Who's to Blame When the House Flip Flops
Clearwater Florida - As we look at all the foreclosures that exist today, especially locally here in Florida, many are the result of unsuccessful home investors and would be flipper's whose business plan flopped - it's easy to see how many got caught with their pants down!
So when I read Matt Heaton's article today, Should Realtors be blamed for the sub-prime crisis? (A rebuttal) it got me thinking about a situation that happened to us in late 2006 - I'd like to share it with you and have you give me your opinion..Would you have done the same thing - or not? Give me your opinion.
If One House is Good - Two Houses Must be Great - Right?
Last year we had an "new real estate investor" who went to a weekend How to Flip for Fast Profits Class - we all know the kind of seminars I'm talking about. He contacted us and asked us to help him buy a fixer upper home at a bargain price - which we help people do it all the time. We worked with him and he narrowed it down to 2 homes that both appeared to meet his buying criteria - now this is where the problem arises.
When we ask him which house he wanted to put an offer on he shocked us and says 'I'm gonna buy them both" - What??? Now we knew for the first home he had a line of credit that was very attractive and gave him great terms however when he got excited about the 2nd home he went out and lined up a less attractive loan to be able to purchase it.
We immediately warned him to wait on buying the second home and we shared our concerns (for him) that he'd never remodeled and resold a home for a profit before. We advised him to buy one house now, get it done and then to do his next one... but he was totally h3ll bent on buying two homes right away.
I'm not your Mother or your Business Coach I'm your REALTOR
So now Jack and I sat down with each other and discussed our genuine concern for him and his ability to be successful. We questioned what we should do - because we do care about the people we serve more than doing a transaction. We discussed how we had been working with him for 6+ months to find these homes. We had fulfilled our job as his buyers agents and now because we cared so much about his ability to be successful we questioned whether we should finish the transactions or walk away.
So what did we decide? Ultimately we decided that
- We had done what he had hired us to do as his Real Estate Agent;
- He had gotten 2 legit loans on his own and he WAS determined to buy these 2 homes from someone.
- We are not his mother or his business coach - we are real estate agents and we did our job 110% and felt we should get paid if he was committed to buying these homes.
We still hated that he was going through with his "risky" plan. Ultimately he did buy two homes and renovated them. Then sold one home early in 2007 and he has been unsuccessful in selling the other and may lose it to foreclosure- it has not been a profitable experience for him and has definitely impacted his good credit he started with.
- What would you have done if he's been your client?
- Do you think that makes us part of the mortgage crisis?
Submitted by Cyndee Haydon
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Cyndee,
The same and no are the two short answers.
1. I would have done the same with the facts as you presented. There are times when I've felt someone should (imho) bought a specific home when they did not, and other times I felt they shouldn't when they did. When all the fact are presented, it's ultimately the consumers decision,...period.
2. As for the mortage crisis, no, if all the facts were stated, end of story.
Lynda - thank you for your thoughts on the matter since you have been around a lot longer than me - like I told Suzanne this is one time I wish we weren't right - my heart breaks for this client that we came to care a great deal for - however we all make choices everyday that have consequences we must live with.
I like your line about being a real estate agent rather than their mother ... as I tend to "want" to mother. I have to remind myself that after I've given my opinion or advice or other information, I've done my job of informing them, and what they do with that info is up to them. Afterall, they're doing the buying, not me, and they're ADULTS.
You gave him the benefit of all the info, so if he chose to act in spite of it, that's HIS decision. Sounds like it was the wrong decision, but he made it. Live & learn!
Elaine - you don't know how I struggle with that - I want so much for other people's success - we even offered the free use of items to stage, etc. The whole experience helped me realize I needed to redefine my boundaries too - to not get over-involved - like not wanting our kids to make mistakes - sometime we have to realize they're going to make their own decisions and live with the consequences.
