creative financing 1970s
How to Double End a Listing Without Listing the House
The process I am about to describe to you, how to double end a listing without listing the house, is not something your broker’s legal team will want you to read about. I am not promoting this particular system as much as sharing stories that happened to me 40 years ago when I first started selling real estate. Many of our activities back in the 1970s would have lawyers today running for the closest bottle of scotch.
Yup, today this would involve practicing risk management on overload. Legal liability up the wazoo. Yet, I’m gonna tell you anyway, because that’s just the kind of person I am. A troublemaker. With a capital T that rhymes with B and stands for bad influence.
You might not think of me as a bad influencer because I generally try to do good things, but let me say, soon as my junior year in high school ended, my probation officer (didn’t every kid have a probation officer back in the ’60s?) insisted I leave my group home in Wayzata and find other living arrangements. Because I was . . . you guessed it . . . a bad influence. I encouraged other kids to take control of their lives and question authority, and that was bad.
Back to this situation. So, the way an agent could double end a listing without listing the house is to first find sellers who want to sell but do not have an agent. Sometimes these sellers are called FSBOs, which stands for For Sale By Owner, pronounced FizzBo, or they could be a referral or some guy who walked into an open house and mentioned wanting to sell. I called them from the newspaper classifieds. You could find them today on Zillow. These are people without representation.
In the 1970s, when I obtained my real estate broker’s license and began selling, double ending a listing seemed like a good way to go. Today, not so much. Today I would say double ending a listing is asking for trouble and I do not work with buyers anymore. I represent sellers. But back then I didn’t know any better. Dual agency was also more common than it is now.
The reason this worked so well, to double end a listing without listing the house, was because some sellers were very resistant to listing. But they were not resistant to selling. Much like today, actually. I sat down at many a dining room table to tell sellers I was not there to list their house; I was there to buy it and assign the sale to one of my investors.
Unsecured promissory notes were used as a down payment, again, rife with legal problems today. I paid the sellers their asking price, too. Because I discovered we could make money at list price. We did not need to buy low and sell high. That is a fallacy. Even created my own purchase agreements in 3-part NCR so they appeared official. I knew enough from my years in escrow to know when to remove prorations from the sale agreement. Sort of the big print giveth and the little print taketh away.
The agreement I signed with the sellers was in my name or assignee. I often wrote the contracts to close in 7 days. This was very appealing to a seller. Full price and fast closing. Most of all, I performed. I transferred all my purchase contracts to investors. Which meant when I called them to say I found an investment property for them, it meant it was already in escrow.
There was no showing of homes. I showed one home. The home I just bought for them. If they didn’t want it, another investor would take it, but they almost always accepted the assignment without questioning. I was the professional, and they were just the guys with a bit of cash. There was a certain amount of respect for what I could do.
Not like today. Today many buyers think they know everything. After all, they watch HGTV.
What about a mortgage? There were no new mortgages. Interest rates were too high. Rates were 18% at one point. I bought the property subject to the existing financing. Often, the down payment was between 7% and 10%. If it was 10%, the seller would get the 3% difference, because 1% went to closing costs and 6% to commission. Just because I wasn’t listing the property did not mean I did not write a commission into the purchase contract.
Today, the commission, though, is not part of the contract.
I created my own form to transfer my interest in the purchase contract to the investor. It’s a wonder I wasn’t ever sued for practicing law without a license. No investors qualified to buy the home. No credit reports. No disclosures, no preapproval letters, no proof of funds.
In addition to taking title subject to the existing mortgage, sellers would receive, for example, a second trust deed for the balance of their interest. They didn’t want the trust deed, most wanted cash.
I had another group of investors who purchased trust deeds at a discount. On a straight note (with simple or compound interest accruing, no payments), the balloon payment was typically 3 to 5 years. I sold those at a 30% discount to the seller, pocketed half and gave a 15% discount to the investor. The investor got a great yield and everybody was happy.
If this hurts your head, well, it is fairly creative, and remember, this was from a time when an agent could do many things an agent cannot do today. If you could come up a plan, it was most likely executable as long as you weren’t breaking any laws, and we did not have laws like we do today.
