“Beware the manipulative investment buyer,” warns a reader from Sunset Heights who has an interesting home-selling tale to share from the late-summer market: “Yes, I fell for it. The listing went up and 20 minutes later, a dream offer. Over list price. As is. Wants to add on, not tear down. Closing quickly, with two weeks free leaseback. I began looking for homes in my new area. Fell in love with one and put an offer on it.”
What could possibly go wrong?
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The reader continues:
15 minutes before the 5 day option was finished, with no further inspection of the home other than the five minutes of original viewing, the email came. Something to the effect of after further investigation, it is not financially feasible.
The next morning, they made a low ball offer and since I was wrapped up in it all, I considered it. Thank goodness for experienced land men bosses who recognized it as a ploy to essentially get a steal. He laid it out for me. I remembered, after much angst, that I am not in a position of “having” to sell. So, I rejected the offer and am now back on the market.
This deal cost me. I let my painters go as it seemed an unnecessary cost and the “buyer” said to stop all work. In an attempt at fairness, I paid them for a day of work they did not do (no regrets, it was the right thing to do). My house was not on the market for 6 days. I am now 6 days behind on the improvements that would have been complete by now. Fortunately, I was able to catch the offer on the other home in time before it was accepted and made a contingency offer instead.
And what have we learned, beyond the obvious “seller beware”?
I can’t blame him for my losing my head. I knew from the beginning that it was too good to be true. I did not protect myself. Knowing what I know now, I would not have taken it off the market, I would have continued improvements, and most importantly, I would not make an offer or become emotionally invested in a move until the option period had ended.
Photo of Sunset Heights: Swamplot inbox
I see that stuff *ALL THE TIME*. The other scam is to put your property under contract with a long close date, then while under contract they’ll try to ‘shop’ your property in hopes for a higher price. IF they get it, they’ll flip the contract..
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There is one surefire way to stop this: OPTION FEE. Its the most important aspect of the contract (assuming price is acceptable). Forget even Earnest Money. Forget time to close. Contingencies. All of that.
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If an ‘quick closing all cash’ offer comes your way, demand 1% minimum in option fee. If they won’t do it, they’re not serious, and pass on their offer. Or someone wants 60 days to close but they’re “Sure” they can. Okay, give me $5k option fee. If they won’t, they’re not sure, and they won’t do it. I would NEVER think to put a property under contract with a buyer without $1k option. If they want to do some due diligence first, they can feel free. But don’t let them tie up your place and waste your time unless you know they’re serious.
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Then, worst case is they flake and you have some cash in your pocket for your time and troubles.
So what did your Realtor have to say?
So the author signed a contract that granted the buyer an option to terminate, then gets her panties in a wad when the buyer exercises said option???? That makes a lot of sense.
I’m confused and genuinely curious; if the buyer was going to purchase the home in “as is” condition, why on earth is the seller making all these improvements?
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Other than the 6 days of having the home on the market, what else did the seller lose? Aside from the fact that s/he fell in love with another house? Even still, you have a typical 10 days during the option period to terminate the contract for $100 or so. (Also, two weeks free lease back is soooo sketchy.)
I would have no qualms about naming and shaming such a buyer.
If this is acceptable practice, surely it isn’t tattling to name the buyer. If it’s not acceptable, all the more reason to name them.
@Cody – Thanks for clarifying this. I had assumed that the seller took an option fee or earnest money.
Trying to figure out the big scam here. Seller got hopes up, then buyer chickens out…all within the allowable option period? And?
Mondays must be slow around the swamplot offices.
A friend with a house in the Heights got a nice offer from a builder, signed a contract, then during the option period the builder suddenly says the house he wants to put up is too big for the lot, and then offers less. My friend had already been committed to another place, and had to take a 2.3% haircut. The builder could’ve been sued, but the seller couldn’t wait for the option period to expire. I’m sure that many such shenanigans always occur with sellers who do it once or twice a lifetime, and buyers who do it everyday, and know all the tricks. I dread selling my house, so I intend to die in it and make it my heir’s problem.
Coconutbutter-
The skeevey part wasn’t that somebody made an offer and backed out, it was that somebody made an offer so good that the Seller declined all his other suitors, and contracted another house, digging himself in.
So then the Buyer comes back with a lowball number, hoping that the Seller is so committed they will accept a number they would not have accepted back when there were multiple offers.
And yes, skeevey types representing skeevey builders use this as standard operating procedure.
You have to qualify your buyers properly or at least the realtor should have. This is one reason why realtors are useless human beings and provide no real service. He should have advised you on the option fee, vetted the buyer and even the buyer’s agent. The buyer’s agent obviously advised them on how to pull this trick and should lose his license.
@Cody Earnest money is normally 1%. Option fees are normally 100$ or 10$ per day. No one in there right mind would plop down 1% on an option fee, that’s insane.
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I personally have had to break contract on a house as a buyer. This is not always due to malfeasance. In my case it was because we found out they had redone their plumbing in electrical conduit. You just don’t see that stuff until you get an inspector out.