Elaine - it doesn't surprise me in the least that you would feel the same - I think that caring is what makes us such an asset to our clients - it's just my boundaries I had to get comfortable with. Thanks for stopping by.
You know, Cyndee, the real estate agents and mortgage brokers were last in line and that's where the fingers point. The supply companies, concrete manufacturers, sheet rock mfg. etc all got their share too. They were all laying on a beach with a pina colada by the time there was someone to blame.
Agents, don't shoulder too much responsibility for the finger pointing.
Cyndee, you are a great consultant for your buyers. Unfortunately, some have already made up their mind no matter what you advise them to do. The get-rich scheme on real estate was rampant before and it will always be around. Nowadays, it is the REO and Short Sale seminar crowd and unfortunately, we'll have newbies coming from that also.
Thanks for your post and great pix (I'm not even going to ask where you got the construction worker pic).
Marc - I really appreciate your comment an that you know how much we do care about our clients. You had my rolling on the floor with the new deal de jour - "Short Sales" - recently we had a buyer wanting a short sale - well needless to say by the time it closed - 5 months under contract it didn't seem like Utopia. We find many of the best deal on either side of the short sale - people motivated with equity or bank owned and ready to move.
Looking forward to getting together in the near future!
Cyndee and Jack,
In my opinion you did your job. You found your client what he was looking for, and laid out the possibilities that could happen if he purchased both homes, which, BTW, has happened. He should have listened to his REALTOR, but how many of us learn best from the school of hard knocks? When you do your job, you should get paid.
Cyndee, You advised him to the best of your skill, knowledge and perception when he told you of his plans. What he did with your knowledge and advice, once he had it, was up to him.
He made the decision to buy both homes and you in no way have anything to do with the mortgage crisis. REALTORs are business people trained to transact homes, not to be Clairvoyents and make predictions.
It irks me that anyone is blaming the mortgage crisis on real estate sales reps.....lets leave the blame where it lays...with the mortgage companies themselves and their policies.
Good post, thanks for writing about this important issue,
Jo
Melissa - thank you for weighing in - I agree.
Jo-Anne - I appreciate you stopping by and sharing your insights on this matter - glad to know experienced realtors feel the same as I do. Have a great weekend.
Cyndee, I guess that I have to go against the tide of commenters here. I realize that in FLA you have the option of being a transaction broker rather than an agent (I don't know which you have opted for) but I feel that real estate brokers have a duty to their clients beyond just telling them about the pitfalls and foolishness of their plans. As a fiduciary you are responsible for their financial health.
I wish you well. I'm not condemning you, but you asked.
If your kids wanted to do something stupid, foolish, and dangerous would you tell them about the downside and then help them to go about implementing their bad choice? I think that this standard needs to be applied to our practices.
Bill Roberts
BTW Thanks for the link to Matt's post. I'm going there now.
this guy was going to do it his way and you did your best in giving him advice against it. you did everything the right way-thanks--mike
Cyndee, OK, I've read Matt's post and the one that prompted it. I felt that I had to post something on this also.
I linked to all three of these posts, yours, Matt's, and Lance's.
Here is the link to my post: You're Blaming Me For What?
Bill Roberts
Bill- If you are acting as a transaction broker in Florida then there is not a fiduciary duty. Therefore, Cyndee was acting in the right capacity legally speaking.
Cyndee- We turned away many of these buyers during the peak of the market, we had some that have never owned a house before trying to buy 3 to 5 houses hoping to flip them before the construction was complete. We told them that we could not be a part to that because they have no financial backing to pay for those homes if they do not flip them in time. Now those same buyers, they went to other agents who would do this for them, now those buyers are short sellers crying to us about the mess they are in. We told you so! Katerina
This is a tough situation. We can offer a mountain of reasons why a client should or shouldn't do something, but ultimately it's their decision. If this had been my client, I know my team leader would ask 'what could you have said or done differently to get a more favorable outcome'? Searching for answers to that question is how we grow and improve our value to our clients.
