The real estate market is on fire. Multiple offers are being made in a matter of hours. Most of the offers are for asking price or higher. Sometimes an offer will be for $50k, $60k, $70k or more over asking. But is this offer legit or fake? Is the buyer trying to "buy" the contract by making the contract contingent on appraisal knowing it will not appraise and they can renegotiate latter. Is this practice legal and ethical? Is this bad practice for the seller and/or buyer. Lisa Harris of eXp joins me to discuss.
Also, in "What Happened While You Were Showing" we answer the question many are asking. Are we headed for a bubble? And of course, Gary's Good News Only!!
Dirt with Gary picker in South Carolina's only podcast dedicated to the real estate agents craft. Greetings everybody and welcome back to deshon. Dirt I am Gary picker near often quoted very opinionated and usually correct post today. And I come from you from the offices of Blair, Cato, Pickering and caslon in beautiful downtown Columbia this last week of April 2024. On this week's show, our guest is going to be Lisa Harris. She is the owner of the lower latitudes team of ESP realty formerly known as the Harris home teams. And we're going to talk about a topic $50,000 over asking price, but they have no intention of closing, this is a problem we're all seeing more and more today with multiple offers where at least one of the offers some outlandish offer a 5060 $70,000 off of an over asking price. But of course the contract is contingent on appraisal. So how do we deal with that? Is it legal? Is it ethical? What are all the issues we need to worry about? We also will have another episode of what happened while you were out showing and Gary's good news only. So if you like what we're doing here, it looks like you'll do because we have almost 9000 downloads since we've begun, please like us, subscribe to us and share us. So Joining me now is Lisa Harris. She is a realtor and the owner of the lower latitudes team, and at least was a good friend of mine. And we were talking about this exact topic just a few days ago. In fact, I think you and I've been talking about this topic for months now. And then Oh, cool. Well, I really appreciate you man, when we started this conversation back in at least January December timeframe. Yes, I remember I was pumping gas one day, and you called me at the gas station talking about it. So let's start with our scenario that you presented to me. Let's start there. Because I think that's the first thing agents need to hear is what are we talking about in this scenario, I'm on the listing side, and I get an offer that is from the buyer's agent, for their buyer. That's like 50,000 60,000 70,000 is a ridiculous amount over what the list price is. And the scenario is, you know, it's contingent upon appraisal. And, and there's other parameters in there. And it could be a VA FHA loan, some type of loan, but it is contingent upon appraisal way over the ask price. And these are going mainly in the multiple, multiple offer issues that where you're saying, Yes, many of these are in circumstances where we are going over into multiple offers. So they're, in my opinion, I think some of these in our conversation around this was it's almost like it's a fake offer, just trying to win the bid in the hopes that it's not going to appraise. And as we sit here at the end of April, the listings you have how many of them are over? How many of them, first of all, are multiple offers? Well, just an example I had to this weekend that both went into multiple offers significantly above. Last weekend we had for all four of those were significantly above multiple offers. So I don't think I've had one week in the last three months that we didn't have listings in that week that went under multiple offer or for at minimum within the hour of going on the market at list price with asking for nothing as clean as a contract as you can get. And what's the most offers you've had on the contract yet? This past weekend, I had 20. His latest 25 offers on a listing this past weekend. And they were all significantly on a $450,000 listing. And and I probably if if circumstances would have been a little bit different, I probably could have gotten about 10 more. I was given permission from the seller to disclose the bare minimum that they would take and some people said Nevermind. I won't even write an offer. Well, we had an agent who did 46 offers in 24 hours or 48 hours. That's the most awkward Yeah, but I'm I'm sure many of y'all out there probably have more than that. So when you're getting the multiple offers, how often is this becoming an issue where you're seeing these outlandish numbers that are well over asked? Is that a daily weekly thing or is it just occasional? Well, the funny thing when we started this conversation and I first called you about this, this was not as prevalent as it is here we are just a few months later. Because I think our first conversation that I had around this was back in January and it wasn't quite as prevalent then. Now it's just it's almost become the norm. And it's really kind of crazy how normal it has become to see these significantly over asking price. You know when list price goes in now, the joke is that's the starting bid. What are the agents that you're talking with? What are their opinions about ethically and legally what they think about it before I get in and tell you my opinion I can't wait to see what you guys think is going on. So first of