HUGE lesson learned!! Real estate agents doing Short sales: Must Read!

As a real estate agent, my plan was to

  1. Find a preforeclosure and list it at a reduced price on the MLS
  2. Take all offers that I get
  3. Get the bank to accept the lowest offer
  4. Once I get the approval at the lowest price, have an investor buy it cash and make my commission
  5. Then present the investor with the highest offer, and let him make the margin

Homeowner owes $300k.
I list the property for $250k
I get offers ranging from $220k-$270k
I only present the bank with a $220k cash offer for a quick close
Bank accepts the $220k offer
I have an investor buy it $220k cash and flip it to the $270k via double close
I make the commission on $220k, investor makes the margin
This is done through a double close, same day.

But I learned that this is illegal to do as a real estate agent. My fiduciary responsibility doesn’t allow me to have the bank accept the lowest offer and hold onto the highest offer and present it to the investor.

So how do I work around this?? Basically, I can’t make money on margins in short sales as a real estate agent!! I was told that you can only take this approach if you DON’T have your real estate license, but then how do you find buyers if the property isn’t listed???

-very, very, very upset agent :banghead

Let’s say you as a License Agent list the property at market value on the MLS.
After 2 months no one makes an offer or even sees the property.
You send the lenders your own short sale discounted offer wish they take you flip it to a buyer and make the margin no commission. You disclosures in all your documents that you are a Transaction Broker and a investor. Everyone happy.
What’s wrong with that? Property is going to foreclosure.

The problem with that (or potential) is your definition of “market value.” As the listing agent, it is your duty to get the property sold in the best interests of your client, ie the seller. If you list it at it’s ARV and it doesn’t sell, that’s because you listed it too high (didn’t take off for repairs). If you become the buyer, you may have problems.

Heck, even if you do everything above board, if you are the listing agent and the buyer, you could have problems How can you equally represent both parties when YOU are one of those parties?

Personally, I’d be VERY wary of buying any property that I had listed.

As an agent, I see no way to “get around” your fiduciary duties.


Raj, keep in mind that this is a short sale. So ethically, acting in the best interest of the seller would be to get the bank to accept any offer and stop foreclosure. It doesn’t necessarily have to be the highest offer, it could be the lowest offer. Just as long as the bank accepts it and agrees not to pursue the seller for a deficiency amount.

What if I get a first offer of $220k and the bank accepts it, then I get another offer at $270k. Why would I resubmit the $270k to the bank for a new approval? I wouldn’t, I would give the bank $220k and resell at $270k to make the $50k spread. But as a realtor I can’t do this.

This is where the fiduciary duties get in the way. As a realtor, I have to submit even the highest offer to the bank. If I list the house for $220k and get an approval, and then I get an offer for $270k, I have to submit the higher offer too. I can’t close on the house at $220k, and then resell to the $270k offer. Not as a realtor.

The solution, which I realized only a few hours ago and still need to fine tune, is to have a 3rd party negotiate the short sale, and then have a realtor list it to find an end buyer. So for example, my negotiator buddy(who isn’t an agent), contacts the bank and negotiates the house down to $220k without listing the house.

(The question here is, would the banks require that the house be listed on the MLS before they accept an offer? I know in some cases they do.)

Now my negotiator buddy has an approval at $220k with a 25 day approval expiration. He contacts a real estate agent, and has him list the house up for $270k. The agent gets an offer at $270k. The approval expires by now, but we know that we can re-contact the bank and re-submit the $220k cash offer.

My negotiator buddy gets an investor to buy it cash at $220k and sell via double close it for $270k to the end buyer on the same day. Now the real estate agent isn’t involved in any illegal issues. The realtor is making his commission on the $270k offer, which is the highest offer.

This is the only solution I can think of… do you agree with this? Does anyone have a better way of doing this?

I am curious, did you actually try to do this or where you told by someone like your broker or attorney
that it was illegal. If so who and how far did you get before someone told you
to stop. Did the lender approve your offer? Also what about if you list the property and your LLC buys the property? I think lenders know “what’s” going on because they see all your paper work and disclosures but they just want the bad loans off their books.

No one has ever said it was illegal. What it is is a violation of an agent’s duties, pure and simple.

As I said, to sell the property in the best interests of the client. That may indeed be a lower, but more solid, offer. However, if you’re that lower offer, I wouldn’t want to be the one in front of the RE Commission review explaining how YOU thought your offer was better than the higher offer. Good luck with that.

And no, you actually DON’T have to submit more offers to the owner and/or the lender IF they have already approved (and signed) a lower offer. A contract is binding once all parties have agreed and signed. Just because a better/higher offer comes in after that fact doesn’t mean that they can pursue it.

The solution, which I realized only a few hours ago and still need to fine tune, is to have a 3rd party negotiate the short sale, and then have a realtor list it to find an end buyer. So for example, my negotiator buddy(who isn’t an agent), contacts the bank and negotiates the house down to $220k without listing the house.

Now, you’re getting confusing. Is this a listing of yours that is a shortsale or is this a seller that has come to you to sell their property to you? Are you an active RE agent or Realtor (why can’t you list it?)

Alot of variables depending on exactly what is happening.


You’re right and I agree, I’m the listing agent so I wouldn’t want it to be my offer. What I typically do is have an all cash investor make the initial offer. In this case, it was my cousin. It was an all cash, no contingencies, as-is offer. It wasn’t the highest, but it was gauranteed to close and the bank took it so I didn’t present the higher offers. Once the bank accepted it, I had other higher offers that were still waiting. So I wanted to do a double close and close the first deal all cash and then flip the property to the end buyer. But I found that I can’t do this as a real estate agent.

