The latest Short Sale Scam. This time it is us!

Education & Training with Real Estate Expert Witness Support

Too often our industry has taken the righteous position about this financial crisis by blaming the banks and the mortgage industry.  Well, we have some real shenanigans going on right here in our real estate industry.  I expect that I will see more work as an expert witness in litigation cases in the future as a fall out of this and other schemes.

Here's one that I recently ran across.  Buyer's agent is working with a buyer.  They know that there will be multiple offers but the buyer wants to get the lowest possible price.  So,  they come in aggressively with an offer,   knowing that the property will never appraise.  And,  here is the rub,  they make it ALL CASH,  even though the buyer does not have the cash and subject to appraisal.  The bank loves the offer, accepts the offer and runs off the other 10 buyers.   Several months go by and the buyer puts a loan in place.   Then,  the appraisal comes in low,  and the buyer renegotiates the house down to list price or below,  where the other buyers were when they made multiple offers. 

Several problems with this.  First,  the buyer better be ready to buy if it appraises.  My guess is that they will find something wrong with the house,  so they never have to close.  Secondly,  the real danger is legal in nature.  Most buyers and agents believe that they only risk is their deposit.  And,  contracts with a liquidated damages clause state that the buyer's liability is limited to the amount of deposit paid into the transaction. 

If you believed this,  you would be wrong. This was a fraudulant offer and the offer was not presented in GOOD FAITH.  The buyer never had cash and only used deception to push them to the head of the line.  If a seller found out that the buyer never had the cash,  they could put the buyer into breach and,  if damaged,  could sue the buyer for actual damages instead of being limited to the initial deposit. 

The answer is your counter offer.  If you contract does not provide that the buyer must provide evidence of funds to close within X days,  then the Listing agent should counter with that phrase.  If the buyer is playing games,  they will not sign the counter.  Or,  if they do,  you will know within a couple of days whether the funds are really there to close.

Agents have asked me if it is OK for a cash buyer to get a loan.  Of course it is.  As long as they close on time,  a buyer can get any loan they want,  as long as it does not damage the seller in the process.  If you see agents doing this,  report them to the Grievance committee at the board

I have been an agent more than 30 years,  most of it right here in San Jose California and as much as I hate to admit it,  I think our industry is actually getting worse,  rather than better.

More next time..............






Posted by


Guy Berry

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Comments (3)

Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Guy:  In cases like this... the buyer, and perhaps the buyer's agent, think they are just "playing the game."  It would be nice if at least one of them got caught in this... and were pursued for damages.  And then... have the results of the award splashed all over to news... hopefully detering others from attempting the same stuff.

Aug 19, 2009 05:56 PM
Cathy McAlister
Cathy Ashley McAlister, GRI CDPE - Broker / Sacramento - Sacramento, CA
Sacramento DRE#00648507


Boy.... the all cash with appraisal contingency would certainly get my radar up.

 We currently have a rather heated market in Sacramento, especially in the low price ranges.  As a result, the more knowledgeable agents have heard about these types of situations.  One of the things we do in our short sales, is require that the buyer provide proof of funds to close within 2-3 days of ratification of the contract between buyer and seller.  The good buyer agents are already prepared and usually send it with the offer - if it's the other type of agent/client - well... this should make them go away.   The seller's situation in short sales is so difficult we should have no patience for people who prey on these sellers.

Aug 19, 2009 06:35 PM
Susan Thompson
Remax Bell Park - Dayville, CT

Hello Guy,

I guess I need some "growing up" in real estate!  I would have never even thought of that.  Good food for thought! 

Aug 20, 2009 12:35 AM