“You don’t have to do any fix up, I have buyer that will buy it “AS IS” !!!” Well guess what? So do I. All I have to do is look in my email deleted folder. I have hundreds of buyers wanting to buy my fixer upper listing. These Flippers are so nice that they will even let me represent them even though they are licensed brokers. This however, may NOT BE in YOUR best interest.
Here is the scenario. There are hundreds, if not thousands of “Property Flippers” in search of their next project. Yet there are VERY FEW fixer uppers listed on the market. When there is demand for a product and yet supply is limited, it can produce Unethical Behavior. Just look at the drug trade.
So how does this play out and how do sellers get thrown under the bus? If you are a Flipper in desperate need of your next project to keep you business afloat, where do you look. The first place you might think would be the MLS, but there you will have to complete with other “Flippers” and this will cut into your profit margin. So you look further upstream. The final stop would be to go directly to the seller, but then your aquisition costs would be astronomical. Direct mail, radio spots and other advertising campaigns would break the bank. Plus you would be confronted with having to work with the seller in an adversarial relationship. You are the direct buyer trying to negotiate with the seller. Its like going to the car dealership. You know the dealership isn’t looking out for your bottom line, even if your salesman pretends to be on your side and says “Let me check with the manager”. We all know that phrase.
The sneaky and efficient strategy is to use a “Trojan Horse”. What does this horse look like? The horse is a prospective listing agent, whom the seller thinks has his best interest at heart, but is swayed by lure of selling your property quickly, but most importantly collecting the full commission. Now why on earth would a Flipper company that are licensed agents be willing to forego a 2.5-3.0% commission? By offering you the chance to “Represent” them, you will route the property directly to them at a price which is significantly below market. There is no other reason.
You thought you had a agent that you could trust. They are telling you everything you want to hear. You don’t have to put fix anything up. The agent just shows up with an offer and you are done. You don’t even have to show the property. However, behinds the scene the agent is presenting an offer to you without the benefit of putting the home on the market and true price discovery. Plus they have financial incentive to talk you down in price.
How real is this scenario. All I have to do is look in my deleted emails to see 100’s of offers. There are even agents so nice that they let me collect 3 commissions. Not only will they let me represent them on the purchase, but in addition they will let me represent them once the flip is ready for market. How nice!, but likely at your expense.
There is nothing wrong with electing to not fix up a home before putting it on the market. Sometimes projects just aren’t profitable or worth the effort. However, you’re radar should be aware of the agent that has a ready buyer in their back pocket, ready to make your life easy peasy. It is likely to cost you tens of thousands of dollars. There are three things to look for in an agent. One, you need an agent that makes suggestions on how to put money in your pocket. If an agent seems too willing to just get you an offer, they are likely either lazy, incompetent, or looking to through you under the bus. Two – The agent should not be willing to present an offer to you without putting the home on the market. True price discovery requires all buyers to have a chance to bid. Maybe the agents initial offer is the best, but the only way to know is to expose the home to all potential buyers. Finally, you need an agent that doesn’t “NEED” your business and has a Moral Compass which causes them to do the right thing. The carrot of 3 times the commission should never enter your agents mind. Hopefully you can be a good judge of character.
When I see these emails come into my inbox, I get a slightly queasy feeling. The question “Do you have any off market fixers?”, just strikes me as wrong as somebody who understands my fiduciary duty to representing my sellers. There is nothing wrong with me representing a buyer on one of my listings, but the offer has to be the best offer that the seller has to choose from. Then it can be a win-win-win.
Are these emails effective, looking for unscrupulous agents? I would say very effective. When I got into the business, about 1/3rd of all listings were fixer uppers. Today however, I see very few fixer uppers for sale, yet many flipped homes. This only confirms that many of these fixers are routed directly to flipper buyers, never hitting the market and being exposed to full price discovery.
I thought you should know what can happen behind the scenes.