Selling REO properties in Hemet CA puts me in contact with all sorts – first time home buyers, move-up home buyers and investors.
Ideally, I want to do business with investors, as they will typically purchase additional properties during the course of the year, and even more in future years. Not to mention, they will be selling their properties as well.
But I have got to ask myself at what cost will I do business with an Investor? The successful ones are very savvy, and I have to be on the constant alert for someone trying to get into my pockets.
It is one thing to ask me to take a reduced commission if I am doing both sides of a deal. I never like it, but I can certainly understand the reasoning and motivation behind it. Yes, in the past I have occasionally conceded this point to make a deal work.
However, I have never been squeezed so hard I felt like a discarded lemon as a buyer is making his lemonade, at my expense!
I have been working with a new investor who found me through my Internet presence. He seemed very motivated to enter the Hemet market, after reading some of what I have published on the topic. We first met about 3 weeks ago. His initial visit was to investigate the community first hand. I drove him around for about an hour, showing much of what I had written about. He now knew I was for real and not misrepresenting anything.
My investor, who owns multiple properties already, asked for half a dozen selections that he could take the time to crunch the numbers on his own and perform some due diligence. At this point, hew was not interested in previewing any properties. I provided the necessary information and scheduled an appointment for the following week.
When my investor returned, he was very focused on the REO properties we have here in Hemet. Of the six listings that I provided him, two were already in escrow. So he now knows that good homes that are priced right are selling. We looked at the other four, as he now knows that I have a good eye for the deal. Each of these homes met his expectations and based on his own analysis he now knows they will all create a positive cash flow, based on prevailing local rents.
We got back to the office and wrote offers on two of the properties, for 3% less the asking price. He knew how far the banks would go on these fairly newly listed properties and he pushed the envelop to the max. Smart guy. He wrote a good faith deposit check on both offers for 3% of the purchase price and waived the appraisal contingency and the loan contingency but did keep the home inspection contingency. Good offers all the way around.
Within three days, we opened escrow on both. The banks only allowed a 5-day contingency period to perform the inspections and complete our due diligence. Escrow was scheduled to close in 21 days.
Needless to say, I was feeling pretty good with two double-ended deals in escrow scheduled to close before the end of the month.
Then the Hammer Drops
This guy really was slick. He waited until noon on day 5 to call me. This guy is a master at using other people’s money and now he wanted to use mine. First he was very nice and respectful, complementing me on my eye for real estate investment properties. He then informed me that he had a situation arise which are temporarily diverting his cash reserves and that moving forward on these two transactions are questionable.
My investor, who I wanted to believe, but just seemed to slick in his story, insisted that the only way he could close escrow on these properties was for me to take my commission in the form a note on the property, with a balloon payment due in 2 years. Of course the note would accumulate 10% interest for me, so I should be very happy with the offer.
Just as quick as my slick investor dropped this hammer, I heard a click on the phone and he apologized but said he had to take this call regarding his other personal situation and that he would call me back in an hour for my answer.
Decisions…Decisions
Now I’m on the spot. Everyone gets paid but me. He didn’t even offer me the opportunity to negotiate with him. We only have a few hours left and the ultimatum had been laid out very plainly for me to see. Yes, I had expectations for future deals with this guy, as he was interested in adding at least a dozen local properties to his portfolio of over 150 existing properties, across the country (I since did my own due diligence on who I was working with).
I really had no one in the office to discuss this with. This was going to have to be my decision. I only wish he had tried to negotiate with me at the time of the offer and not put me under the gun.
Finally I had to let my gut take over which was telling me to run. If he is going to take this type of advantage of me so early in our relationship, what would I be setting myself up to in the future? I hate it when I have to remind myself that the “Customer is Always Right”. I just can’t agree with that.
Turn The Table…
45 minutes later; I made the painful decision to drop this whole train of thought. I quickly went into my forms program and created the necessary document to pull out of escrow and email them to him with a short note that did not address his offer to me at all. All I said was that if he wants his deposit back on either of these escrows he would have to sign these forms and return them to be in time for me to get them to escrow by the end of the day. Just as I was getting ready to send the email, I went ahead and added a PS – he would actually have to get the paperwork back to me within the hour, as I have a personal obligation at 2:00 and will not be available again until the next business day, at which time his deposit would be waived and he would have to go through with the escrow of lose his money.
Did I make the right decision…I don’t know? The forms were returned by 2:00 and I closed the escrow and sent the escrow office instruction to return the money. I certainly won’t be tracking it and going the extra mile for this guy. The good news is I put one of the properties back into escrow with a first time home buyer this afternoon…on a full price offer. I’m sure the next one is right around the corner.
I suppose I could have discussed this in greater detail and tried to negotiate something – maybe keep one and drop the 2nd…but if he was playing games, which I am convinced of, maybe in losing this round he won’t be so brash the next time he tries to do business with one of my fellow REALTORS® - cause it won't be with me!
What would you have done?
Now Have a Blessed Day,
John Occhi, REALTOR®
Century 21 Crest - CrestREO
CrestREO.Com
Hemet - San Jacinto Valley
951-927-9473
Author of "What You Need to Know...About Foreclosure and How You Can Stop It!" - If you are a Hemet or San Jacinto Homeowner.