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That said it could definitely be a nasty trick to tag team a house with offers putting it into pending then breaking contract, and then following up with a different low-ball offer based on it coming off of pending (which is usually a bad sign of something like what I mentioned above).
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But in this market? Most houses will have multiple offers on it. Work with your realtor, and stay away from shady cash-only offers that aren’t coming through a realtor that is trusted. You get burned like this, I’m sorry but its partially your fault.
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Re-read your comment. I see what you mean, you’re talking about using a particularly massive option fee to deal with suspicious offers like this.
Email the name, phone and any other identifying info for this guy out to every realtor in town. Anyone who shows up making an offer who has no intention of buying at that price is committing fraud, especially when the intention is to induce the seller to take a lower price due to the circumstances created by the bidder. Cody is right about option fees for cash buyers, but most realtors are not sophisticated enough to do that. And if you really want to weed out the posers, require anyone claiming to want the property as-is to give up the free look period and put their cash into escrow upon signing the contract with the only contingency being clear title.
coconutbutter: Normally an option fee will be ‘snuck in’ at $100 or sometimes not at all. And the EM amount isn’t too important as you are almost never going to get that (and to be fair, if they cancel the contract during their option fee, you’re not due the EM). However, if I thought someone put it under contract just to later dick with me and low ball, I’d likely not sign off on their release of EM. So while I wouldn’t’ get that $, either would they. In a legal fight, you’d lose, so I’m not saying you should do that. But I’d do it because I’m spiteful about that type of stuff :)
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So really, at the end of the day, option fee is what matters. If someone is giving you the “I”m going to close, it’s a sure thing’ speech, then make them ‘put up or shut up’ with option. If they won’t put up option fee, while saying they’re going to close, there is a reason: They’re shopping the contract or they’re going to try to retrade after inspection.
We just bought an investment place and got it on the second go-round. The first we lost in a bidding war only to have the original buyer walk. We were the first call after that contract dropped. Thing was, while it was the first day of the listing, we actually went to see it before the offer went in. The other buyer didn’t even see the place until they were under contract. The selling agent later told us that he walked because they didn’t like the natural light.
Our realtor told us he is seeing more and more of this. $100 holders.
After reading all of the comments, I still fail to see the scam. In this market, all taking the house off the market for 6 days does is drive up the price when you put it back on the market. However, if sellers are that quick to reduce their price, I may incorporate this tactic into my next purchase.
The only scam here was the imaginary one dreamed up by the seller’s “landman boss”, which proves that the seller is just a bit too gullible.
Withholding EM seems like a particularly dangerous thing o do. If you are doing it without good cause you could be out the EM + court costs+ 3 times the EM amount iirc. I would not do that lightly.
It is called wholesaling. I have a number of properties and hardly a day goes by that I do not receive 1 or more “yellow postcards” from these “cash buyers.” They rarely offer enough to justify the haircut they want you to take, and the time off the market. These disciples of the various get rich seminars are attracted by the fact that they can get the upside by assigning the sale of your property to an investor with little or no financial risk to themselves. On properties that I have listed with a realtor, I am finding that 2/3 or more of the offfers are attempts to wholesale my property. Read the contract, and if you don’t agree or don’t understand, don’t sign it. One of the more creative schemes I have seen lately is an offer for full asking price…they will put 10% down (at their title company) and WHEN they “obtain construction financing” they will pay the remainder owed. They promise a few months turnaround, but never are willing to pay interest on this 90% of the property they are buying. They effectively tie your hands for 10% of the asking price. As the contracts are worded, they could hold the ability to sell your property indefinitely, while you are stuck paying property taxes, and upkeep. While they leave themselves an out if they want their 10% back, as the seller, you have no such ability.
I am a real estate agent and the same thing happened to a seller I was representing in The Heights. Offer was WAY over asking, buyer was “in love” with the house, blah, blah… Then came the low-ball offer and a thinly-veiled threat to sue if the offer wasn’t accepted. My seller passed and later got a letter demanding the option fee back. If it seems too good to be true…
I don’t get it. If the buyer/builder wanted it as is, why did they need an option period?If you allow a buyer an option period, remember that they can cancel for ANY reason during the option period. The moral of the story: don’t count your chickens before they are hatched, and/or make sure you can continue to show the property through the option period. As a buyer, if I do an inspection and find a major issue that was not disclosed, it is perfectly reasonable to ask for a price reduction or the buyer to repair/some sort of financial compensation. Also, as a buyer, I am not buying any home without appropriate inspections-if it is an older home, I will have a structural engineer check the foundation and an investigative plumber check the plumbing-not getting stuck with undisclosed (and often unknown to seller) foundation or plumbing problems….
The Lesson here is:
1. Vet your buyer. Find out how serious they really are about closing.
2. Negotiate the option term/fee. No one says your have to grant a buyer a unlimited option to terminate. Ask for a higher fee.
I would never give anyone a unlimited option to terminate. Give them the right to terminate, by make sure it’s only for specific reasons: title issues; major repairs; etc.
