In my last post I mentioned that I used to work in the Investment Real Estate Market more than anything during my first year of holding a license. It was certainly an eye opener. Appraisals were crazy. Appraisers had the freedom to overvalue a property by hundreds of thousands of dollars and then buyers were able to take out the equity in properties they bought with a mortgage on both! So let me tell you about what my first employer and many others were doing at that time.
This company went into a neighborhood that was growing. The homes were newer and waterfront so they were climbing in value as every investor’s eyes were much bigger than their stomach so to say….or their wallet for sure! The company had me to go in and find subject homes for sale that were basically in a subdivision that the other homes had sold for more. They would then make an offer to the sellers and then hold a contract that was assignable and they honestly could not get investors quick enough.
The homes were going up and up. Way faster than a market should be climbing but hey, I was new and didn’t really know what they were up to. I was the perfect agent to do the job. I was hungry, motivated and had plenty of time on my hands to search high and low for these homes. Now, hey had pretty much risen the values of the other closed properties by themselves, CREATING a market that was ripe for the picking.
Pretty soon, a hundred thousand in equities was not enough. They wouldn’t accept a spread under 150K to 250K. It got out of hand. And of course, they were getting the difference in the first value of the home they were paying the sellers and the ‘equity’ already built in these houses. Needless to say after a short while us agents working for them started to realize what was happening.
When I walked away from this company I had 6 homes in contract. I wrote letters, walked away and thank God I did. Shortly after the FBI came in and took them to jail. We were all questioned but since they actually disclosed what they were doing on the HUDs….it was legal. Until they breached the agreements they had with the buyers which had absolutely nothing to do with the agents.
After that ordeal, I resolved to do traditional real estate only and nothing that seemed anything from the normal transaction. The market in this town fell hard and really, they were to blame for driving up the prices and once things fell the equity was gone.
Finally, the community is growing again. It is a great place to buy and no doubt will be stronger than ever in the future.