This blog and the contents written here is the intellectual property of John Occhi, Hemet California REALTOR®. The views and opinions expressed are just that - views and opinions of John Occhi and those who comment. Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance.
This blog is part of the ActiveRain Real Estate Network, which is a social network highlighting the best of Web 2.0. Information is provided with the intent of educating and assisting home owners, home sellers, home buyers and real estate investors with information the can be used to make better real estate decisions.
I am proud to be a full time REALTOR® with Century 21 Crest and the CrestREO Division who is proud to be a contributing member of the ActiveRain community.
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The market has changed and so have I. I am now in my 4th year of successfully working with banks and Asset Managers in the preservation and sale of REO Properties throughout the Inland Empire, CA
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John- You did the right thing, you went with your gut. You would never have been paid on the note. This is one of those slimy tricks they learn from buy with nothing down programs. I am so proud of you for not taking him up on his offer. I am sure this was his plan the whole time. And he just used you. I do not negotiate on our fees. I would rather walk away from the deal because I don 't need those types in my life. How would he like it if someone did that to him? Katerina
I would have told him no, no way no how. I would have ran, you were right to go with your gut. He had no respect for you, he proved that, you did well.
You did the right thing. The first property was meant for the first-time buyer who is on contract right now and the right buyer for the second one will be around shortly. You really didn't have anything to lose because you know you never would have seen any money on those notes.
You did the right thing. The "investor" planned this from day 1.
John: One word for you....."NEXT!" It is a shame that the man took advantage of you clearly. I don't suppose you'd be interested in sharing the name or location of such said "investor" would you? Either way, thank you for the heads up. Sometimes nice people have a hard time sniffing out the real users and losers out there. Thanks! SM
I think your gut was right on with this guy and I know that he had this planned from the beginning!
I've done those in the past for my fee on the back end, plus a part of the profit. Only with people that I ahve done a lot of business with though.
I personnally don't know what all the argument is about. This is a decision that you should have made based on your financial situation. If you can afford it, why not this is simply deferred payment with interest. You will not be requird to pay tax on it until you actually received it. It is sort of like putting money in the bank.
I don't know why you would not get paid as one person said. We all know that notes on property are liens and can be foreclosed on. Not only that but when the property is sold or refinanced all the liens and notes must be paid off for the buyer to obtain a clear title.
I think you being a smart guy would record the note with your title company through the closing escrow.
I sometimes wonder if realtors are just simply out to get their 6% and can not think of anything else. I have requested this of several agents of which only one was smart enough to understand the concept. Now she will ask if this is a deferred payment or up front. She understands that money in the bank can be used when times are bad or things are not exactly jumping in the market place for her.
When I was an agent I learned this techniqure from an old investor that wanted me to take a deferred payment on a property. He asked me to give him 2 reasons why I would not do this type transaction. When I couldn't give him one that made sense, I went ahead and did the transaction.
On one I even had to foreclose on the property. The result is I had a $125,000 house for a commission that was only $2,500.00 I found a foreclosue company that did the entire foreclosure and took their money out upon success of the foreclosure sale. No one purcased the property at the sale so I was out of $3,700 for their services. The equity in the property $15,000 and had a current renter.
You should always check with your accoutant and attorney when doing these type transaction.
Don't cut off your nose for a quick buck when you can bank some money save a little on your taxes. This might have been a source of constant income doing business with this type investor. Give a person the benefit of the doubt, all investors are not out to get realtors.
Not all investors or people are honest and will cause some problems. Being in the real estate business is a people business and in some instances require us to size up a person as to his/her integrity and other things that might be important to do business with this person.
So using your gut and feeling this individual was not trust worthy I would have done the exact same thing you did, but finding the person to be of good integrity, I would have taken the note and the 10% or tried to negotiate a better rate.
Being in this business we should all be aware what a note is and how to use them to our advantage as well as the protection it has when recorded against the property.
I was going to say BRAVO! But then I saw the comment directly above me.
IT IS NOT ABOUT THE 6%!!! John has performed short sales, I'm sure he knows as well as I do that the bank cuts our commissions down as fast as possible, and sometimes the REO agents are accepting a flat fee for the listing. It is about being compensated for one's time, effort and expertise.
It costs upwards of $400 per month here in Las Vegas to keep your license alive, not counting ANY marketing expenses. When our hard work and effort (and blogging) come to fruition with a buyer, we DESERVE to be compensated. We really should be paid up front. Most buyers don't understand how we get paid in the first place.
I'm not saying we all need to be millionaires, because the average Realtor makes between $30K to $40K a year! Who are you kidding, sir? What you typed above made no sense - you had to spend $3700 to foreclose on a home that you were owed only $2,500 on? Your argument FOR this type of payment is just proving your theory wrong right off the bat.
Kudos to you, John, for going with your gut feeling. Someone who monopolizes your time with the intent of putting you on the spot after you think you are on the verge of a commission is DEVIOUS and DECEITFUL and I applaud you 100% for being moral and ethical and expecting the same treatment in return.
I hope all is well in your home and have a blessed week.
Yes you did the right thing John. Who knows what he would of pulled on you in the future. I think you saved yourself the cost of a case of aspirin in the future, lol.