I'm assuming REA is a real estate brokerage company. Unfortunately brokers are very fond of giving inflated CMA's . I think the strategy goes something like this, "gee this guy wants to sell his house but only if he gets 105% of retail. pony up a CMA for 105% get the listing start working on getting him down to only 95% of retail. offer to kick in a portion of the brokerage fee so he doesn't think we took him for a ride".
I doubt that you have much recourse against REA. I also doubt they are going to be willing to kick in the whole commission since that makes this exercise pretty useless from their point of view.
Next problem. You bought for 192K you spent 40k on materials (total 232K) and 280K is break even? If we take out the 10K you think you're paying in commission (My guess is closer to 20K) that leaves 38K "profit". Where did that money go?
Haven't we covered this in great detail and multiple pages in multiple forums under multiple titles? I thought you had the Principal Broker involved now and she was going to help you get your price. Please tell me this is not a different house, same situation.[ Edited by LarryNut on Date 05/27/2004 ]
Larrynut
same house, same situation. entirely different results.
davezora,
As I followed your last post about this house it seems to me you were excited about having the, good cop, bad cop, played on you, so what changed your mind?
I thought this pro real estate agent, (good cop), was going to pull out all the stops to get this property sold, after what the agent (bad cop) told you in your meeting with them.
John $Cash$ Locke[ Edited by JohnLocke on Date 05/27/2004 ]
Dave,
I'm sorry that the current estimated value is what it is given all your work. I have some questions.
Maybe I'm not fully understanding something in your post above. You said:
"Subsequent to this purchase, I had a REA do a CMA for this property, under the pretense that I would be upgrading it for resale. The object was to put 40K in materials into the place (and about 4 months of my time-I have been in remodeling for over 30 years) and make it pop."
I interpreted this to mean that you had already decided to upgrade the property to the tune of the 40K and 4 months of work.
Is this correct? Suppose that your agent had projected the resale value at $280K instead of 325-330K. What would you have spent -- would it still have been 40K? If not, what would it have been?
Nancy
sellspro is correct if you used the advice of a realestate sells person. you have little hope of legal suit. i assume the rea did not put it in writing that the estimated value was only verb. expressed. p.s. to c/k sfd means "single family dewelling" .........kenmax
Nancy
This house was the 11th piece of property that I had investigated with this agent. I furnished the REA with a list of proposed upgrades, along with the corresponding $ amounts (both wholesale and retail) just as I had done with the previous 10 houses. The previous 10 had been crossed off my list, because the expected resale value did not meet the criteria I set down to reach my necessary return vs investment. This house, according to her, did in fact meet that criteria, hence I decided this one was a go. had she told me that the expected resale would have been 280K, this house would not have met my criteria and therefore would have been crossed off my list as well. Reason being, it needed too many (what I considred necessary upgrades) to move the value up and by simply reducing the amount of upgrades and cost would not have (in my mind) warranted being able to raise the value significantly enough to be able to make a reasonable profit.
John
Yes, I was in fact encouraged that this (Good cop) had convinced me that she was going to do just that. In the 2 week interum, nothing really changed that resulted in any showings. At this time, I requested another meeting with her and the result of that meeting was that IHO...this house was over priced. After thoroughly reviewing this CMA...she admitted that the agent had made an error and that she would be amenable to working with me by reducing commissions (on the brokers end) to help offset the loss of expected resale value.
commerciaalking
The remaining 38K was in holding costs-sub contracting labor and my physical time invested.
Dave
All rea info I ever got had a escape clause at the bottom "This info is deemed reliable but not guarnteed"
This one didn't contain that disclaimer.
Hi Davezora,
I have learned to run my own comps to the best of my ability and compare it to the realtors comps. The REA consistently inflates the comps in my opinion. When I run comps on the same area I notice that they pick and choose which premium homes to include which brings up the numbers. I look at all the houses in the area (styles, lot size...) and come up with what I feel is a safer analysis.
I think this should be part of your due diligence. Also you mentioned top quality renovatons. You may try for "good" Vs. "top quality" to keep your cost down.
Dave,
Thanks for your clarification. Maybe one approach here would be to negotiate a flat fee on the listing side--basically the listing agency at this point would just keep the property in the MLS and, to the extent you wanted it, interface in the negotiation and post-contract/pre-closing phases.
Nancy
davezora,
Could of, would of, should of, doesn't seem to solve your problem.
If you will let me show you the creative side of real estate investing, I will give you an idea. Whether it is something you would consider is up to you.
However, it could make some lemonade out of the lemons you were dealt by these cops.
There was a new student of mine that needed to sell her property so she could return to Detroit due to family problems.
She was considering selling with a realtor and called me for advice. I told her I would drop by and look at the property. It was located in a gated community in a very nice area.
We set down to talk and she showed me a well done presentation from a very large realty company, in full color, really looked impressive. They showed houses that sold within a 1 mile area of her house, not in her subdivision, but surrounding area. Their comps showed $650K and they recommended this should be the selling price.
Her house was a semi-custom the houses they represented to her were custom homes on larger lots. My comps showed that in her subdivison houses almost identical to hers were selling for $410K. She owed $409K on the property.
I will never forget when the tears started falling down her cheeks as she sat there in bewilderment.
Alas, I told her that there was not going to be this landfall of $200K, however she could get it sold still make money so she could return to Detroit.
