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Florida Real Estate Flipper Gets Caught with His Pants Down

Who's to Blame When the House Flip Flops

construction workerClearwater 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

I'm not your Mother or your business coachSo 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.  

  1. What would you have done if he's been your client?
  2. Do you think that makes us part of the mortgage crisis

 Submitted by Cyndee Haydon   

Want to start your search for Clearwater Real Estate then Search the complete Tampa Bay MLS multiple listings of all properties including all waterfront Clearwater Beach homes for sale and beachfront condos in Clearwater.Search_-mls 

Comment balloon 47 commentsCyndee Haydon • January 02 2008 08:33PM

Comments

the investor is to blame and no one else unless there was fraud that is causing the downfall or material misrepresentation.
Posted by Jeffrey Dolfinger, NRBA Member (24/7 Realty Inc.) almost 11 years ago
E Jeffery Dolfinger - thank you for taking time to comment - I can guarantee you there was no fraud involved. 
Posted by Cyndee Haydon, 727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes (Charles Rutenberg Realty) almost 11 years ago
Great comback, Cyndee !!
Posted by Missy Caulk, Savvy Realtor - Ann Arbor Real Estate (Missy Caulk TEAM) almost 11 years ago
I think you made the right decision, and for the right reasons. You were hired to find him a home, and exceeded expectations by finding two. He got too excited and wanted them both. The lender decided he could afford both. If you didn't follow through he would have found someone else to help him make the purchase.
Posted by Hank Roeters (Platinum Partners Realtors) almost 11 years ago
You did the right thing. You did warn him in spite of knowing you are not his mom or business coach. I am an agent and an RE investor, and the Flip that House followers are getting bitten now that the alligator has turned on them. One good thing, I am noticing some of those shows on Home/Garden tv are now beginning to show more of the pitfalls newbie investors run in to with erros in judgment such as your client made.
Posted by Suzanne Calkins Exit Realty almost 11 years ago
You did the right thing. You did warn him in spite of knowing you are not his mom or business coach. I am an agent and an RE investor, and the Flip that House followers are getting bitten now that the alligator has turned on them. One good thing, I am noticing some of those shows on Home/Garden tv are now beginning to show more of the pitfalls newbie investors run in to with erros in judgment such as your client made.
Posted by Suzanne Calkins Exit Realty almost 11 years ago
You did the right thing. You did warn him in spite of knowing you are not his mom or business coach. I am an agent and an RE investor, and the Flip that House followers are getting bitten now that the alligator has turned on them. One good thing, I am noticing some of those shows on Home/Garden tv are now beginning to show more of the pitfalls newbie investors run in to with erros in judgment such as your client made.
Posted by Suzanne Calkins Exit Realty almost 11 years ago
Missy - thanks - I felt like we did the right thing but it's always interesting to hear what others think
Posted by Cyndee Haydon, 727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes (Charles Rutenberg Realty) almost 11 years ago
Hank - that's the realization that we came to as well. We realized this was his "business" and we offer a service as our business and we get paid to do that - not to guarantee success.
Posted by Cyndee Haydon, 727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes (Charles Rutenberg Realty) almost 11 years ago

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.

 

Posted by Lynda Eisenmann, Broker-Owner,CRS,CDPE,GRI,SRES, Brea,CA, Orange Co (Preferred Home Brokers) almost 11 years ago
Suzanne - thank you for sharing your thoughts on it - while I feel we did the right thing - this is one time we wish we weren't correct - we both get sad when we think of them and wish some lessons didn't have to be learned in the school of hard knocks!  
Posted by Cyndee Haydon, 727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes (Charles Rutenberg Realty) almost 11 years ago

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.

 

Posted by Cyndee Haydon, 727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes (Charles Rutenberg Realty) almost 11 years ago

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!

 

 

Posted by Elaine Reese, REALTOR® in central Ohio (Real Living HER, Powell Ohio) almost 11 years ago

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.

Posted by Cyndee Haydon, 727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes (Charles Rutenberg Realty) almost 11 years ago

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.

Posted by Chris Griffith, Bonita Springs Listing Agent (Downing-Frye Realty, Bonita Springs, FL) almost 11 years ago

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).

Posted by Marc Vitorillo (Florida Team Realty) almost 11 years ago
Chris - I appreciate your thoughts - I'm glad to find my peers don't think we missed any glaring issues! :-)
Posted by Cyndee Haydon, 727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes (Charles Rutenberg Realty) almost 11 years ago
I am working with a client who is wanting to buy ten or more houses.. we just set up the properties to look at and he is going to work with us or someone else...Not all of these stories turn out bad..If you buy the right deals, you can be a hero ...We still get them to sign disclosures and then more disclosures...there will be more investors coming out of the stock market looking for a bit of stability in below market homes.. We should just do our job, do the research and make sure the properties fit all the right criteria...This is our job...we should not back away from doing it well..
Posted by Mike Norvell Sr, Norvell Consulting Group (Morris Williams Realty) almost 11 years ago

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!   

Posted by Cyndee Haydon, 727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes (Charles Rutenberg Realty) almost 11 years ago

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.

 

Posted by Fran Gatti, Managing Principal Broker - RE/MAX Integrity (RE/MAX Integrity) almost 11 years ago
Mike - it's great to hear from other local professionals - we do feel we did our job and provided our service- it's just in our business we get paid in arrears. You owe and attorney if you went asked for his advice - used is services and then mad eyour own decisions. thanks for taking time to share - you're working with bigger investors that we were. Good Luck!!!  
Posted by Cyndee Haydon, 727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes (Charles Rutenberg Realty) almost 11 years ago
Fran - thank you for weighing in on the questions - coming from a strong buyer's agent and advocate like you I feel better.You just hate to see anyone have to go through that!  
Posted by Cyndee Haydon, 727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes (Charles Rutenberg Realty) almost 11 years ago
Cyndee - No, in no way do I think you are to blame.  It is the responsibility of the investor and each member who does their part individually.  You did your job fairly.
Posted by Melissa Olson, HOPE Lending LLC (HOPE Lending LLC) almost 11 years ago

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 

Posted by Jo-Anne Smith almost 11 years ago

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.

