What sort of houses is this investor looking to flip? Soapymac is right about the legal and ethical problems, however if ‘wrecks’ are what he’s after you may be able to do this with an option. Some of these sellers will be desperate enough to take a small down payment, no payments for 90 days or so, with the balance due in 90 days. That way you and your investor could work to market the house.
Bottom line though is that it’s tough to do this as a realtor working for an investor. You can do this on your own for your own investments pretty easily but doing this for someone else opens up Pandora’s box…
I have an investor who wants to go after listed properties in the greater Houston area. These are sellers who indicate on the MLS that the property is free & clear, and that they will carry a note.
The investor will make them a cash offer at a discount to appraised value, then get the seller to agree that he can advertise the property for sale for 90 days and flip it to a retail buyer, with a simultaneous close. The seller gets his cash and perhaps a small second, and the buyer gets his house.
The investor must get the property sold quickly to do this, and having it listed greatly expands the number of potential buyers ( as opposed to going FSBO). Since the property has not actually changed hands while he’s seeking a buyer, and it’s listed with another agent, how can I help him market the property?
This really isn’t too big a problem in my opinion. Now if he wants to flip it by putting the property back in the MLS, that does have some problems. The first big problem is that there will be 2 listings in the MLS, one as a pending transaction between the owner and your buyer and the other as an active listing with your buyer trying to flip the property. This could really get messy when another REALTOR sees the 2 listings.
I will give you a suggestion based on a real life example I did. House in MLS listed at 45K. I get under contract for 37K and begin marketing it as a flip for 40K. (I also got a 3% commission on my 37K so that made my profit margins a little better.) I didn’t resell it by putting it in the MLS or even putting up a sign.
I called about 10 investors that buy fixer-uppers and told them that I had a house under contract that I want to flip. It is listed in the MLS at 45K but with the contract I have set up, I can flip it to them for 40K. Sold it in a week.
The trick here was that I have collected a database of about 50 or so investors who buy fixer-uppers. I don’t need to MLS to market these properties anymore. Just a suggestion.
First of all, in order to list a property in the computer, you have to have the signatures of all owners of the property. Someone that only has it under contract is not an owner. Here in Louisiana, if you attempt to sell a property without having the signatures of all owners, you would be violating the law & could lose your license.
Second, I’d be willing to bet a dollar to a donut that you would never be able to get the original listing broker to go along with this. Are you expecting them to take down their signs too? I can see this causing all kinds of problems.
Let me say this, I recently flipped a property (using a simul. close) & would have loved to been able to list it in the MLS, but knew it would cause all kinds of problems. I asked the listing agent if he would mind if I put a sign in the yard saying seller will finance & they like to had a fit, over something as minor as that. So I just blew off the whole idea.
I would suggest that if you’re going to let you’re buyer tie up listed property with the intent to flip, that he does so as a FSBO. Perhaps you can help him do the mktg. & paperwork for a 2 or 3% commission. You have to be careful with flips like this, because when delays happen, the original sellers may start to get a lil antsy. I’d forget about trying to list them though.
Seller wants to sell, and has property already listed with another agent. Your investor wants to buy wholesale and flip it to retail BEFORE his original deal closes OR simultaneously with his purchase. Is that about right?
'Cause if it is, I have two beautiful, well-maintained bridges spanning the Cape Cod Canal your investor may want to purchase with his profits.
Seriously, though, have you considered the matter of agency in the transaction? For this to work legally, you would have to represent yourself as a BUYERS AGENT. If you were involved in this transaction as a seller’s agent, you would be in violation of your fiduciary responsibility to the seller.
Let’s suppose, though, that you ARE a buyer’s agent in the purchase transaction. What type of listing agreement would you have with the investor to SELL the property? What I’m asking is, would your broker allow you to switch hats in the middle of a transaction? There may be a fiduciary liability there that your broker would not be willing to accept.
What happens if you are in the position of a disclosed dual agent through this transaction? Does Texas RE law allow that position?
Lastly, how is your investor going to be able to list the house through MLS for his end of the sale WHEN HE DOES NOT OWN IT? And even if he was able to list it, is he going to want to pay TWO commissions to buy and sell ONE house?
I’ll leave myself open to a different “take” on this from someone else on the board…but I think your investor would rather buy my bridges.
So you’re saying that it is O.K.(legal) to go under contract with sellers with the investors’ intent to flip the property (simultaneously closing). The problem is not being able to advertise in the MLS or a lawn sign saying FSBO. However, the investor and the agent are able to advertise in the newspapers and by all other means as far as locating an owner occupant. This in no way would violate any of the investors’ r.e. agent oath of licensing or disclosure laws. May I ask how did you advertise for a buyer on the property that you did a simultaneous closing on and did you use an agent or not?
How about this idea? The property is not under contract with the investor, but the investor and the agent run generic ads in the paper looking for buyers.
Ex: Seller Financing Available - All Areas - Low Down - Call 555-HOME.
Buyers call - submits application
Investor approves/disapproves buyers credit
Investor sends approved buyers to agent
Agent locate homes in MLS for buyers
Agent makes offer on home
Investor supplies money for buyer to close deal
Seller receives cash for home - agents receive 3% commission each from seller - buyers makes payments to investor
Did you guys think that this would probably be a better method of the investor and agent working together?
I don?t see any agency issues in this transaction.
Agent represents buyer as Buyer?s Agent in the transaction with seller. No problem so far.
Agent represents buyer (who is now a seller) as the Listing Agent. Where?s the problem? The only agency present here is with one guy the buyer, later seller. This has to be one of the more common types of transactions in the US today?.agent representing one party in the sale and purchase of a house. In this case, the order is reversed?.it becomes the purchase and sale of a house. So what? You aren?t representing another party in the transaction?.just the same guy. There isn?t any fiduciary liability at all.
Yes, you have it straight. You have so eloquently stated the exact problem I’ve been wrestling with.
I would represent the investor as Buyer’s agent, but would not get caught in dual agency. And no, I’m not trying to double-dip, I just want to help him market the flip side.
But, that’s why I posted it to this group. I thought if there’s an answer out there, someone here would have it. In the end, there may be no answer.
I did suggest that the investor use a straight option to tie up the property, then it could still be sold under the original listing agent. But most traditional realtors would probably advise against that (I would, except under dire circumstances).
Thanks for the info, and I’ll keep the bridge in mind.
The first part of your post is Ok. Yes it’s ok to put property under contract with the intent to flip.
However the second part of your post is not Ok. The agent cannot advertise property being for sale if he does not have permission from all owners. So the only person who could advertise that property as being for sale is the person who has it under contract. Now if that person happens to be an agent, then he’s free to advertise so long as he puts O/A or agent of some such notification in ad.
The person who has the property under contract though & who advertises the property can seek a real estate agent to help write the offer & handle the details. That person would be selling FSBO & the agent would be helping him for a %.
I did not totally understand the last part of your post so I’ll not comment on it.
As for how I sold the one that I did. I just ran an ad in the classifieds. I am an agent by the way, so I was able to handle things for myself.