Last week we discussed a situation in Chula Vista where two short-sale frauds were potentially undermining the ability of others to sell for top dollar.  Shady short-sales erode the  faith and trust in the system – which could cause participants to make erroneous valuations, or cause them to sit this one out altogether.

Here are some tips you can use to determine if a sale could has been contrived.

You’ll usually find these when checking comparable sales.  Here are the last four sales of the exact same floor plan in the same Rancho Carrillo tract:

$479,000 – April, 2011
$515,000 – May, 2011
$368,000 – December, 2011
$485,000 – January, 2012

The $368,000 is more than $100,000 lower than three sales of the same floor plan that all have similar locations? It sticks out like a sore thumb.

Let’s check the MLS listing history to see if there were any oddities:

1.  The listing agent inputted the property onto the MLS on June 27th, priced on the range $499,000-$529,000.

2.  Two months go by, and he wakes up on August 26th and ditches the crazy range-pricing idea, and changes the list price to a single number – $404,100.  There is no logical or ethical reason to dump 24% on price in one day – you should move gradually until you start getting offers.

3.  He takes a few days to secure the right buyer, and then finally marks it ‘contingent’ on 9/12/11.

4.  For some unknown reason, on December 1st, he raised the price to $459,000, tacking on 14% on the same day he marked it pending.

5.  He reports the closing at $368,000 on the 19th, and noted that he represented buyer and seller.

If you don’t have access to Sandicor, check the listing history at the bottom of Redfin: Link

I haven’t talked to this agent, so I don’t know if there is any rational explanation, but it would have to be a doozy – there are too many red flags, especially the ultra-low price in an otherwise healthy market.

The buyers can usually claim that they have done no wrong, they just told the agent the price that they were willing to pay.  The agent can claim that he just did what the buyer requested, and the bank approved it.  If the banks don’t crack down on these, agents will keep doing them, because there are no ethics or morals guiding the market – and nobody cares about the banks.

I see 1-3 of these happening every day around NSDCC, and never hear any listing agents objecting.

General red flags that may indicate something is fishy:

1.  Weird or unusual price changes, especially after marked contingent or pending.

2.  Extra-large gaps between list price and sales price – more than 10%-15%.

3.  Listing agent represents both buyer and seller.

4.  Days-on-market equals zero or negative number.

5.  Property re-lists quickly with same agent at much higher price.

6.  New-owner name is corporation or sounds like a flipper.

7.  If you are tracking closely, you’ll see the listing agents making changes late at night.  Sandicor resets the hotsheet to zero at midnight, so it’s easier to hide the evidence because most agents just work off the hotsheet’s daily changes.

8.  The “five-second listing”, where a new listing gets inputted and then immediately goes contingent.  Sandicor is complicit, because they don’t stop the days-on-market ticker for contingents, making these listings look like they have been “active” all along.

9.  The “impossible-to-show” house, where not only is there no showing instructions, when you call the agent there is no response.  How about the recent one on Three Canyons where the LA agent just let his voice mail fill up, so when you call you can’t even leave a message – voice mail is full.  I have heard that one several times.

If you have 4-5 of these red flags on one deal, then you know what happened.

“What’s the big deal Jim?” 

These lowball short-sales affect other individual sales, and thus, the market at-large.

I have a listing in escrow that was appraised this week, with a sales price of $300,000.  There were two larger but identical comps – one sold for $329,000 a few months ago, and a short-sale closed for $270,000 last month.   There was another sale at $368,500 in January of the next-bigger model.

We tracked down the buyer of the low-sale, and he says that he intends to put the property back on the market for $340,000 in three more weeks.  But the appraiser ignores that evidence, throws out the $329,000 and $368,500 comps, and turns in his report at $270,000.

Because it was a VA appraisal, it goes on the record for six months for all future buyers to use.  Now I get to ask the seller’s lender/investor to agree to the $270,000, or find a new, non-VA buyer.