Is it a sign of things to come?

Question

Could be absolutely meaningless, or it could be a sign of things to come, but a large out-of-state investor who has been buying a lot of deals in Atlanta (including one from us) has lost its funding...

This isn't a hedge fund or any of the big name investment funds, but these guys had an 8-figure proof of funds and have made offers on several of our properties recently.  They had a contract on a property owned by a friend of mine, scheduled to close today.  The agent called my friend a couple hours ago and said they needed to terminate because they got their funding pulled.

Craziest part is that the agent claimed that the buyers hadn't funded the earnest money (which should have been done a week ago), so as of now, he can't even easily collect that.  I wonder how many lawsuits there will be against the brokerage for failing to properly collect and maintain earnest money?

Quite possible this was just an isolated event relating to a specific investment group and their funding source (that's my guess, actually), but who knows, maybe this is indicative of bigger issues within the industry.

Michael Woodward · Answer

J. That sounds like good news to me.  I hope it IS a sign of things to come! Not only are these large investors screwing up local investors ability to find investment projects but I feel that they are creating a lot of uncertainty and instability in the real estate market.  There's too much money moving into real estate too fast.  We all know what happened the last time that happened. Hopefully this is the first of many holes that will get punched in the new real estate bubble that will prevent it from over-inflating. I miss the good old days of slow and steady appreciation.

Account Closed · Answer

J  Scott,  Interesting.  In my opinion, this only impacts the sub $250k market where the big boys have been buying.  They don't buy in our San Francisco Bay Area market so I guess we're not going to be impacted.

If I have to make a guess and a bet, I'd say it's an isolated case. It would be crazy if it's happening to other hedge funds as well.  Talking about the domino effect.  @J Scott, are you raising some cash as a precaution or are you still going forward as normal?  Maybe you already have too much money in the bank that this doesn't impact you.  :)

Thanks for sharing.  Interesting story indeed.  Btw, it was retarded that the listing agent didn't insist the earnest money to be in escrow within 3 days.

Happy Easter Weekend to Everyone.

J Scott · Answer

Thanks for all the feedback, folks!

I didn't intend the discussion to focus on the earnest money -- the investor I'm talking about has 100+ deals under his belt and the couple thousand in earnest money isn't going to effect him (though he is investigating his options).  As of this morning, the property is under contract again with another buyer, so it's even less of an issue.

As for the lawsuits I mentioned, I'm not expecting any one-off sellers to try to sue for their EM (though they might).  My point is that -- if the buyer's agent has hundreds of deals in the works and hasn't properly collected EM for any of them (potentially hundreds of thousands of dollars), I wouldn't be surprised if the buyers owe certain specific sellers LOTS of money, and it's easier to go after a licensed broker in this case than to go after the buyers.

I'm not an attorney, and maybe I'm wrong about that, of course...

Anyway, the point of the thread was the fact that at least one large-scale investor is out of business because their funding was pulled.  That was the point that I thought was interesting...  :)

Joel Owens · Answer

What does the contract say regarding EM ??

I would have to say what contract was used. If this is a bulk buyer they might be using a custom contract drawn up by their attorney with a ton of outs in it.

With earnest money I care more about which side is holding it and how much of it is non-refundable and WHEN that happens.

10,000 non-refundable for any reason held by me the seller is worth way more than 40,000 earnest money held by the buyers side. The 10,000 is an absolute loss for leaving the deal versus 40,000 that even if I the seller am owed it trying to collect from the buyer or their representative will be like pulling teeth.

Was there a listing broker and buyers broker or just the listing broker  here?? If the listing broker only and the buyers said earnest money is coming and the listing broker told seller it was there and never came there could be possible negligence. It just really depends on how the events went down and what kind of paper trail there is to support the claims.

I agree that if the earnest money is small it just isn't worth pursuing. If there were multiple offers on this property then the seller should have gotten non-refundable EM to go under contract.

J Scott · Answer

I just mean that I'm always looking for private investors and money partners, as we're working on expanding the business these days and the more money the better...

Rob K. · Answer

In my state, the PA has a place for the agent to sign that he or she received the deposit. If that spot is signed and the deposit hasn't been received, then the agent is responsible for it.

Bill Gulley · Answer

A brokerage is not responsible for funds that are not received. There may be a problem if the contract showed an EMD and the agent presented the contract and it was accepted without the agent disclosing that the EMD had not been received, where the seller relied upon the funds as part of the contract. :)

James Neff · Answer

@ J Scott. What do you mean by always fund rasing these days? I'm curious if there is something im missing, or wasn't aware of. :)

Chris Martin · Answer

We have one known 'institutional' buyer in my area, Wake county NC. This one player has bought 138 houses in 2013 (96 on 2-7-2013) per county records. I don't have to-the-day records but the data is current as of a week or so. My sample set is the complete record of all property cards in the county. They only bought 14 in 2012 (0 in prior years) so are a new entrant in this market. No sign they are stopping.

James Hiddle · Answer

Where there is no more fish in the lake what do you do? You go to another lake. So if the market is dried up than yeah they're going to pack up and move onto another market.

And as soon as other hedge funds dry up their markets they'll move onto something else themselves.

Is it a sign of things to come?

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