My worst day in Real Estate

I’ve been waiting to blog about this deal for quite some time.  See, I have an old friend who traded his house towards a new one.  I did a CMA and came up with a value for their old house.  Told them if I were to list it, I’d probably do it at about $235k.  We negotiated the price with the investor who would be taking it in trade.  I got a good laugh when the investor put granite counter tops in the kitchen and painted the place, then listed it for $269k.  The place had only appraised for $225k just a few weeks earlier.

Well, my friends (the previous owners) watched with delight as the days on market for their old house racked up.  We were always joking about the price.  Then we both got that sinking feeling in our guts when the place sold for $272k!!!!!!!  WHAT???????

I knew that the new buyer had rolled their closing costs into the loan and had traded their old house in on this one since I called the listing agent……so I KNEW that the house wasn’t really worth $272k.  My friends were pretty cool about it, but naturally they had a LOT of questions for me.   If they didn’t trust me, it could have gotten really ugly!

So, how did this happen?  Well, to begin with, let me tell you that the listing agent was also the buyer’s agent, and this agent has done a lot of work for the investor who is always taking these trades.  That right there should tell you that this ain’t no usual “Arm’s Length Transaction.”  Who do you think this agent favored in the deal:  The buyer that would be represented once or the investor that keeps feeding the agent listings?  Then, you throw in the fact that the buyers traded in their old house.  There are a lot of ways to shift numbers around here, just like trading in your car.  I knew that when my people traded this house, there was a potential to play with numbers, so what I did was to make sure we worked with real numbers.  I focused on what their old house was worth and what their new house was worth.  Then we treated the deal like the two separate transactions it really was.  But, the buyer who paid too much for this house used the listing agent who was buddies with the investor.  Those poor people didn’t have a chance!

I’ve been waiting for enough time to go by so that I could show my friends the price that their old place went for was not typical of the neighborhood.  In the year that has gone by, three similar houses in the same neighborhood with basements have gone for between $212k and 224k.  There have been 7 other sales within the neighborhood of houses without basements, all under $200k.  Wonder how the new owners feel about this??

You really have to look at the parties involved when you look at comps.  There is a house in my neighborhood that just sold for top dollar.  I was really excited until I looked to see who represented the buyer in the deal.  The listing agent was the one representing the buyer….and…..oh….the listing agent was also the seller!?!  I don’t really consider that to be a normal transaction since the person giving advice to the buyer was not only the listing agent but the seller as well.  Now I’m not saying he did anything wrong, just saying that it takes a really honest person to have not steered THAT deal in the agent-seller’s favor.

So, the bottom line is that sometimes odd things happen in real estate and you can’t assume that a sale price really reflects market value.  There are enough bad agents and stupid buyers to ensure that things like this continue.

Both of these buyers were like the kid in the picture about to take on the sumo wrestler……It isn’t really going to be a fair match, is it?

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