We worked on an ad $25K Down No Qualifying, gated community, etc. The house sold in less than a week, she had her money to return home, plus a passive monthly income and money coming when the buyer was required to refinance in 2 years.
The property was sold using the Contract for Deed method, not conventional but it got the job done.
Think about this it beats a blank on this property, it does not matter what arrangements are made with the agents, this will not get you the money you expected or deserve. Dump the agents as I suggested before, unless you like going back for more good cop, bad cop. The creative side is really a powerful side of investing.
John $Cash$ Locke
davezora,,
If the market value of the property today is $280-290K and that's what you decide to sell it for, then I don't feel you have to go the contract for deed route, particularly when you're not requiring the buyer to qualify financially. How is that buyer's borrowing power going to be impacted 2-3 yrs down the road by higher rates and perhaps changed financial circumstances? With that route, if buyer doesn't/can't/won't refi, you're back to square one, only difference being is that you lost 2-3 yrs and perhaps opportunities to sell to someone else.
On the other hand, if what you want is a price significantly higher than $280-290K, then obviously, you have to offer terms. Again, however, even if you go the CFD route with title passing 2-3 yrs later, that buyer's ability to refi and take you out of the deal may still come down to getting the lender's appraiser to agree that the property is worth $325K or whatever. Roughly appreciation of 15% over today's value. Guess you'd just have to decide if you're willing to roll the dice on that--as opposed to cutting your losses now at the 280-290K.
davezora,
Darn it all you if you should get the house back because your buyer cannot not qualify and sell it again making more money what a disaster.
I am not as concerned about the buyer not being able to refinance, however I do everthing in my power to make sure they do because I like win/win deals.
You can firgure out the appreciation rates over a two year period and add this amount to the purchase price when the 2 year financing is required, Any mortage broker worth their salt, can get your buyer refinanced, they may have a higher interest rate, but if they make the payments on time this goes a long way with the lender.
Or you can suck it up as suggested, personnaly I think you have more character than that.
John $Cash$ Locke
Nancy and John
Thank you both for your suggestions. Each of you has offered me very valuable information regarding this issue. As it stands, I met with the listing agent/manager this morning. After some very serious negotiating They have agreed to the following :
Relist the house with a brand new MLS#
Lower the listing price to 299,900.00
If the house sells as a co-broker deal the manager is doing the company's side for 0$. The listing agent gets 3/4 %
the selling side gets 3%
If it ends up selling as an In-House deal the agent gets 3 3/4% and the company's side is
3/4%. but only on the selling side. If the house sells below 299,900.00 then everything stays the same except the company side is reduced dollar for dollar equal to the lower sales price up to the maximum of 0$.
I haven't signed off on this yet, but realistically, I am leaning this way.
Thanks again for your valuable input.
PushCart:
Where do you obtain the comps you use. I currently don't know where to access this info. I can only find listings on the MLS and work from them. But they aren't enough to use for the comps. I would love to be able to find:
The recent sales and final sales price along with accurate descriptions for them. Help me out with this info if you can.
Thanks
Dave
Dave.
I was hoping you would wind up with a commission arrangement like this. Good idea getting a new MLS number, too. I've got my fingers crossed that this moves favorably for you.
Nancy
Nancy
Thanks again for all your help.
Dave
Dave,
You're welcome and please keep me posted. I'd really like to know how it turns out.
Nancy
Nancy
Will do.
Dave
Dave,
I apologize for snapping at you. I jumped to conclusions before I got the rest of the story. I now know you're just looking for more help, as I often do here. I have seen the virtual tour of your home. You have done a beautiful job on it. John and Nancy have given some awesome input that I hope you can put to use. Did they rewrite the marketing remarks like we talked about before? Or is it now stigmatised that the whole town is talking about? Again, good luck and keep us posted.
Larry
I just noticed something. You and Nancy are both in PA. If she is not close enough to help, surely she knows someone she could refer you to. Just a thought for future business.
LarryNut
Not a problem. These last few weeks have seemed like a nightmare that just couldn't be awakened from. But...I have learned a great deal. Unfortunately, the lessons learned won't help on this property, but they certainly will on subsequent ones. I'm just glad I stumbled onto this site.
I only hope I am able to help others here,s somewhere along the line, half as much as others have helped me.
Dave
As a practitioner I apologize for their incompetence. Here is what I have learned so far, market value is what people are willing to pay. You have made a choice based on the information provided. The phrase buyer beware should stick out by now. But not to worry, talk to the broker about errors and omissions insurance, since they admitted that they had made the mistake, try that route first.
I do BPO-brokers price opinions for a major bank and I have to use due diligence in what I put in the data. No offenses but take this as a lesson learned and try to sell it your self to recoup some of your money, or have them cut their commission, everything is negotiable. Try the 4.5% rule, where they split 2.25 between the selling and listing side. Hope this help.
Having gone throught the Oregon brokers licensing I would have to disagree (respectfully) with the SSPRO in that in oregon it requires close to two hundred hours to get your brokers license ( I am not a licensed broker in Oregon or anywhere yet). That said,
A CMA is not an appraisal, ever, it is an opinion of value that his highly subjective. If you want an appraisal then pay for one...
Also, maybe just maybe the agent was tired of trying to do all the work for a winning deal and figured she wanted a commision (I am not saying this is ethical) I frequently see agents tell people that their home is worth more than it is worth to get the listing and then reduce the price to the amount that the other realtors said it was worth in the beginning.
[addsig]