all, I will tell you this on the buyer side because I still represent buyers and on the buyer side I'm telling my buyers very clearly if you are going in over asking understand this is not based upon what an appraisal will will approve rays that are what closed Are you really, it's really based upon what a buyer is willing to pay for a home right now and what their pain point is. I hate to say that, but we had those conversations and we are very clear with them on the buyer side that you need to be aware of this, this is a scenario where this home may not appraise. And to me as a realtor, you need to be having those ethical conversations so that they understand that going in, and that they're very aware of where we are within the market so that that doesn't come back to bite you. Are you concerned on the seller side, however, that making that offer 50,000 over knowing that it's not gonna appraise for that, and you're just gonna renegotiate it under the appraisal contingency? Well, those are definitely conversations that we're having with the sellers as well, because we're letting the sellers know understand that if this home doesn't appraise and it's contingent upon appraisal, then you need to be having these conversations now upfront. And to the point that in some cases, we have negotiated an agenda to the side with an agreement of what what the seller would take, and having those conversations on On a side note to say, I won't take less than this, do you have the funds to come up with if it doesn't appraise for XYZ, because of the fact that they have so many offers. So I in many cases on the listing side have negotiated an addendum to the side that reflects what what a buyer would pay, so that they know that going in. Now, the funny thing I just had this conversation this morning with with my team, back in December, I had a circumstance where $450,000 home on my buyer did not appraise. And at that point, we went back to them and said we would like to have the the price lowered into December that seller did that. We were off by about $7,000. And they lowered the price $7,000. In this market, I don't think the seller will know probably not? Well, you know, I get calls all the time on it asking me is this illegal? Is this unethical? So let me let me break that down real quick. The first question is, is it illegal? Is it illegal for you as an agent to present an offer $50,000 over knowing that it's not going to appraise and then to be able to renegotiate? The best that we come up with is it could be bad faith, it could be a bad faith offer. Now I think it becomes a bad faith offer. If the agent is saying to the buyer, hey, buyer, here's our strategy, let's just offer $100,000 over it's never going to appraise we'll come back in negotiate, they'll have to negotiate us, you know, under the appraisal contingency. Because at that point, we know that the agents not really encouraging a good faith offer they're offering something they know is not legitimate. That's where we talked about the fake offer. Right? The problem with that, in terms of whether it's illegal or actionable under the law, is it's kind of a big, so what because it let's say it is bad thing, what is the sellers damages? Well, the seller is going to have a duty to mitigate damages, which means what's that deal falls through, they're going to put it back on the market and sell it again. And so in this market, they'll get an offer in another few days. So it's not likely that they're going to lose any time of having a carrier a house payment. So your damages are going to be very, very small. It's impossible to sue and say, Well, my house was at 400, you offer me 450, I was only able eventually to get four or five. So give me the other 45. No, because the contract was contingent on the appraisal. So the illegality of it, it gets very difficult now, however, I think realtors might have a different issue on hand. But But let me before I go there under 40 dash 57 are statute, we look at article seven, which is the 700 range. There is a provision in there that does talk about that an agent must act in good faith, fairness and honesty. So the question becomes, is it actionable in terms of can you be grieved for it at LLR? And the answer to me is for me as possible. And that's a good wiggle word for a lawyer, I could see a situation where a seller files a grievance against the buyer's agent, saying that they made this offer knowing that it was not a legitimate offer that was dishonest, it was not in good faith, and therefore they could be punished and I can see a claim. As you all know, I represent real estate agents, I've represented more than 50 of the commission where that can be an issue. Now the second part of that is ethically is does it violate the realtor code of ethics and I looked at three one is article two, it conceals pertinent facts as kind of stretching it I think article 11 conform to the standards of practice and competency issue now that when you would say are you competent and pulling comparables, are you competent in writing? legitimate offer? Right? So that's questionable. And then the last one is one that I think you have a better chance at is the honesty and truthfulness and their real estate communications. You know, it just gets to be so iffy at this point. As to whether that happens. I haven't seen somebody bring this before the realtor board. But you know as these things go on I could see this kind of stuff happening. But there are some places that Lisa