Cyndee, you and Jack had NOTHING to do with HIS decision to buy MORE THAN ONE home at a time. When people are THAT set to buy something NO-ONE will change their mind.. not even MOM!
If you didn't sell him that house,mhe would have make his way to XYZ realty and bought it through bobby & Jane with the loan that he GOT ALL BY HIMSELF!
It was a costly lesson him, and many others are figuring out the hard way (there's no get-rich quick schemes that work). I blame the banks largely for continuing to push the envelope between them and go further. further.. further... until there was no-where else to go! Now they are the ones getting these loans back, I which they will ultimately pass this onto their existing customers, so we ALL pay for it in the end!
Cyndee, too many people look for someone else to blame for their own poor decisions. I try to document in writing somehow (even just with an email) that I understand that he is choosing to make that decision despite my advice not to. We use it mostly when people decide not to get a home inspection. The flavor of the communication is still nice and friendly, but if I have to bring it out one day in court, it still shows that I suggested otherwise.
I have a friend who is a bankruptcy trustee in Florida, and she told me that she thinks there are still a couple of years to go before the worst is over! Mostly caused by this type of thing and flipping unbuilt or half built condos I think.
Cyndee,
I feel for you in this situation. All we can do is give advise and hope our clients will listen. It is too bad that the greed monster go to your client - this is a costly mistake to make.
Cyndee... I didn't read one comment.... my honest opinion from the mortgage side, H E double hockey sticks NO. You didn't commit fraud first off. Secondly, a new investor or not, as long as what they do is legal when it comes to financing, it's on them. He just got greedy....
You gave great advice as a professional and probably as a friend of the consumer. He didn't listen... end of story. Besides, in my opinion, these investors are not the root of the foreclosure problem. Are they a percentage of it, yes.... but employment and health are up there... the basic problem, losing income due to employment and or health issues. Great job here....
Consumers make risky decisions every day - some informed, some not so much. In this case, he was better off with you taking the care to guide him through to the best of your ability. I think it would have been worse to say no, you're on your own.
In investing, not every property is going to be a moneymaker. He's learning the hard way that you need to spread your losses, which will ineveitably occurr, out over more successful projects.
I blame the weekend course.
I think your advice was perfect! My dad flips homes and does one project at a time with a less than 60 day turn around from close to close (sometimes even 45). He does it on his own, mostly, without a Realtor at his disposal. He just has an eye and knack.
I get calls and emails ALL the time from people who want to find something cheap and flip. I usually ignore them depending on the type of verbiage they use to detail their plans. I will not be a party to someone who thinks they are going to a) get something cheap in a market that is currently receiving multiple offers (REO market) and b) turn around and flip it for a PROFIT (keyword) that has 20 months of inventory.
I completely agree with you. We are not our clients Mother or Business planner. All we can do our job. We can't give legal advice - why should we be expected to be his Financial Planner?
I had a couple whom would not listen to me on 1) The fact that they wanted to Stretch and buy that BIGGer home (as their 1st home). and 2) They wanted a Interest-Only Loan.
They were qualified for both - didn't need the I/O loan to buy - but "wanted to". All I can do it tell them, I do not advise doing this - and give them alternative choices. Ultimately it is their decision.
Now - they are breaking up and can't sell because they have no equity (lovely I/O loan!)
Hi Cyndee and Jack-I think you presented him the facts..he took upon himself for financing...and you did in fact go above and beyond what is required! You are right...we aren't parents...or coaches even though on occasions customers put us in that place. Very thought provoking and congrats..you have been selected for the blogger's choice winner!
Hi Cyndee - you did exactly as I would have. He did hire you to do just what you did, and he gave him your best professional advice. If he chose to ignore it, there was nothing you could do to make him do anything other than he did. It's really too bad that he didn't follow your advice. Not only might he now not be facing foreclosure, but he may well have been working on his 2nd successful flip if he'd only listened to you back then.
Ann