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Purchase Offers Under False Pretenses Can Backfire
When you list and sell as many homes in Sacramento as I do, you might begin to wonder what’s up when a buyer suddenly offers more than list price when there is no apparent reason to pay more than list price for a particular home. Even a full price offer can raise a red flag in Sacramento’s fall real estate market. It can make an agent a tad suspicious that the buyer might be trying to slip that home into escrow with intentions to later renegotiate. This is a bad practice with purchase offers known as locking out other buyers in an attempt to later force the seller into a price reduction.
I’m no lawyer, but that’s probably not a good faith contract if purchase offers are entered into under false pretenses. There are many buyers who think this way or it’s possible their agent may assure them they will always have the opportunity to renegotiate when they are presenting the purchase offer for signature. In some cases, it might even work. But it doesn’t work in a short sale at all. And it rarely will work when the seller has hired an assertive Sacramento listing agent because that kind of agent will fight hard for the seller’s rights.
The reason this type of underhanded approach does not work on Sacramento short sales is because once the bank has approved the short sale, there is a slim-to none-chance that the bank will renegotiate. Now, I have had short sale banks reduce the price when the buyer’s appraisal came in less than the contract price, which can happen when banks are unreasonable or the BPO agent messed up, yet not always. However, just because the buyer found a defect in the home or suddenly decided he no longer wished to pay the contract price, well, that is insufficient and not grounds to request a price reduction.
Negotiating with a short sale bank is not like shopping at Nordstrom. A collection agency, for example (which is where the bulk of short sales today land) won’t give the buyer a credit nor try to make the customer happy because they don’t give a crap about the buyer. Nordstrom doesn’t really give a crap either but it’s good policy for them. A happy shopper is likely to return to Nordstrom and buy more useless junk that will go out of style in a few months, but the short sale bank / collection agency has no relationship with the buyer.
A buyer asked a few weeks ago if we would ask the bank to reduce the agreed-upon sales price after receipt of short sale approval. The buyer struck me as the sort who would send back a pizza as the poor delivery guy is ringing the doorbell with his nose and juggling several steaming boxes of pepperoni pizza because the buyer suddenly decided he prefers ham with pineapple. He could have been delusional, too. Dunno.
The fact is the buyer probably would have lost more than the price reduction he requested if he canceled. That’s what it came down to, and I pointed out those facts to him. He had already removed all of his contingencies, and when a buyer releases contingencies, it puts the buyer’s earnest money deposit at risk.
A cancellation at that point could mean the seller might ask that the earnest money remain in escrow and file a suit in Small Claims Court to retrieve it. The seller would also lose the relocation incentive under the circumstances because the seller had already vacated the premises. If the home went back on the market, second-time around the bank won’t pay relocation if the seller doesn’t live in the home. The seller might sue the buyer for that loss, too. It’s not expensive to file these types of cases in Small Claims Court.
In this instance, the buyer needed to ponder whether he wanted to give that money to the seller and not own the property — or — if he wanted to own the property instead. Because it could cost him the same amount either way. Fortunately, he chose wisely.
Red Flags on Purchase Offers for Sacramento Homes
Every Sacramento listing agent owes a fiduciary to her sellers to try to ensure that the offer the seller has received is a bonafide offer, especially those that seem a little bit weird. I’m not about to say that all out-of-area buyers, especially those from the Bay area, are crooks or are not to be trusted, but I have seen my fair share of purchase offers that require additional scrutiny and most of them seem to stem from the Bay area. To be fair, though, there are crooks right here in Sacramento, and there are doofus real estate agents right here in town who enable them.
Part of my job to my sellers is to look for what can go wrong and advise accordingly. The first red flag I might see in an offer is due to the fact the agent might not read the MLS listing nor adhere to the requirements. I suspect they do not always read all of the instructions because they either don’t have full access to MLS, they are confused, inexperienced, or they just didn’t bother to look for attachments. Some agents probably do not want to comply, so they simply ignore the requirements.
The second red flag is the offer itself might appear as a template. This means all of the standard information is typed in a different font, often an odd color, and a different point size, and the pertinent data such as property address and sales price do not match. Agents use this procedure when they are creating multiple offers and throwing those offers to the wind. They think nobody notices this.
The third red flag is the offer might be missing information. Certain boxes might be left unchecked and blank lines will be incomplete. Attention to detail is not always a strong suit among thieves, perhaps the APN number is missing or the agent’s license number is not there, which are important items to include.
The supporting documents are often a mishmash of papers tossed together. The proof of funds might not contain the buyer’s name. The earnest money deposit might be from a new stack of checks, numbered in the low 100s and containing no date nor identifying information. The pre-approval letter is most likely outdated if not expired.
You might ask yourself why do they bother to do this? What is the point? The point is the investors think they are clever and smart to lock down as many properties as they possibly can while they figure out which ones they might want to buy. They might make offers on 10 or 20 listings but be able to buy only one. This practice is not advised and many lawyers say it is against the law, but when has that stopped the crooks?
When you look at all of this damaging evidence, coupled with the fact the agent has not shown the home to the buyer, these are not really offers. If you need further proof, just ask the agent a question such as did you show the home? The agent won’t reply. And there you go.