and I will talk about in a minute that I do believe that can find you in trouble as you represent your seller where your seller may file a grievance against you, because the offer doesn't pan out, or I can say in a way where the grievance can be filed against the buyer, because the appraisal comes in. So let's talk about that in a little while. But, you know, we do have to talk also about the fiduciary duties that you have your buyer and your seller, which could be could be some issues, but we'll talk about those in a few minutes, you know, seller puts a house up with with the intent of selling it, and they put it on the market for maybe even a higher price than what they would think that it would appraise for, is that fair game? Is that how the market is played. Now, is that is that? Or is that something that a seller should know better or seller's agent should know better? So that's an interesting concept, because it can go both ways. You know, one of the sellers can sit here and complain that these your offers way over. And this is not a legitimate offer. But you could also argue it the other way too, such as the buyer, the seller has overpriced their house in the beginning. And so it's just a game that we all play, and it's fair, but I think we have to kind of start looking at this issue is, is it fair or good for the buyer? And is it fair or good for the seller? So let's talk about bad for the seller. Lisa, how do you think it's bad for a seller on accepting these $50,000? over a price offers? How do you think? Well, I think there's a couple of things that can be bad. Number one, if it's contingent upon appraisal, and you do run into appraisal issues, you're going to have to deal with the stresses of renegotiating a contract number one and high hopes of your seller because I can tell you as a seller, if my house is listed at 400 it comes in at 450 what in my mind from there on out Am I gonna expect you immediately feel as if it's worth worth that and and the challenge with that, too, is then if it doesn't appraise they almost feel like they've had money stolen from them. Right? I've often had to explain to somebody it was money that you didn't have you this wasn't money that was in the bank for you. It was money. That was a hope and a dream and a prayer that you were going to get if it appraised a Bon Jovi song living on a prayer, you got it in the other side of that that's bad is in the event that it doesn't appraise. And as a buyer walks away, you have to go back to market and then you have to disclose that. Yeah, well, I mean, you have to you don't necessarily have to disclose it didn't appraise but but in most cases, they're going to ask why did it go back on the market, right. And if you have material facts at that point, if you have inspections, if you have any kind of repair items that were presented, any of those things, when you go back on market, it's fair game, you have to open that that Pandora's box up. Right. And I think another big factor in it is, I think a lot of people get wrapped up in price is the best and most important factor, one of many, and it's like if I accepted a $450,000 offer my $400,000 house, but ultimately, it's not going to appraise it's gonna praise around 400. And now I'm dealing with a guy that's doing some crazy lending, putting very little money down 100% financing with some fifth 37th Bank out of Eastern Arkansas river bank, good luck getting the same clothes where I might have had an offer all cash at 405. That was a 10 day no due diligence as it would have been a better offer. And so I might have made a difference. And, and I will when I'm presenting offers, especially when you have multiple offers, just like that with those scenarios, I'm presenting all of that information to a seller so that they clearly understand what risk factors are and each and every one of those. Because you may have a cash offer that's not contingent upon appraisal that may not be as high as that one that's finance contingent upon appraisal. And it might make more sense to take that one, if it's cleaner, maybe it's as is maybe it's as good you diligence, maybe that that offer is going to give them an option to stay in the home for 30 days at no charge so that they can find another house, you have to look at all of the factors in an offer. And it's not just about the price, right. And of course in this as well as that the whole deal could just not close it could be f t because it comes in at 400. And you're at 450. Now your seller is stuck on 450. Now the whole deals just off and all over again and the momentum has to start all over again. And that's never good. So on the buyer side, I don't necessarily think these are good for buyers either to put these outlandish offers out there. What are you saying lease on that? Let's say a buyer's agent says to them, oh, let's put in this offer that's $25,000 over the list price and they get it and they have said you know it may not appraise so if it doesn't appraise then they're gonna have to lower the price and they have this conversation with their buyer. Well, then it comes back and what happens if it does appraise Yeah, and they go Wait a minute, you said it wasn't gonna appraise. I can't afford it. I can't afford To pay that payment, I'm like, I don't want that payment. I don't. And then they try and back out of that deal, but it appraised, you votary already negotiated your repairs. And you're moving to closing. Now what I saw this on Reddit and I think this is going