I have a few thoughts to share with you about what's going on behind the real estate scenes with investors (especially in this market), and how to ensure you or your clients do not fall prey to unscrupulous activities that costs tens of thousands of dollars—sometimes more.
We all know that the goal of investors is to profit, and in real estate that usually means "buying low and selling high." However, in this current market where we are seeing many offers for just one property, it is increasingly hard for investors to accomplish their goal of making an acquisition at a low enough price that they can turn it for a profit.
They're gotten creative.
Most investors know that Realtors® can be their ticket into acquiring property if they can entice the agent by offering to give them both sides of the transaction, and the listing on the back-end.
Let me explain how that works.
I often receive emails from investors who offer to allow me to represent them as their buyer's agent (so not only would I get the listing commission, but I'd also get the buyer's agent commission). We call this "dual agency" or "double-ending". That’s my reward if I will somehow coerce the seller into accepting their offer - not necessarily in their best interests.
How this can play out for you or your client works like this: An agent who bites at this investor offer would place a call to the seller(s) and persuade them to sell it off-market, explaining to them that it's much easier to sell it off the market—no showings, no repairs, as-is, and they can close escrow whenever they want to. For some, that sounds very appealing. The agent gets the investor's target price, and convinces the seller that this is what they should sell the house for. The agent justifies this by telling the seller that the cost of convenience—and no repairs—is worth it.
The math: If the house is worth $600,000, the investor may want to buy it for closer to $500,000, and the agent receives 5-6% of $500,000, rather than 2-3% of $600,000—plus the promise of the listing on the back-end. This is great - for the agent! However, this is not so great for the seller, who nets around $100,000 less than they would have.
Average agents are motivated by this all day long. Worse yet, investors may contact your clients directly because they see the public record filing of the divorce and lure them into selling off-market for cash, as-is.
The agents make more money and the investors make off like bandits—all at the expense of your clients.
My advice: With very, very few exceptions, placing the house on the open market—making it available to all ready, willing, and able buyers—is the way to procure the highest possible sales price. In this market, homes are selling for well above list and appraised value. There is absolutely no reason a house should be sold off-market right now. Fast closings and bidding wars are the norm.
Sure, it's a headache to deal with showings and possible repairs, but the cost of convenience for a divorcing couple will surely set them further and further back financially. The equity in their real property is often the source of funds they use in order to pay off debts (including attorneys' fees), and rebuild their lives.
Every. Penny. Counts.
These types of emails are ignored by me. I do not represent buyers on my listings, so I am never in that conflict of interest. If your client calls you and says they've got an investor who wants to buy the house, your antennae should go up.
Give me a call anytime you have a question or want to run something past me. Divorcing homeowners are in the fight of their lives and deserve to have advocates working for them, not against them.
Have a great week!