6 Dirty Tricks of Real Estate
…and How To Solve Them
It’s easy to get messed over in real estate, regardless of whether you are the Buyer, the Home Seller, or the Realtor. Here are just a few common nasty tricks and techniques that have been used against me in the past, and my solution to these potentially deal-breaking problems. Some REALTORS consider these “secrets” and do them on purpuse to gain advantage in a real estate transaction, while some simply don’t know better.
1.Slipping in a Loan Contingency
In many states, the Realtor’s Association will have a check-box, or disclaimer clause in their standard Residential Purchase Contract regarding the Loan Contingency (a requirement that the buyer’s loan must fund prior to closing), that, in some states, must be removed ‘in writing’. If a new or inexperienced agent is aware of this contingency and fails to remove it, it could leave a loophole open in the contract for the buyer to get out at almost any time up to closing. Many experienced Buyer’s Agents will frequently try to slip this contingency through, without the Listing Agent’s awareness, and sometimes purely to test their attentiveness and/or intelligence. The contingency basically allows the buyer to walk away from the deal, clean, and with their earnest money deposit returned in full, all the way up to the day before Escrow usually closes. Most loan contingencies say the deal is done “if the loan fails to fund for any reason”. Sometimes Real Estate Agents get wrapped up into how much money they’re gonna make at closing instead of paying attention to important time frames that may include provisions or contingencies that must be completed, or removed, in writing. Failure to do so could result in total sale collapse without any loss to the buyer except for their “out of pocket expenses”… but they’re still likely to get their earnest money deposit back. This is an awful situation for a Seller, essentially putting them back to square 1… unless the Realtor has been successful in pulling off #5 below.
2.Failure to Disclose Information
This can be a problem for many reasons, on many levels. If a major defect with a home went undisclosed in a sale, but was known (meaning ‘concealed’) by anyone on the Seller’s side, get ready to “Attorney Up” because the mess is certain to hit the fan sooner or later. The thing you’ve got to be most aware of is that, regardless of fault, in many states Attorneys, themselves, can be sued or disbarred if they don’t recommend to sue anyone and everyone involved, including the seller and the Realtor… anyone who might have insurance. Lawyers know how to get insurance payouts through legal settlements and are happy to drag any unfortunate Real Estate Agent or Home Seller through the mud if there ever was a significant failure to disclose. Surprisingly, however, it still happens (the seller doesn’t want anyone to know there had been a roof leak, a flood, foundation problems, other catastrophic damage, etc.) and the fear of this alone gives Sellers more willingness to let Buyers out of a transaction at the last minute, unscathed, and possibly refunded for the buyer’s out-of-pocket expenses, just to avoid a lawsuit. If the Realtor was the one who failed to disclose something, a big payout, or lawsuit should be expected. Failure to Disclose is among the most common real estate lawsuits, and are usually settled out of court by insurance, but there isn’t any Realtor who enjoys enduring that difficult experience.
3.Undisclosed “Buyer’s Home for Sale First”
Yeah, this one is a favorite of mine (note, extreme sarcasm). So I’m representing the seller, and working with a buyer to close a home sale through a Buyer’s Agent. Agents usually aren’t permitted to speak directly to the other principal, so all communication goes through the Realtors. It leaves both sides with no choice but to trust the other Realtor and for each to do his or her share of the job. This particular incident, we were more than half-way through a 30-day escrow, and somewhere around day 25 (a few days before the loan was supposed to fund), the buyer’s agent calls me up to let me know ‘there’s a problem…’ The buyer, not having previously told me, had his OWN home up for sale first, with a buyer in escrow, and had been expecting (hoping) to close his deal before our deal was supposed to close… but it didn’t work out. So now, more than 2/3rds into the escrow, I find out the buyer had a home that was contingent for sale first. I could have easily reported or sued the buyer’s agent, but by this point, both the seller and I just wanted to get the deal closed. So after another 45 days or so, our deal finally closed. I’d love to see more Realtors held accountable for any ‘failure to disclose’ issues, but lawsuits can be expensive and often becomes something no one wants to deal with. So the seller takes it in the pants and nothing happens.
