I've noticed a tendency lately for agents to price short sale properties below what they know that the bank will accept, to stimulate multiple offers. As a case in point, I have a client who has been looking for a home for months. He is stretching his budget, willing to pay up to $500,000. Then he saw the perfect home -- only 3 years old, located within commute distance etc. priced at $459,000. He jumped all over this, excited that he had finally found what he and his wife had been looking for. I did a CMA and it validated that this was a killer deal, so I suggested that he shouldn't fool around, and should offer full price.
Before writing up the offer, I checked into the history of the listing and called the listing agent to get whatever background he was willing to share. What I learned is that the home had been priced at $499,000 and that it had been in contract for $520,000, but the Buyers backed out after waiting to get that price approved, and bought a brand new home nearby instead. He said that he knocked the price down to $459,000 to attract offers and that he had 2 coming in and mine would be the 3rd. He also said that he expected that the bank would only approve a price in the low $500K range, since the new homes nearby are selling for the mid-$500Ks.
At this point, I had to go back to my client and tell him that to have any chance of getting this home, esp. since his will be an FHA offer, he will need to offer the maximum that he can afford, which is $500,000. I doubt that he will win this bidding contest and even if he does, it sounds like the bank won't agree to a $500,000 price. If things unfold this way, his hopes will have been dashed, I will have wasted his time and mine and he will be that much more discouraged in hopes of finding the home that he wants that is within his budget.
What do you think? Is this a fair business practice, or one that we should speak out against? It seems like bait-and-switch to me?
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