Dear Concerned:
Unfortunately this scene is becoming all too familiar. Twice this past
year I was called in to give second opinions to homeowners who were
offered cash for their properties by would-be listing agents. In both
cases the houses were worth substantially more than the cash offered.
With a relatively small investment in decorating and repairs, the
homeowners eventually sold their homes using the normal MLS process;
each netted over $60,000 more than the cash offers would have given
them!
Your neighbor is likely being offered a cash deal by a “flipper,” an
investor who intends to make a fast buck by selling immediately (often
on the same day he purchases) at a much higher price. The practice of
“flipping” is not illegal in itself—it’s simply exercising the freedom
to buy low and sell high—but it’s repugnant to picture some scoundrel
congratulating himself on the great deal he made at the expense of an
old man’s nest egg. The infamous flipping cases we’ve all read about
in the papers involve the illegal practices of fraudulent appraisals
and lending, where buyers are ruined by a mortgage far exceeding the
real worth of their property—the darkest side of flipping. But let’s
take a closer look at the legal version, where the real gouging
happens to the seller.
According to William Bronchick, an attorney who cheerfully publishes
how-to articles on the subject, a flipper may be a “Scout,” who simply
makes his money by finding good opportunities and selling the
information to an investor, usually for $1000 or less. Or he may be a
“Dealer,” who actually agrees to buy the property and, with his
earnest money on the contract, may decide to sell his interest before
closing, or go to closing and flip the property himself. Finally, we
have the “Retailer,” who buys the property from a Dealer, or buys on
information from a Scout, with the intention of preparing the property
for sale to a new homeowner at the “retail” price. If that sounds like
a lot of mark-ups, it is—and all at the expense of the seller.
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So who are these “flippers,” and
how do they differ from other investors? For one
thing, the investor who is buying property for the
long haul doesn’t need to make a killing on the
purchase price—he knows the property will
appreciate over time, and he buys with the
intention of having his tenants help to pay the
mortgage. A flipper is looking for profit
immediately, thus he must pay the seller less than
the property is actually worth, in order to avoid
the much harder task of finding a buyer willing to
pay more than the house is worth. Flippers can be
individuals with contacts to the elderly, they can
be high-profile corporate franchises with
billboard ads, they can be—and this dismays me the
most—licensed Realtors who ignore the spirit of
their own Code of Ethics.
My advice to you, Concerned, is to step in
immediately, contact a Realtor you trust, or
several. Get one or more legitimate market
opinions, and show the door to any agent or
individual who offers cash to “take the problem
off your hands.” Remember, if your neighbor’s
house is in poor shape, he can sell “as-is” to the
whole market through MLS. He’ll get a better
result than any pre-market cash offer from an
investor. To preserve more of his savings a savvy
agent can help him through the process of
decorating and repairs, and he can sell at the
market price. It seems that we’re going through a
time when the Wall Street shark mentality has
moved to Main Street, and we must take care to
look out for each other and ourselves. Don’t let
the bad guys win this time.
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Pat
Rosaves is a full-time real estate
professional living in the Seward -
Longfellow area. She has more than 27
years experience in helping people with
their real estate needs. Questions may be
sent to her at River Realty, 2543 38th
Avenue South, Mpls, MN 55406. Or call her
at 612-724-1314 or email her at
pat@riverrealty.net
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