Expert: Ray Beggs - 8/26/2007

Question
QUESTION: There are a lot if short sales coming out in our area, and we think there will be a lot more, we have tried to put offer on two (both with the same realtor) have just gotten the feeling that something was off.  We put a bid in on the house the day it come out on the market and we were out bid by the tenant currently living in the house who we were told was in the process of moving out.

2nd house we put a bid on came back with a counter that we accept liability for the renter, we're looking to buy a home not become a landlord.  Is that even ethical to list a home on the MLS without saying that there is a tenant with a lease for X amount of time?

We're in Kern County, CA to whom do we complain to about this realtor?

Thanks
Cristina

ANSWER: Hi Cristina,

When dealing with short sales and repo's, you're basically dealing in the world of speculative real estate that will inherently carry more risk with it. You will also be offering on properties that have many more buyers interested in them, because of the price. It's not uncommon to have to bid on 5,10 or even more distressed properties before you get your offer accepted. Even banks are sometimes buyers of these houses, for the potential profit that can be had. Also, it is common for the tenant that currently resides in the property to have "first chance" to buy a distressed property because they already live there and have paid rent. These are not your typical "mom and pop" sales and they can be quite frustrating.

You will find more tenants in homes when the sellers are having a sale "forced" on them by either a short sale or a foreclosure. If the tenant has a lease, what is a seller to do? They are being force out of the home but the tenant still has rights. It can be a frustrating situation for everyone. I would suggest that from now on, the first question you ask is if there is a tenant currently living in the property. If there is, I would avoid that property. I know some investors who won't even look at a short sale or repo unless it is vacant.

The world of speculative real estate is potentially rewarding, challenging, frustrating, etc and it can have a pretty heartbreaking learning curve. If you stick it out though and learn the ropes you can end up with a very nice property and a nice bump up in your bank account.

Best of luck,

Ray


---------- FOLLOW-UP ----------

QUESTION: Thanks we'll be sure to ask from now on about existing tenants.  You're right about it being heart breaking, both of these houses were just what we're looking for. On the last portion of my question though, to whom do we complain about a realtor in our area?

Answer
Hi Cristina,

The Department of Real Estate is the governing body for agents in California.

That being said, on the first deal, it is perfectly okay for the tenant to put an offer on the home and then be the one who buys it. As I said, it is very common for the tenant to be the one that buys a home they're living in if it comes up for sale. In a lot of cases, the real estate agent actually makes less on a tenant purchase because it is an easier deal and the sellers can ask for a cut in their commission.

On your second deal, the counter offer is one of the proper places to disclose to a buyer that there is a tenant living in the property and that you, as the buyer, would have to take on the tenant for a period of time. The offer and counter offer process is "pre-escrow" and is where it is customary to disclose these types of things.

I know that it can seem that real estate agents are the bad guys many times and I'm not defending all of them by any means, but in the two cases you cited, I would say that the agent acted correctly and protected his fiduciary responsibility to the seller.

Good luck in getting one of your deals in escrow. It can be quite lucrative.

Take care,

Ray