to explain what we're talking about. It says this is from a real estate agent, it says it seems I pulled a colossal stupid move and get spanked for it. So for warning, I am definitely triggered. I want to get some information on this, because I'm kind of sought a shot, first time home purchaser put out a bid on the place way too high, because asking was already lower than my budget. And as far as I was told the risk of by bidding too high was that the lender might not front the full amount alone, I was fine with that risk, because I was asking already far enough under budget, that residual capital pay the difference. I had an agenda my contract is that came back lower, I would only pay up to a fixed amount with that lower appraisal cap in place. And assuming my bid was much higher than it ever should have been for the appraised value, I was certain it was going to wind up paying close to what the average bid was without really having to deal with the competitive market. Everything seemed to be going according to plan and to my lender tried to waive the appraisal due to Fannie Mae certifying the offer was close to estimated value. This was my first warning sign is my offer was $20,000 over the highest sold property in the area last month. So I call and ask for an appraisal. And then it says, Well, after ordering it, it was the only thing I did that then did I find out the appraisal almost always match the offer price, which isn't exactly true. So thanks to my agent, and apparently my real estate savvy step pants for not giving me the heads up on that. Not only that, but the lender would order be ordering a desk appraisal. Anyway, the big day comes and guess what I overpaid. And it says he wanted overpaying by about $40,000 over the ask price, and now has a house that wants to bubble collapses, his confidence will be overpriced and unbearable, and not be able to sell. So basically exactly what you said that they put an offer in filling it was going to be lack of a better term Bs and they'd be able to renegotiate it. And guess what they want up having to pay a price value which was 40,000. Ah, that is one of the issues that is out there. And and unfortunately, that is a risk that the buyer is taking as well. And if it's not explained to them, then the agents not doing their job either, right, where we negotiated this agenda to the side that I was talking about earlier. And the funny thing was the house appraised and she calls me in shock that the house appraised. And I was like Why were you shocked in the market we're in? I'm seeing it a lot more. Yep. And we're seeing this more and more. So tell me first of all, I just think it's very dangerous to do it for a buyer. If you're gonna do it for a buyer, I think you need to have the conversation say look, whatever you put in there, you could get stuck paying that as the offer if the appraisal comes back higher. And keep in mind, people are like oh, well I'll just cancel during do due diligence. How many times are you seeing the appraisal come back before the due diligence period is over very few right now because the lenders are so slammed very few and and there are buyers out there that are trying to press that to get the appraisal to come back during due diligence period. And it's not always coming back. Lenders don't have control over that like they used to. Exactly. So what are things that some steps for doing with a seller and when this happens when you get a $50,000 over ask how are you handling that. So on the seller side, there's several things that we're we're explaining them, obviously, all of the risk factors and the details of all of these offers. And you know, we're going back to them and these offers that are are not contingent upon appraisal are obviously moving to the top of the list more and more ones that are cash are moving to the to the top of the list more and more. The cleaner contracts are moving to the top of that list for sellers more and more. The other big thing that we're seeing is sellers are paying a lot more attention to earnest money right now, which is something that I've really paid attention to in the offers that we get when you get an offer that's $50,000 over and they're putting $1,000 earnest money down. Little Red flags, something don't fly right there. Right. Those are things that we're seeing. The other thing is making sure that they understand what those risk are going in. Even if it isn't contingent upon our appraisal that this deal still could fall through crazy enough. I have told my my sellers in these multiple offer circumstances, I will tell them go all the way to a fifth backup offer. And it just so happened recently. This young lady who put in I had four backup offers on $125,000 little patio home that we were $10,000 over and it just so happens that my fourth one ended up with that deal because the first one decided to walk. My second backup offer had already found another home. My third backup offer ended up having a finance issue. So we went to the fourth backup offer and she had still not found a home and luckily here it is this first time homebuyer ended up only paying a couple of $1,000 more than the listing price. And her offer ended up being the primary and closing. So I'm encouraging my sellers to take those backup offers and put them in line so that you have options because I certainly don't want to go back to the revolving door and the Amazing Grace of real estate if the first one doesn't fly. And I think that's a very good