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Reasons To Be Ethical

The main point of the article published in Realtor magazine was to spotlight how shady, fraudulent dealings by realtors are bad for the market. Specifically, I’m talking about when listing agents sell a new listing to their own buyer before inputting it onto the MLS.

Realtor fraud is bad for business, yet nobody talks about it.  Shady shenanigans are allowed to exist, and in some circles they are encouraged, for one reason – to pad the wallets of agents.  When you see some of the finest realtors in town doing it, you know you got a problem:

I usually don’t direct any blog material towards agents – can the regular bubbleinfo audience can be patient while I try to make a difference?  Thanks.

‘Not Worth All This Hassle’

From the UT:

A politician who went to prison 20 years ago in one of Arizona’s most notorious public-corruption cases has apparently been practicing real estate in San Diego County for almost 14 years, using his son’s clean record to get a license.

Donald James Kenney, 73, was a real estate broker at Coldwell Banker in Encinitas until last month, after The Watchdog inquired about his past.

The Department of Real Estate began an investigation after The Watchdog inquiry and ordered Kenney on Wednesday to stop practicing real estate. The state concluded that Kenney deceitfully used the identity of his son John Kenney, 44, to obtain a license.

The elder Kenney, who lives in Carlsbad, denies any wrongdoing and denies that he is the lawmaker convicted in Arizona. He declined to meet in person to go over documents gathered by The Watchdog showing he is the former politician.

The elder Kenney and the convicted legislator share the same date of birth and the same three colleges on their résumé. They look the same in photographs. And a letter sent to Kenney as part of his recent effort to restore civil rights lost after his conviction in Arizona was addressed to his Carlsbad home.

Kenney, when he was a legislator, took $55,000 in a gym bag from a Phoenix police operative in a sting operation in 1990 and was sentenced to five years in prison.

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Legal Update

The lead attorney for CAR makes an annual visit to discuss the latest issues and changes.

The first minute is muffled, but what was said is that the California Department of Real Estate is investigating complaints about short-sale fraud being committed by realtors.

Here is the link to file a complaint: http://www.dre.ca.gov/cons_complaint.html

This video might pertain to realtors only, but it offers some general insight into the business too:

Short Sale Stink

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.

Short-Sale Cannibalism

Sent in by an anonymous flipper.  Fifteen percent of this year’s NSDCC sales have been round-tripped:

We’ve purchased a couple at trustee sale recently where the “comps” are all short sales and REO’s. 

Typically it’s never a problem getting 5 – 10% more than a distressed sale as most good appraisers understand the nature of the discounted distressed pricing. 

Recently however we’ve been dinged on three sales because the appraisers didn’t give us consideration for the fact ours is an equity sale vs. the distressed sale comps.  Prior to this we hadn’t been knocked down on price as a result of an appraisal for over a year. Either we’re in the midst of an unlucky streak with  incompetent appraisers, or maybe there’s a shift taking place in the appraisal community.  Too early to tell I suppose.

There was a nicely-upgraded, 3,576sf house in Chula Vista that we got outbid on today.  The opening bid was $440,920. 

There are only two recent closed “comps” in the whole neighborhood. The first closed for $510,000 on 1/26/12 as a short sale. The group that bought it is a competitor of ours and the listing agent who was also the selling agent in this transaction handles all of their listings. So he listed it low and pocketed the listing by not accepting other offers. He even stated in the confidential remarks “No showings at this time, an all cash offer has been presented to lienholders for consideration.” He double ended the deal and sold it to his buddies.

Three days after they closed escrow on this house for $510,000, they relisted it for $639,000!

They obviously couldn’t have done much in the way of improvements in 3 days, nor would they have needed to as it was the former model home. And I’m sure you can guess who got the new listing. The weird thing is they just withdrew it from the market today. Probably because at 27 days on market it’s getting a little stale so they’ll likely relist in the next couple of days.

The other “comp” is the same exact situation, but different agent. Put it in pending status immediately after inputting the listing so it shows 0 days on market. Don’t think this one’s a flip though….likely an end user. But once again the agent double ended the deal and sold it to someone they obviously know. The sale price on that one was $525,000.

The homes in this neighborhood are worth over $600k (highest sale on street was $1,425,000 in 2005).

 The winning bid on this house today was $512,100. The guy who bought it is one of the old timers at the trustee sales…..he’s been doing it a long time. The true market value of this house is likely in the $600k – $625k range. He’ll have no problem finding buyers but will he get his appraisal based on the fraudulent comps? Obviously he doesn’t think it’ll be a problem.

In the meantime, this is just one more additional unknown we have to consider (among the many unknowns) that makes this business more and more of a gamble every day.  If this is, in fact, the start of a new trend we’ll have to make the decision going forward whether we hold firm – or fold.  If we don’t hold firm and accept distressed sale pricing as market value, then that will drag values down even further.  The short sale agents will have to come in lower than our comp to tempt future buyers, and we in turn will be faced with lower distressed sales prices that could affect our appraisals.  Could become a vicious never-ending cycle.

Price Discovery In Progress

We saw earlier in the Realtor Ethics post that the NAR doesn’t like the re-inputting of stale listings to make them appear to be hot new buys.

But because the listing numbers are sequential, and start with the year inputted, realtors want their listings to be sporting a fresh new number, starting with a 12.  I would guess that 1/4 to 1/2 of the new 2012 listings are repeats from last year. 

At least this one has been aggressively lowering their price:

Realtor Ethics

I recently completed 40 hours of continuing education to renew my broker’s license, and took these notes during the Ethics class on what I see most commonly abused:

Realtor ® Code Standard of Practice 1-3

A licensee is not permitted to knowingly make a false representation as to the value of a seller’s property in an attempt to secure a listing.

Unfortunately, many licensees frequently violate this ethical standard. Agents often face fierce competition to obtain listings. Consequently, many licensees will knowingly represent to a seller that the listing price of their property should be higher than reasonable facts can justify. This practice is often referred to as “buying the listing”.

The seller, not understanding that a willing buyer will have to pay the inflated listing price, is led to believe that the listing agent suggesting the highest price can actually “get me more for my property” than those agents who may have been fair and honest about the price of the property.

The licensee that listed the property at the inflated price knows that the property will not sell at that price. The licensee then will attempt to beat the seller down in price during the term of the listing in order to bring the price more in line with reality – the reality originally presented to the seller by competing listing agents.

This method of buying listings is to be regarded as a serious ethical violation and should not be practiced by any licensee.

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