A Student called to tell me he had a buyer for his first rehab property. Unfortunately, his repair estimate was off slightly and the appraisal came in low. The net result was he would probably lose $5,000. Not a good start to a rehabbing career but typical of what can happen if you aren’t careful.
He went on to say that he felt the property was worth $165,000 – $175,000 but the appraisal came in at $130,000. The first problem was that a Realtor® who farmed this neighborhood brought a buyer and wanted his commission plus $5,000 as a discount at closing for his buyer. Considering this, the net sales price was closer to $125,000 which represented a very small profit for the Student.
This all started when the Student decided to list the property on the MLS® to try to get a buyer and build his buyers list. The flat-fee agent who listed the property incorrectly wrote in the agent’s comments “Cash Buyer ONLY!” As a result, the Student got no phone calls during the first week – not even an inquiry.
If you do a “flat-fee” listing you pay a fixed dollar amount ($195 – $495) but no commission to the flat-fee listing agent. When completing the intake form for the flat-fee service, make sure you are the primary contact for buyers to call for showing instructions. You now have a property listed on the fabled MLS®! A buyer will likely come with a buyer’s agent who expects commission. What a flat-fee listing saves you is ½ of the regular commission because only the buyer’s agent gets paid at closing.
Going into the second week of the listing, an agent called to say that he “ruled” the area and could easily get a buyer for the property. The Student hesitated; but since he had no other prospects at the time, he decided to take an offer the agent presented. The offer was $135,000 but less $5,000 the agent’s buyer needed to come to the closing table. This buyer also had a conventional lender so the deal was contingent on an appraisal. The buyer was very qualified for the mortgage but had very little money for his down payment.
The Student and buyer signed the agent’s purchase and sale contract. At about the same time, the Student discovered the error in the MLS® listing and asked the flat-fee listing service to change agent’s comments to “Financing OK”. Within three days he had four offers and two above the listing price of $140,000!
Unfortunately, he was now locked into the first contract. He correctly decided to move toward closing by ordering the title work and the lender ordered the appraisal. He kept the list of these other prospective buyers just in case the agent’s buyer didn’t close. When the appraisal came in at $130,000 the Student knew it wouldn’t work with his current buyer. He then asked the agent to have his buyer sign a Release of Contract.
However, the agent said “no” and refused to give the release with the feedback that he was going to speak to the appraiser directly and try to get the appraisal revised to $135,000. After a few days the agent confessed he was unable to sway the appraiser. However, he was still unwilling to have his buyer sign the Release.
Within a couple of days the agent relented and said he had the signed Release all the time and would send it over. Of course the Student could have lost his new buyer because his old buyer wanted to wait to make sure of whether or not he was getting the property.
In summary, if you are listing your property with a Realtor® check your listing as soon as it appears in MLS® to be sure the information is correct. If you find an agent uncooperative regarding a Release, contact the state’s Department of Business Regulation and complain. Always keep your emails and make notes of verbal discussions with anyone involved in the transaction. Finally, make sure you know what the “real” Fair Market Value (FMV) is of a property – not just the highest comps in the neighborhood!
To your limitless success,