4. Avoidance or Failure to Remove All Outstanding Buyer Contingencies
I’ve seen Buyer’s Agents drag this one out purposefully and intentionally, for as long as possible. In most states, it’s usually the last contingency to remove… to officially say the buyer is “all in” and to finally put their earnest money at risk if they don’t close. If, for any reason, the buyer or the agent has anything to hide, they’re going to use this as their last resort if all other stalling tactics have failed. It’s a last-ditch effort to protect the buyer’s earnest money deposit and usually signifies something may not be everything it seems to be. But even if tf the deal falls apart, but it can’t be proven the buyer breached or defaulted first, they almost always get their money back… again leaving the seller back at square one.
5. Stringing Along Two or More Buyers for Same Property
I’ve seen this one instigated by Sellers and Realtors too. Essentially, in any Real Estate transaction, everyone is required to “tell the truth”. In some cases, someone on the Seller’s Side ends up with more than one interested buyer and doesn’t disclose to everyone that a ‘first’ buyer already in place. The unknowing Buyer’s Agent thinks his/her client is first in position, but in actuality, may be in second or third. I’ve seen buyer’s being strung along for weeks or even months, using various excuses and depending upon the situation. This is just one of many failures that can occur as a result of not telling the truth, also known as Failure to Disclose, again.
6. Seller Screwing Over Realtor for Commission In The End
Yes, I’ll admit this happened to me… more than once really, and there wasn’t much I could do about it. In this particular incident, I was in a contract to sell a home with the owner. Everything had been agreed upon, up front, in writing, in the contract, to include the sales commission. But when the buyer gets in Escrow, and after they look over their closing estimate, all of a sudden he starts to think he agreed to pay me too much money. On most closing estimates, usually, the Broker’s commission is the largest number, by far, And in a few cases, after securing a buyer and getting the home into escrow, I’ve had sellers actually threaten to cancel their deal if I don’t lower or give away some of my commission at the last minute. Yes, I could say no, but if the seller has any exit loopholes still open, I could lose all my time and investment too. Sometimes it’s just better to cut your losses and walk away with ‘some’ money, instead of ‘no’ money.
So What Can Be Done?
In many cases, most of these problems can be avoided by “Dual Agency” representation. This occurs when the Seller’s Broker also represents the Buyer at the same time. “Dual Agency” is not legal in all states, so check your local laws for specific information. Nonetheless, Dual Agency removes one person from the equation and facilitates better communication and usually a smoother closing. By using one Realtor instead of two, a significant communication barrier is eliminated and it makes it so much easier to communicate between the buyer and seller directly. Dual Agency does require an ethical and experienced Realtor, because it can be easy temptation to take sides; also, having complete knowledge of the Realtor duties to both sides (the buyer and seller) must be fulfilled, and meeting both of their needs simultaneously. When done properly, however, Dual Agency has very strong benefits for the Buyer and the Seller both.
Considering the Listing Broker has a Fiduciary Duty (meaning, a duty to put the Client’s interests first), matched with my belief that Dual Agency is to the Seller’s benefit, I actually strive for Dual Representation as much as possible. This isn’t an easy task, but I’ve figured out a way to improve my odds by using “Exclusive Agency” contracts, and getting written permission from the seller to withhold the property from the MLS. In our local Real Estate market, if the home is well priced and looks good, it’s just as easy to sell it using free real estate marketing like Facebook and Zillow. By selling this way, we increase our own chance of capturing the buyer, thereby avoiding having to pay a large Buyer’s Agent commission, saving the Seller thousands of dollars, and opening the door for the Seller to have far more flexibility in their transaction than they normally ever would.
This is what I love the most about being the Discount Real Estate Broker Sales Model. The things that make me happy about selling a home lines up perfectly with the things that make the seller, and the buyer, happy too. There aren’t too many Discount Real Estate brokers to compete with, so to have a well controlled and executed real estate sales transaction close in a smooth and timely manner is great for all three parties: the seller, the buyer, and the Realtor. This creates the rare and sought-after win/win/win situation where all three parties have the best experience, and get the best deal possible. If you haven’t thought about it already, before you agree to pay tens of thousands of dollars in commissions for a standard brokerage to sell your home, also invite a Discount Broker to the table too. See what he or she has to offer and choose the person who you think will do the best job, sell your home for the right price, in the right time, and save you money along the way.