idea. I think first of all, I think the seller needs to understand that price is not always the best factor to we have seen crazy offers know the value of your house, and maybe not accepting the crazy offer if you have multiple offers, and once 50,000 over which we know that landed, but ones coming in at seven or eight or 10,000. And we know that's a good offer, that sometimes is better than taking the outlandish what because otherwise, it's time to buy your new one crazy. I just had a circumstance where a buyer submitted an offer for $30,000 over and we had a cash not contingent upon appraisal that was lower. And I explained the risk to the seller, the seller said you know what I'm going with the one that I know will will more likely close. And he wasn't greedy about it. He took the one at the lower offer that he thought was having having the higher wait for it to close. So you got to be smart and explaining it to the sellers as well. And I think you're the larger earnest money. Certainly a factor if you can get them not to do an appraisal contingency is a huge factor. I think when they do have an appraisal contingency that I meant, you mentioned earlier in this conversation about having an agenda that basically says okay, it's 50 over there is an appraisal contingency. However you agree that if it does not appraise that the minimum price will be or that the buyer will agree, the buyer agrees that he will pay X amount of dollars in cash above the appraised value. I think that's how you got to lock these in. Because if they're offering 50 above, they're only going to pay appraised value, you'll find that out very quickly. When you say well, if it doesn't appraise minimum, I'm going to take as 20 over appraised. So you'll need to pay the 20. If they're refusing to sign an addendum stating that then you pretty much know what they're gonna do. They're exactly where I'm finding that that buyer's agents are playing the game, because the ones that I have mentioned to them, let's have this addendum that says if it doesn't appraise we're going to agree to this. Or to put it in the other contingencies of the contract that says they would pay $25,000 over the ask price, even though you wrote it for 50. And find out how serious they actually are. And if they choose to not do the 25,000 over because that's that's what it appraised for, then you lose your earnest money. And then they go Whoa, whoa, whoa, wait a minute. I said. So in other words, what you're doing is presenting a fake offer, right? And that's exactly what that is. And then I think the most important thing you can do on the buyer side or the seller side, put it in writing in an email and have the have your client email back saying they agree, and they acknowledge, because once this deal goes, South thing that you said will have been forgotten. So always do that. Now, in our last question, I know you had an issue, you were concerned about what happens years down the road. So what was your concern? Okay, so we have this crazy market, and some of these people are actually getting these homes at 50 $100,000 75,025 over whatever that is over the listing price. What happens in three to four years from now whenever these buyers come back to you and say, I'm ready to sell this house, and they're upside down in it? And then they go, Well, you told me to offer $25,000 over What do you mean, I'm upside down manage? What is our fiduciary duty in that, right. And that's where I think it all comes down to having these explanations Now, having it put it in writing that your concerns are and really what you could do as an agent. Now, when you have some free time and under that's kind of a joke, but go ahead and write out one weekend that email and have that is almost a standard template email, you are accepting an offer that is substantially over your asking price. These are the concerns that you need to be concerned with make sure that is one of those concerns or two lists is that when you go to sell this property, if the market has corrected, you may wind up in a situation where the value does not equal what you sell. This happened all the time in 2007 2008. I think that buyers and sellers need to understand that and I could see a market correction that when this does slow down and we become back to a normal market. And this is by no means a normal market, that we could have these issues. So I do think your fiduciary duty is to explain it, put it in writing and make sure that you cover your sales with your CPA. So like Alright, well Lisa, I greatly appreciate the you coming on today with a great conversation and then I think we hit all the main points. Thank you. And now let's roll right into what happened while you were showing now. This is an article from bankrate is entitled is the housing market about to crash? Here's why experts say the answer is no. According to housing economists they point to six compelling reasons that we are not facing imminent crash. Number one inventories are at a record low. They say as long as supply is less than demand. That simple law of economics says crash can happen because more people want to buy than people are wanting to sell so price will stay hot builders cannot quit meet the demand they cannot quickly meet this demand. That is the second aspect of supply and demand as long as the supply from the builders does not stretch the demand. Prices have to remain hot. Number three mortgage rates remain near historic lows. We're talking 3%. We've been under 