Flipping Is a “Dirty” Word: An Agent’s Perspective

Let’s bring up the elephant in the room, shall we.  “Flipping” a short sale is wrong, illegal, unethical, and defrauds lenders of money.  What?… so, I guess buying something for one price and selling it higher to make a profit is illegal.  Yeah, and helping a homeowner get out from under their debt by selling their home to a buyer that met their needs and the terms offered by their lender is bad practice, right?

Sometimes, a property is deemed unsellable to standard retail buyers and requires an investor offer.  Investors are more willing to purchase properties with defects, multiple junior liens, and are more willing to wait through the process than a nervous-nellie retail buyer who does not have enough money for their closing costs, does not want to wait out the process, and is hanging their offer on contingencies.

As an agent , it is our commitment to a homeowner to put our best foot forward and market the property so that offers that will ‘work’ start pouring in.  We then present all offers to the sellers.  It is up to the homeowner to accept the offer that they deem to be best for short sale approval.  In this market, the best offer may not be from a future owner-occupant, but from a “flipper.”

Lenders, other agents, mortgage brokers, even our lovely government love to call “flipping” illegal and fraudulent.  So, when institutions buy currency at one exchange rate and lend or sells it at a higher rate, is that illegal flipping too?  Better make banks sign a bunch of disclosures.

Now to be fair, I understand where the concerns come from.  There have been people who have quite frankly committed fraud by using straw buyers, smoke-n-mirrors, and bogus appraisals.  However, I maintain that buying a property at a great price and re-selling that same property for a higher amount to a buyer at or even below market value is simply good strategy.  Flipping anything should be profitable.  To break it down simpler, it takes a specialized skill set to buy and sell for enough to cover the costs of doing business, business education, resources, etc… and still make a profit.

Let me cite a few examples of short sale “flips” that negate the critics:

But, first this reminder: The lender is not a party to the transaction in a short sale.  The homeowner in a short sale remains the owner.  The lender is presented the offer simply to review the net offered.  If the lender deems the net offered to be within the discount percentage guidelines and all other terms meet their requirements, they may approve the short sale.  A lender’s decision to discount is based upon their pre-determined net percentages of their own independent assessment of market value.  No one is twisting the bank’s arm.  No one is defrauding the lender of monies owed if the lender made their own decision to accept less than the total indebtedness.

• We had a seller facing a foreclosure date receive multiple offers.  The offers were mostly from first-time home-buyers and were all 20% below list price.  The highest offer was actually from a short sale “flipper”.  Not only was their offer higher, but they also did not require any closing cost concessions, had no financing contingency, and could close quickly.  What should the seller do?  They chose the highest offer.  The lender approved the offer after independently assessing the property and the investor re-sold for a profit.
• In a recent short sale with Chase.  The lender, after months of dragging their feet, called our office and offered short sale approval if the current buyer could close in three days.  The homeowner was facing a scheduled foreclosure date.  The buyer was using financing and required 45 days for their inspection period and loan package.  The property appraised higher than their purchase offer.  However, they could not close in three days and indicated that they would rescind if the bank would not allow more time.  A back-up buyer was in contract with a cash “flip” offer who could close in three days and hold the property to re-sale to the current buyer.  So, with agreement by all parties we told the lender about the back-up offer.   The investor offer stood to net the bank 19% less than the financed offer, but they could close right away.  The bank chose the fast close over the higher net.  Really!  The lender gave the homeowner a full satisfaction of debt, the homeowner avoided foreclosure, the investor made a return, and the buyer that wanted the home originally was still able to purchase a below market property 45 days later.  
• Property sat on the market for over two years at a discount price, but never received an offer due to multiple junior liens, some repairs required to pass inspection, and the lengthy short sale review process the lender was known for.  Retail buyers were too apprehensive to make an offer.  Competing properties down the street didn’t come with all the trouble.  The property was deemed unsellable by local agents and now carried a long days on market stigma.  An investor stepped in with a discount offer that allowed enough room to make the transaction work.  He did not care about the wait, was able to contribute to liens, and would make the fast repairs to immediately re-sale the property.  The lender, knowing that the required repairs would hurt the marketability of the property as a REO, decided that the offer would net them more in a faster time-frame.  The investor who wanted to “flip” the property was the best deal for the homeowner.  The investor made an unsellable home sellable.  The homeowner cried in relief that she could finally move on with her life after years of trying to sell.

Are there “flippers” who are doing it wrong?  Yes.  There are people not fully disclosing their intentions, those that unduly influence appraisals, etc… Steer clear.  But, ultimately an investor who wants to “flip” your short sale listing could be the offer that works best for the homeowner or that meets the lender’s requirements.

The key in working with homeowners in a short sale is to check out the intentions and performance ability of any buyers presenting offers to the homeowner.  Your goal is to get the property sold so a homeowner can move on.  Let the lender decide if an offer meets their requirements.

Nothing stirs the pot more – post your comments below.

  To Your Short Sale Success!   Amy Ransdell Your Atlanta Short Sale Specialist