To clarify. He left a message immediately after house was listed. Realtor received message within 20 minutes of listing. He came to look at the house the next day. Was in there for no more than 5 minutes. Got in his car, drove up 3 houses stopped and called the realtor to tell them an offer at $10k over list, as is, 2 week leaseback for free, closing set for 2 weeks out. Asked for 5 day option period. Day before period ended, he called to say he’d be doing his own walkthrough, inspection not needed. He knew the square footage, the cost etc. He saw the pictures of the house. He knew the numbers going in. He learned nothing additional during his 5 days. 10:15 pm the last day, he sent an email declining. His response to my realtor’s inquiry if there was anything to be done to save the deal was, “we re-ran the numbers and we can do it for…” $55k less than offered originally.
Is it illegal? NO. Is it unethical? some may say NO. Is it somebody home sellers want interfering with their home selling process?…ABSOLUTELY NOT!!!
Also, they are interfering with good and honest buyers who are not savvy to the ways of the greed mongers. They are interfering with the sellers’ crucial first days as “new listings”.
So REDSCARE, since you are so concerned, this would not necessarily fall under scam, but would definitely fall under (dirty) Trick as for the category of this article.
There are a lot of “investors” out there who will put an offer on a house, say it’s cash (when it’s actually private funding aka hard money loan. Then if they can’t pull the deal together, things get dicey.
It’s actually not unusual in today’s market to get under contract immediately after putting your home on the market. These days, the good homes are going quickly. Multiple offers over list is pretty common.
Sounds like you caught a wheeler dealer.
If you hired a realtor to represent you, they would weed this type of buyer out.
Hope it works out for you!
Kay
(Yeah, I’m a realtor! Sad to see people taken advantage of.)
@Bernard – regarding only allowing termination for specific reasons – that’s how it works in a lot of places. Standard practice in the DC area (at least when I was here) was that you signed a contract to buy the house, with specific clauses allowing you to back out – for example, if you can’t finance it or if the inspection report is unsatisfactory. That actually gives wiggle room for normal people but not for developers – if you don’t have the money, you don’t sign the contract; you don’t need to inspect a house you’re going to tear down, so you don’t need an inspection clause. The bottom line is that when you agree on an offer you have a much more solid agreement that you get with the option period here.
@Redscare: A promise made with no intention to perform is fraud. The buyer in this case promised to purchase the house with cash at a certain price “as-is”. This was clearly intended to induce the seller into accepting the bid over any others in order to put the seller into a weaker bargaining position when the buyer pulled the rug out from under the seller by exercising the termination clause. The standard residential real estate contract everyone uses clearly states that the seller agrees to sell and buyer agrees to buy. It requires the buyer to state whether they are a cash buyer or are relying on financing. Anyone who represents themselves to be a cash buyer who is not is committing fraud if they intend to induce the seller into entering into the contract on that basis. It is nothing more than real estate bait and switch. The termination provision might get the rogue buyer out of any contractual liability, but not out of liability for fraud. Ultimately, if people are allowed to do this kind of crap, everyone will suffer with more onerous contractual provisions intended to weed out the fraudsters.
Ya – this happens literally all the time…The market in the Heights, Timbergrove, Oak Forest, Memorial Etc, is so hot that quite a few buyers just want to lock up SOMETHING that they can live with…They offer over asking price with a low option amount in order to lock the house up and buy them some time to look at other places as well….They continue to look at other houses….use a cheap inspector to find “issues” then demand a lower price…most have no intention of ever paying the original offer price….If you refuse, they will then use the financing contingency to get out of the contract. I see it ALL the time.
Its just another trick the buyers agents are getting houses for their clients…Every house I have listed recently I require $1000 option…if they are serious about as is, then the $1000 is not a big deal…
The bottom line is that the option money is the cost for the seller to take the house off the market (essentially since few people look at pending houses)…Buyer’s agents object, but its the reality of the current market. Also must write into every contract that if you are offering over asking you will be required to waive the appraisal contingency and show proof of funds for the difference.
FYI – This was an investment real estate broker, representing someone whose signature was illegible hiding behind an LLC. I actually suspect the realtor was the investor as the brokerage he works for uses the same business address as the LLC mystery buyer. The realtor is the only one who looked at the house, I should say glanced, as he was in and out in under 5 minutes.
I suspect there were no intentions to add on to the existing structure, but more likely to tear down and subdivide the MLS/MBL protected lot. Upon receipt of the offer, my realtor called to be certain they were aware of the MLS/MBL as I had hoped to weed out builder/developers. That is when he told her tearing down the house was never an option.
This is not a conspiracy of individual buyers and their agents, but instead a fraudulent way of builders/developers to devalue existing bungalows and cottages…IMO.
Golleee…. This post made me tired even skimming it. Point is, consult a professional that you trust. I am all about not using Realtors but people should really use Realtors (that know what they are doing). Cody, you are unrealistic in your option fee requirements but you others are wrong as well in that it should be 100 dollars or 10 dollars a day or whatever. It’s old school vs mew school and the market is voracious. Every deal is different. Always vet your buyers with a fine tooth comb, Consult a professional or know what you are doing. And yes, I am a professional.