08/06/2024
We’ve all heard the term: “Buyer Beware”. For Realtors, the more poignant term is: “Beware of your Buyer”.
About four years ago, I listed a vacant lot with RTI plans on a residential corner in North Hollywood. After approximately five weeks on the market, I received a call from what I believed to be a very serious developer. Right from the top he informed me he had an agent and wanted to make sure it was okay if he asked me a few direct questions about the plans that would be delivered with the property. We agreed only to discuss issues related to engineering, et al, (he was sent a copy of the architectural drawings) and the possibility of the seller doing the actual build. The buyer asked all the right questions and apparently, I had all the right answers. After a lengthy conversation, the buyer said he would have his agent send me an offer before the close of business and sure enough, right about 4:55pm the same day, an RPA (Residential Purchase Agreement) was submitted by his agent, who I will just refer to as “Chuck” from “Chuck’s Brokerage”.
I called “Chuck” directly, reminding him the subject property was a vacant lot and the offer required resubmission using a VLPA (Vacant Land Purchase Agreement) form. If I had been paying closer attention, I suppose the first red flag would have been his response of, “So, what’s the big deal with using an RPA? Now I’ve got to get the buyer to resign everything.”
Ignoring his snark, I apologized for any inconvenience and kindly let him know I was looking forward to receiving the resubmitted offer, which arrived in short order. For the record, it was an all-cash offer very close to the asking price. The seller accepted and Escrow opened the next day. According to my calendar it was a Tuesday (which will be more important later).
On the following day, not even twenty-four hours after opening escrow, I saw a post on Facebook advertising the very same vacant lot for sale. Upon closer inspection, the post was MY POST, same info, even the same brokerage colors. Good ol’ Chuck had simply copied and pasted the original post, replacing my face with his. A second red flag! Of course, when I contacted Chuck to discuss my displeasure, I was quickly ghosted. Third and final RED FLAG. It became abundantly clear that Chucky the Cheese’s ‘buyer’ never had any intention of wiring the EMD and in the end, made us wait an extra three days before signing the cancellation.
In hindsight, the scheme involves opening escrow on a Monday or Tuesday, taking the three-day EMD window (which really becomes more like 5 to 6 days because of the weekend) to shop or “warehouse” the property to any number of investors/developers, then reassign a new buyer and in the process, make ten to twenty thousand dollars. Unfortunately, this wastes the time of everyone involved, from Escrow to Title, Broker to Agent, and Agent to Seller, et al. To be sure, I wonder if guys like Chuckie the Cheese are aware the seller must agree to a change of buyer assignment. My guess is no.
Case In Point: Flipur, Inc., aka: Flipur.io
Because I work with many investors and developers, a good friend - and one of the best Realtors I know - came to me recently with an off-market fixer in a very desirable part of Sherman Oaks. Opportunities like this are rare so I went to work calling my short list. After multiple calls and no takers, I reached out to another Realtor who also works with developers. In short order we had a very motivated buyer who happened to be looking for off-market fixers and/or teardowns in Sherman Oaks. A clean, all-cash offer of 1.25M was submitted with a 12-day escrow, 7-day inspection and no loan or appraisal contingencies. The listing agent informed me he had received multiple offers and would be countering with some additional terms, but also added that our offer was the strongest and the seller’s number was 1.3M. I went back to the buyer and they agreed to raise the offer $50,000, extend COE to 30 days and allow the sellers to remain in possession for an additional 29 days for no additional fee. The buyer also agreed to pay the seller’s escrow fees. Voila! Escrow opened (on a Wednesday).
Due to the short, seven-day window for inspection, I went right to work getting things scheduled for my buyer. I was informed they had their own team and requested an inspection time of 10:00am Friday (48 hours later). The seller and listing agent were very accommodating and the date/time was set and confirmed.
