Riverside Realtor Blog - Alma Dizon

Alma shares her experiences and observations as a Realtor in Riverside California.

Thursday, April 06, 2006

Beyond Double-ending

California is a state where dual agency is still allowed as long as it’s disclosed. It’s considered dual agency when the seller and the buyer are represented by different agents that belong to the same company. In this case, the broker is considered the same agent.

When the same individual agent actually represents both buyer and seller, this is referred to as “double-ending.” The odds are (or should be) against it happening, so when I see an agent doing a lot of it, I have to wonder what’s going on.

Then there are the realtors who are also loan people, and they’re also getting a commission off of the loan. Now, I’ve seen some people do a competent job as both realtor and lender when they have assistants, but I’ve never seen one do a very good job with the paperwork, and I’ve seen some who are lawsuits waiting to happen. The following was one that, thank goodness, didn’t get away with what amounted to quadruple-ending. (Please note that the names have been changed to protect the … ignorant.)

A while back, I had a listing that was priced a little high, but which we knew would appraise without stacking. A week after the house went on the market, another house 2 blocks over and very similar came on 10k higher. I made a note of it as I was doing weekly comparative market analyses for my sellers and then didn’t think about it again.

A few days went by, and my sellers got an offer that didn’t quite make sense to me. For one thing, it was for 10k over and asked for 10k in closing costs. It was 100% financed, so the buyer was going to be getting her earnest deposit back. None of this made any sense since there was no way the house would appraise.

The agent’s name on the fax cover was Angela H. The lender letter was signed by Elaine Davis who was with a different company. However, when I called the lender’s number, the person who answered gave the name of the real estate company. I was puzzled and asked if there was more than one Angela. They said, “no,” and I was given to Angela who explained that her husband’s last name was so long and foreign that she always put “H.” I asked her about her buyer, and she explained that her buyer was an investor who was also buying the house around the corner. I was perplexed as I’d been told before by another lender that investors need to have at least 10% down or no one would be willing to lend them the money. (As a rule, 100% financed only works for owner-occupied as people have been shown to be more likely to make payments on their own residence than on a house they’re not living in when they run into financial difficulties.) I explained to the agent that I would present the offer but that it was unlikely that the house would appraise at that amount, to which she gave a surprised, “Oh.”

Out of curiosity, I got on the MLS and saw that yes, the other house was in escrow and taking back-up offers. I noticed that the agent I had just spoken to was the listing agent, and then saw in the remarks section that the agent was one of the sellers. Out of curiosity, I double-checked the tax records and saw only one person noted as an owner, a certain Angela Davis…

That’s when I realized that Angela H. was related to Elaine and that the real estate company and mortgage broker were run by the same people albeit with different company names. Angela was the seller, the listing agent, and the buyer’s agent for her own property. She was also attempting to be the same buyer’s agent for my listing. Her female relative was going to get the lender’s commission on both transactions. (Wait, this is even beyond quadruple-ending as there are 5 commissions involved not even counting the seller’s proceeds…)

When I presented the offer to my sellers, I told them about these other details, and they were pretty impressed with the agents’ attempt to make so many commissions. I explained to them that as long as all the proper disclosures were made, there wasn’t anything illegal about the other transaction. Having already gone over a number of comparative market analyses with me, they understood that the offer was utterly meaningless because neither house would appraise and no backer in his or her right mind would finance the undertaking, so they rejected it outright.

I let Angela know about the rejection, and she said her buyer would be disappointed. I told her that my sellers were uncomfortable with the financing and would prefer it if the buyer put some money down. She said she would talk to her buyer about submitting another offer, and that was the last time I spoke to her.

About 2 weeks later, I was doing an updated CMA for my sellers when I saw that the other house had fallen out of escrow and then was changed to “expired” without any attempt to put it back on the market. My guess is that the house didn’t appraise, and hopefully the buyer caught on that something didn’t smell right. I suppose that it’s not impossible that the buyer was also a relative who would somehow benefit, but I’m not sure how…

So the good news in this instance is that the transactions didn’t go through, and no one got hurt (that I know of). My sellers lowered their price a little and got a buyer who stacked some closing costs. The appraisal came in slightly higher, and the escrow closed with only some of the usual, less exotic delays.

The other agent was definitely trying to pull something unethical but not altogether illegal. As she was going beyond some very specific limits (investor guidelines and an appraiser who apparently wasn’t a relative), she couldn’t make it work. In a way, the limitations functioned better than laws because, as you know, laws can be broken.

I do wonder sometimes if there are cases where the transaction does go through. There’s a house across the street from another listing I have that sold some months ago for about 100k more than it was worth. The listing agent double-ended it and it went into escrow after 0 active days on the market. The house was 100% financed. Hmm, was that appraiser a relative?

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