3%. Recently again, Mortgage Bankers Association expects the rates to rise to 3.7 by the end of the year, but those rates are still ridiculously low and historically low and that will not be high enough to scare off any buyers. Number four demographic trends are creating new buyers, we are seeing millennials which are a huge group, they're now hitting their prom buying years and their with their economic money. They're now starting to get they're also hitting that that stride their lending standards remain strict in 2007. And part of our collapse was because we had these liar loans where people were lying about income. There were very little checks and balances to make sure that people's credit histories and down payments were legit. And so we resulted in having a mass right now credit standards remain high. A typical credit score for a mortgage borrower in the third and fourth quarters stood at a record 786 credit score according to the Federal Bank, Reserve Bank of New York. And then lastly, foreclosure activity is muted. When the crash happened in 2007, it was because there was a lot of houses millions of houses in the market as foreclosures and it was depressing the prices without having all of those foreclosures price was prices will remain high. I do believe that we need to end the moratorium on foreclosures to give some of those Oreo properties back out on the market. But I do not believe that it will cause prices to crash. So now let's roll into Gary's good news only. supply shortage intensifies driving prices up 80% I don't know if that's good news or bad news but price is going up I guess it's good news year over year is 344,006 25 which is an all time high and asking prices reached an all time high of 356 175. Now new home sales also surged past expectations as builders raised to meet demand according to more Market Watch 20.7% increase month over month as compared with March sales, purchase markets poised to topple refinance and 2021. So now they're saying we should have more sales and refinances that's certainly good for real estate agents. So let's talk about COVID COVID. Pfizer CEO Albert Birla says he hopes to have his antiviral pill that his company has been developing for some time now to treat COVID-19 ready by the end of the year. Now that's incredible, because it's as I understand it supposed to be like a Tamiflu. If you get it, your symptoms won't be bad. You won't die from you won't be hospitalized. It's very similar to a Tamiflu type treatment. CDC also came out with a new stuff about masking I find this to be absolutely hilarious, quite frankly, they said the fully vaccinated people can unmask at outdoor gatherings like we've been masking for that or anyway. When you're dining with your friends, you don't have to mask but only if you're outdoors and any other activities would require vaccinated people so we're unvaccinated people still wear a mask. If you've been around somebody who has COVID-19 and you're fully vaccinated. You don't have to get tested or quarantine no kid. But here's my favorite part. This is what they wrote on their website if you are fully vaccinated you may unmask while walking, biking or riding outside alone or with members of your household. You can also remove the mass for our small outdoor gatherings with vaccinated unvaccinated people present and while eating an outdoor restaurant with people from multiple households. Previous guidance from the CDC also allows I love that word visiting with unvaccinated people including children from a single household who are at low risk for infection. I'm sorry, but I simply don't remember electing CDC as ruler over all of us. And the fact that they say we may and we're allowed is absolutely comical. I don't think I need CDC permission and I don't go to their website to see what they allow me to do. If you live in South Carolina, most of us have already been doing it this way anyway. Alright, seven day case average is now down 20% from the previous week, seven day average hospitalizations down 9%. And as well as average week of death has also fallen us now has 2.7 million shots per day being issued, a majority of the states have at least half their adults with one shot. In fact, if you're 18 and older the United States 54% of you have already received at least one shot as of 6am. On April 27 298 million vaccines have been distributed 232 million have been administered 78% of those 142 million people have received at least one dose 96 point 7 million have been fully vaccinated. That means 42% of the total US population has received at least one does. Remember if you're an adult, it's over 50% already 29.1% have been fully vaccinated. In South Carolina 4.3 million doses have been distributed 3.1 have been administered, which is 72%. So we're getting there. We're getting closer and closer. And it looks like things are heading in the right way. even seeing an end said the other day yesterday that the CDC guidelines don't go far enough to opening things back up. That means things have really changed. So that's our show today. I thank Lisa for joining and joining us. I think we got a great show and covered a topic that is very relevant to you. We will be back next week with another relevant topic. In the interim, I'd ask you to please go and check out some of our previous episodes on the podcast platform that you're listening to us. Please don't forget to like us and share us and to subscribe. We'll have a great weekend and we will talk to you real soon.