At 10:00am, no inspector(s) from the buyer’s side had arrived at the residence. At 10:10am, I called the buyer to ask when we could expect the inspector(s) to arrive. The representative from Flipur told me one of their people arrived at 9:30am but the sellers wouldn’t let them in. I reminded the representative at Flipur our appointment time was 10:00am and she said, “The inspector is running a little bit late but should be there shortly.” At 10:30am, the “inspector” finally showed up driving an expensive Mercedes. I don’t know about the rest of you, but I have never, and I mean NEVER, seen a property inspector arrive in an over $150,000 car. He introduced himself and it was clear the listing agent and this person were familiar with each other. After walking around the backyard for about five minutes, the “inspector” turns to me and the listing agent and asks, “So, what do you guys want for the place?” [Red flag number one!] Confused, I tell him we are already under contract for 1.3M. He says he wouldn’t pay 1.1M for this place, which is a real headscratcher because I’m under the impression he’s here to inspect. Then this guy says the real bellringer: “Why did you guys go through these people? [referring to Flipur] Next time just call me directly if you have a property.”
“So, you’re not an inspector?” I asked. “Are you a project manager?”
“No. I am a buyer.” Red flag number two.
The listing agent and I thanked him, watched him drive away in his expensive, non-inspector vehicle and then called the buyer. I asked Flipur’s representative very directly about this so-called “inspector” and she (Flipur’s representative) was silent. I explained to her that I am transparent with my clients and have a fair expectation my clients will do the same. This was met with, “Well, he’s one of our project managers,” she said.
“No, he’s not,” I replied. “He already told us he’s a buyer and frankly, he said he doesn’t even know who you are. So please, just tell me the truth.” Silence. Red flag number 3.
At this point, the listing agent was about to crawl into my phone with the goal of choking the air out of the unscrupulous person on the other end. For me, I had to go and face the sellers and take the heat for the listing agent over their being inconvenienced. It was not a fun day by any means and after leaving the residence I called escrow, the transaction coordinator and title rep to let them know we would be cancelling the transaction, all while apologizing for the waste of everyone’s time. I texted Flipur’s representative, letting her know I needed to hear from her principle (Samuel Mesikmen) to close this out. About an hour later I received a text from Samuel basically acknowledging our frustration. I do not like the idea of doing business over text, so I called Samuel to discuss, mano-a-mano. I let him know we were not at all pleased with this situation and said something to the effect of, “Sam, frankly I do not care if you are trying to get other investors to assist in the acquisition of this property. What I do care about is the lack of transparency and total dishonesty. It creates an environment of bad faith and makes for a poisoned business relationship.” Not that it matters, but Sam seemed to agree.
I continued, “Here’s how it’s going to go. On Monday, you are either going to wire the full 1.3 million dollars into escrow, or you are going to sign the cancellation form I have already prepared and sent for your signature. These sellers are nice people – please do not hang them up.” At midnight, Samuel finally signed the cancellation, allowing the seller to move on. By moving quickly, we were able to get out of the transaction within 72 hours, which was really the best timing that could have been achieved.
I know it comes as a shock to most people out there, but there are some unscrupulous characters in our business. Be particularly aware of these so-called “warehousers” who insert themselves into a transaction with the goal of making a few bucks outside of escrow. In short, they are scammers who simply do not care about the web of falsehoods they weave.
The real question is: What can be done about it? There are just a couple of items to keep in mind if you find yourself in a similar situation. First and probably most important, always require a buyer (like Flipur) to wire the 3% EMD (earnest money deposit) to escrow within 24-hours of acceptance. Sure, a buyer like Flipur might balk at this and there’s red flag #1. I might also suggest the buyer not be allowed access to the property until the EMD has been wired. Finally, I would most definitely reiterate to the buyer that the seller reserves the right to refuse any reassignment of buyer.
After almost ten years in this business, I suppose I consider myself lucky the “Chuckie Cheeses” have only been able to get under contract two times. In my opinion, that’s two times too many.
