Getting sued in the real estate industry is very easy. You don’t even have to try very hard. You could do everything correctly and still come out on the losing end of litigation.
Of course, some scenarios make it more likely that you’ll get sued, others less likely. In the course of everyday real estate transactions, as long as everything is documented and you’ve acted within the scope of your license, the risk is low.
However sometimes the risk is just too high and you’ve got to gracefully bow out.
I have a legally operating mind for some reason. I’ve always loved the law and sometimes wish I had gone into that field. I tend to spot potential legal trouble when I see it and as such have been able to avoid it thus far. Wish me luck going forward! LOL
I got a call from a close family friend in Austin. His situation is that he, after 20+ years of marriage, is getting a divorce. He and his wife own two homes, right next door to each other and in order to settle the divorce, he would like to sell one of the homes to pay off his soon to be ex wife and go their separate ways.
As a Friendswood Realtor, you’ve got to be extra careful in divorce situations. Emotions are running high and it could easily be the case that one party or the other sees you as the scapegoat. Everything must be 100% disclosed to both parties equally and all communication overly documented.
He asked me if I would complete a comparable market analysis of both of their homes to see which had the highest proceeds of sale. His thought was to get the highest proceeds of sale so he could pay her off for both houses. Selling one of the homes definitely made this possible due to when they were purchased.
Getting the documentation together has been a chore. The agreement with them to sell the home hasn’t been executed as the wife really doesn’t want the divorce and is stalling regardless of the inevitable. I guess this is common according to my broker. I’ve represented sellers in divorce situations several times but they were all amicable whereas this one is not.
We have been talking for just over a month about their options.
“You Will Lose Money”
Recently, he sent me an email string between he and his soon to be ex wife explaining that he could have a buyer for the house they intend to sell. The buyer offered “fair market value” and would pay “appraised value” for the home if she was able to purchase it. This person is known to both of them and from what I can gather, knows a little about real estate. That’s my sense.
It wasn’t long before I got an email from him asking if I’d be willing to handle the paperwork for them at a reduced commission. This in and of itself didn’t bother me but the scenario began to smell funny.
My red flags went up to full mast! After thinking about it for a few hours, taking the situation into careful consideration, I sat down and constructed an email to him. I explained that this was NOT a good idea and he would lose money in the process. His goal was to make the most money from the house, not simply get it over with quickly.
Some private sales are like that. The seller is selling to a family member and they just want a fair price for the home. This was not that situation.
I explained that there is a significant difference between “fair market value” and “appraised value” and even a difference between appraised value in connection with an open market sale and a private sale.
Fair Market Value In Sacramento Real Estate
There is only one way to get fair market value for the sale of a home and that’s to put it up for sale to the open market where buyers compete. In a market where values are advancing at a fever pitch, multiple offers are everywhere no matter the condition of the home and days on market has been CRUSHED by the demand for homes, this is the only way to know what the market will bear.
In a private sale, in this market, I explained to him that he would lose money no matter what he did to prevent it. There is no way to predict what the market will bear. Some buyers are paying over appraised value for homes right now. Buyers are literally coming out of pocket to make up the difference in cash.
It’s that hot out there right now. Putting your home up for sale on the open market is the ONLY way to ensure you get the most amount of money for your home if of course that’s your goal.
All Appraisals Are NOT The Same
The Sacramento and South Placer County real estate markets are sizzling right now. I mean really hot. I’ve never seen it like this in my 11 years of full time industry experience in the region.
I’ve noticed that appraisers I have worked with over the last 6 or so months are not only looking at the comparable sales for a given home but are also looking at the situations of the sale more closely than in the last few years. Time on the market, were there multiple offers and were they all over full price are questions I have been asked by appraisers lately.
As a result of that, I’m seeing appraisals coming in higher than the comparable sales can support if you’re looking strictly at the black and white numbers. If you think about this, it makes sense.
The real estate market is appreciating and lenders know this. When the market appreciates it reduces the risk for lenders that the borrower will default. If the risk is perceived to be lower, lenders relax a little, want to make home loans and a slightly generous appraisal isn’t given much scrutiny.
But now, take away the situation. Take away multiple, over full price offers, the time on the market and what are you left with? Just black and white numbers. Appraisers don’t do well in this scenario. I’ve seen it over and over in my career that when an appraisal is done outside a transaction for the sale of a home, the value comes in lower.
Appraisals not only take into account the comparable sales but they also take into account the market at the time of the appraisal.
As I told my potential seller, I’d rather the market dictate to an appraiser than the appraiser attempting the determine the market. With less information, appraisers most certainly come in with values that are more conservative. That only makes sense.
“Hi Neighbor, Here’s A Lawsuit”
In speaking with my broker about this situation, he mentioned to me that not only was I correct in my assessment of this situation but that the seller could also be sued by his neighbors for accepting less for the home than the property was actually worth.
Selling for less than the home is worth drives down the value of other homes in the area thereby costing other homeowners money in the sale of their homes.
With the inventory of homes for sale so low aka a lack of comparable sales, this is a very real concern.
He had been speaking with a seller that day who asked if he could sue his neighbor for selling too low. Of course, he referred this party to an attorney which is the appropriate as it’s outside the scope of a real estate license to give legal advice.
Why Risk It?
If you’re hell bent on losing money and putting yourself at risk for a lawsuit then have at it. I can’t imagine why anyone would do this in the current market. It’s been proven time and time again that when a seller tries to sell their home without the benefit of professional representation, they lose money.
There is a saying that “the cheap man pays twice”. That has always been my personal experience. Whenever I’ve tried to cut corners, it’s cost me money in the end and it doesn’t matter what it’s for.
Can you sell your home on your own? Sure you can! If you do it correctly you won’t lose as much doing it on your own. That said, why lose money at all and increase your risk of litigation exponentially?
I have told the seller that under no circumstances can I represent he and his soon to be ex in a private sale situation regardless of the commission. The situation is just too risky with all factors considered.
Why not avoid possible litigation altogether and hire me to sell your home. Studies have shown time and time again that hiring a Realtor will help make the most money from the sale of your home and make it unlikely that you’ll need a lawyer later on down the road.
If you have a home to sell, please call, text, email or simply fill out the form below and I’ll get back to you promptly.