Posted by Cyndee Haydon, 727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes (Charles Rutenberg Realty) almost 11 years ago
This is such a hot subject right now, Cyndee--you are so right to bring it to light, and it's one concern I have especially now that there are so many 'great deals' out there in the Florida market.  I find myself more and more counseling 'caution' to my eager-to-make-it-rich-quick clients.  Do they listen?  Not always...
Posted by Loretta Buckner, Your GREEN Real Estate Consultant For Life! (Real World Properties, Inc.| Your Real Estate Consultant for Life) almost 11 years ago

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.

Posted by Bill Roberts, "Baby Boomer" Retirement Planner (Brooks and Dunphy Real Estate) almost 11 years ago

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

Posted by Bill Roberts, "Baby Boomer" Retirement Planner (Brooks and Dunphy Real Estate) almost 11 years ago

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 

Posted by Katerina Gasset, Get It Done For Me Virtual Services (Get It Done For Me Virtual Services ) almost 11 years ago

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.

Posted by John Novak, Henderson, Las Vegas and Summerlin Real Estate (Keller Williams Realty The Marketplace) almost 11 years ago

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!

Posted by Katrina Madewell, Tampa FL Homes for sale | Tampa Bay - (813) 777-1196 (Charles Rutenberg Rlty- More than 5,000 agents(813) 777-1196) almost 11 years ago

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. 

Posted by Joanne Hanson, Summit County, Colorado Realtor (Coldwell Banker Colorado Rockies Real Estate) almost 11 years ago
Cyndee, This is a no-brainer.  You did nothing wrong, illegal, or unethical. You went beyond your duties when you cautioned him about his decision.
Posted by Dan Forbes almost 11 years ago
Cyndee, This is a no-brainer.  You did nothing wrong, illegal, or unethical. You went beyond your duties when you cautioned him about his decision.
Posted by Dan Forbes almost 11 years ago
Cyndee--You are obviously a good person for feeling for your client but as you said, you are not their mother or babysitter, you are their Realtor. The bank should have some responsibility here too. They gave two loans to an inexperienced flipper. Though you didn't have a crystal ball, you did outline the risk. If someone chooses not to listen, it is not your fault.
Posted by Teri Eckholm, REALTOR Serving Mpls/St Paul North & East Metro (Boardman Realty) almost 11 years ago

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. 

Posted by Rita Taylor, Sanford NC Real Estate - Homes for Sale in Sanford North Carolina (None) almost 11 years ago
I think you did the right thing by trying to reason with him. It is ultimately his choice. I just sold a flipper, and did fairly well, but it got scary at the end. We were lucky that a neighbor wanted to buy the home. Otherwise it would probably still be sitting on the market eating up our profits.
Posted by Karl Burger, Pensacola Real Estate News (ERA Beach Ball Realty) almost 11 years ago
Cyndee: If someone chooses to ignore your advice, that is their problem.( Some must think we have amazing control over our clients). Congratulations on a job well done and a blog well-written!
Posted by Roberta Murphy, Carlsbad Real Estate and Homes (San Diego Previews Real Estate) almost 11 years ago

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....

jeff belonger
Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) almost 11 years ago

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.

 

Posted by Josette Skilling (Keller Williams Capital Properties) almost 11 years ago

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.

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) almost 11 years ago

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!)

Posted by James Downing - Metro DC Houses Team REALTORS®, CRS, GRI, ABR,MRP, MilRes, When Looking to Buy or Sell - Make the Right Move (Real Living | At Home) almost 11 years ago

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!

                                               

Posted by Midori Miller, Digital Marketing Director (Talk 2 Midori, LLC) almost 11 years ago

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

Posted by Ann Cummings, Portsmouth NH Real Estate Preferrable Agent (RE/MAX Shoreline - NH and Maine) almost 11 years ago
Cyndee, This post is so good because it is so real. These are the types of decisions that we all face at different times.  I appreciate your honesty about the struggle in making your decision.  Ultimately, the buyer had to make his own decisions too.  This post was very worthy of a Blogger's Choice Selection.  Congratulations!
Posted by Lola Audu, Audu Real Estate~Grand Rapids, MI ~Welcome Home! (Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate) almost 11 years ago
Cyndee - When you enter a risky venture like that you have to expect the unexpected - it is part of the risk involved - he wanted to get rich quick -
Posted by Billnulls Blog Florida Realty Professional, AHWD (Charles Rutenberg Realty) almost 11 years ago
You aren't his babysitter.  Now when people watch the Flip that House, Flip This House, etc. on DIY network it has a disclosure right in the beginning of the show "Flip at your own risk".  It also says that the homes need to be priced right to sell QUICK.  Unfortunately, most investors are greedy and not realistic.  How many of the flipping shows have we seen lately where the "update" is the house is STILL on the market, they had to move into it, or they had to rent it.  All across the nation.  Most investor types also think they can save costs by "Selling it themselves".  Like being a realtor is sooooo easy.  Don't blame yourself.  Just dust yourself off and move along with clients that LISTEN to you and VALUE your advice.  It was a hard lesson for me to learn too.
Posted by Dnullarcy Usher Martin (Cypress Marketing Group, Inc.) almost 11 years ago

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