The sellers knew what were doing. They knew the paper was created and sold in a second transaction, and there could be liability with the subject-to due to alienation clauses, which could result in an acceleration clause. Sellers did not mind that I was paid to sell their trust deed and I received a standard real estate commission for double ending the sale.
Because, like I said earlier, they did not want to list their house.
But I look at that type of transaction today, which seemed so normal and ordinary during the creative financing years, and I can’t hardly believe it myself. Kids, don’t try this without legal advice. Some things from the past belong in the past.
Today, everything I do is to protect my seller’s interests. And I’m a lot wiser.
What Selling Real Estate in the 1970s Was Like
Selling real estate in the 1970s was as different as Red vs Blue states today. Many years ago, on a faraway planet known as Orange County, California, I once primarily represented investors and created the craziest home buying concepts that were almost always accepted without question. Looking back, I possess fond memories of this time, when many agents were considered pioneers, innovators, although, in some cases, crooks; and because of the latter, I’m glad the 1970s are history.
A real estate agent could do just about anything she could conceive in real estate. For me, personally, I’m capable of conceiving a lot. I suffer from imagination overload. There were few laws in the 1970s, except for usury and Fair Housing, which governed agent activity.
I’ll share some of these unusual 1970s concepts and practices with you, in hopes that you will realize how far we have come today in real estate, and not that you want to do any of this yourself. The first thing was my buyers never signed a purchase contract. Buyers were not involved. They signed an assignment of contract from me. I wrote all of the purchase contracts in my name or assignee. I decided the best way to purchase the property and when the offer was accepted by the seller, I presented it for consideration to the investor.
We didn’t have a fax machine. Copiers, the size of small cars, utilized huge drums. We dialed black rotary phones and called sellers from the newspaper. MLS consisted of a large book published once a month, with small weekly updates.
Just about all of the financing was creative, mostly subject to, with a few lease option sales, land contracts and wrap-arounds. I sold second trust deeds after creating the paper from thin air, pocketing a 20% to 30% discount and using the instruments as down payments on property I didn’t always assign away. Some of the homes I kept for myself. We also picked up loan proceeds by writing it into the contract, until lenders included verbiage to stop it.
When selling real estate in the 1970s, in the purchase contract, the buyer obtained a loan of $100,000, delivered $96,000 to the seller, and the difference, if any, of loan proceeds above $90,000 was paid to the buyer’s brokerage. This was on top of the real estate commission. All parties would agree to this. Blows my mind. Against the law today.
Today, an assignment of contract is unusual, and if I spot a buyer trying to wholesale a property like that, I’ll advise the seller not to take the offer. It’s generally not in the seller’s best interest. Besides, double escrowing or picking up a property through an assignment is rare in a seller’s market, but it doesn’t stop seminar gurus from teaching this old / new practice to the young impressionables and special little snowflakes.
I never inspected properties when selling real estate in the 1970s. This was before The Easton vs. Strassburger 1984 decision that held agents and real estate brokers have a duty to conduct a reasonable inspection. My transactions were fast and furious, we typically closed in a week. Cash flow ruled, but if you couldn’t get cash flow, negative cash flow was OK with 7% down and straight notes for equity. My entire practice was based on my ability to negotiate and to negotiate well.
The 1986 Tax Reform Act put a halt to a lot of investing (no more tax write-offs for negative income), and the 1991 downturn in the market pushed a lot of investors out of the marketplace. Years go by. Things change. Markets evolve.
Every so often I receive an offer like one of those from 40 years ago, and of course I send it to the seller. But I also explain in detail what it is. In fact, we received one of those types of offers a few days ago, trying to lowball 80 cents on the dollar in a seller’s market and wholesale it out, OOffda. I think this means seminar groups are in town.
I’m probably one of the very few Sacramento Realtors who survived selling real estate in the 1970s and the creative financing fiasco that time period entailed. Let’s just say we’re much better off today. If you’re looking for a top producer in Sacramento to sell your home, call Elizabeth Weintraub at 916.233.6759.