It’s a listing of mine that’s a short sale and yes I’m a RE agent/realtor. So what I was saying is that I intended to list a property and submit the lowest offer to the bank WHILE obtaining additional offers that come from other agents through the MLS. If the bank accepts the lowest offer, I get it sold all cash, make my commission, and then contact the highest offer and tell them that they can have this property through a double close.

If I get 10 offers on a property, I don’t submit them all. I only submit the lowest, but reasonable offer. In my opinion, this makes it much easier on the bank, myself, and everyone involved. If the bank doesn’t take the lowest reasonable offer, they counteroffer, and then I would take the next best offer based on the strongest buyer, not the highest price.

The problem with this is that as a RE agent, I can’t choose to only submit the lowest offer and hold the higher offers on the side. Even though I’m working in the seller’s best interest, I was told that it’s fraud against the bank b/c they should be receiving the highest offer as well.

An example is that I got a short sale approval letter on 2/12/08. But, on 2/10/08, I received a MUCH higher offer that I didn’t present to the bank b/c I was verbally told that they would accept my lower all-cash offer and give me an approval letter by 2/12/08. So rather than waste that higher offer that I received on 2/10/08, I held onto it and presented it to my investor. He agreed to flip the house and do a double close. I make my commission on the first all-cash closing, and then I step away from the picture. The second closing is strictly between the investor and the end buyer and their agent.

I thought this was the perfect plan, until I learned I can’t do this and can actually go to jail for it. Raj, I’ve read your posts and you’ve probably forgotten more than I’ll ever know. Any advice you have is always appreciated.

If you have more than one offer, then yes, you do have to submit ALL offers for the review of the seller/lender. Your duty, as the listing agent, is to recommend the best offer that works for the seller’s needs. That one probably will NOT be yours (or your cousins) if it is the lowest offer. I’m sure that there were others that were either cash, or strong financing.

You can’t play favorites. Now, if the lowest offer was the ONLY offer at the time you submitted, and the bank/seller accepted, signed the contract, THEN the other offers can’t be looked at unless the deal falls through.

I’m also not sure exactly why this is a big issue for you. From your post, you’re not going to receive any benefit from this. In fact, (besides the legal risk) you’re actually making LESS money.

Now, assuming a 3% commission to you, at $220K, you’ve got a gross commission of $6600, while at $270K, it’s $8100. You say that you’re not getting any commission from the second closing, so I guess I’m missing your reasoning for trying to do this in the first place.

Also, I believe that you may be stressing over this a bit too much. If it is really a good deal, then you’ll STILL have people wanting to make offers even after it’s under contract. Just make sure to list it as “pending/active” or your MLS comparable of.

For example, I just had one that closed for over list price. I still had people interested in making offers TO THE BUYER once it closed. If it works out, I’ll get commission on the first, and the second closing.


Yes, what you suggest in the first post is illegal. I just finished a Business Law class at college and there was a specific case related to this example. The realtor lost, i.e., the judge ruled against him, and he had fines, literally, in the millions. If you want, I will look it up in my textbook and post it.
In the end, as a realtor/real estate agent, you have that fiduciary responsibility to inform ALL your clients, both buyer and seller and the bank, of any material information that you obtain while representing them. The whole point of fiduciary is not to make tons of profit and oodles of money for yourself. It’s to create (business) relationships of trust to benefit your clients in the utmost capabilities. Thus, not only would you have to inform the bank/lender of the highest offer your recieved, you would have to inform that end buyer that you had previously sold the house to the low priced buyer for that selling price and that you’re now proposing to sell it to the high end buyer for his higher price. I’m sure that conversation will be pleasant. I suppose you could always try and sneak around things, but don’t complain if you get caught. In fact, you may even have to inform the bank/lender of higher offers that you received even after a contract was signed. Again, not to profit you in any manner. It’s to maintain a fiduciary responsibility for the clients you chose to represent: seller, buyer, bank. If you don’t want to deal with fiduciary responsibilites, then don’t be part of a business that integrates them. In this case, a licensed real-estate agency.
There is a way to get around this. Don’t involve your real-estate agent resources in any way whatsoever. Contact the owner privately, buy it with your own money, contact the seller privately, sell it to them outside of your agency. DO NOT utilize any of your real-estate agent resources; no comps, no listing, no advertising, no marketing. Hire another real-estate agency to do all that for you. Pay typical market value for those services. But, as can be deduced, its kinda pointless to be a real-estate agent hiring another real-estate agent to be you real-estate agent.
Yes, things are different in the real-estate game when you’re functioning as a licensed agent. Typically, real-estate agents make their money from comissions, not from the spread.


NJBird_Dog, the easy way around all of this is to simply not be the realtor. Just approach the owner of the preforeclosure as an investor. That is, your name goes on the buyer line. If you do it this way, you don’t have a broker fiduciary responsibility to the preforeclosure seller. Then, you flip it yourself as an investor. The only caveat to this approach is that since you do have your RE license, you should fully disclose that to the preforeclosure seller. I did this for several years as an investor/realtor and I made it very clear to the homeowner that I had my RE license. What do they care? Many people will tell you that this will scare the seller because they think you’re trying to take advantage of them. I avoid this by clearly stating in writing something to the effect of, “In exchange for helping you avoid foreclosure, I am seeking to make a profit by reselling said property. I may do this in several ways including immediately reselling the property to a third party.” I could go on, but I think you get the point…

There is a way to get around this. Don’t involve your real-estate agent resources in any way whatsoever. Contact the owner privately, buy it with your own money, contact the seller privately, sell it to them outside of your agency.

NJBird_Dog, the easy way around all of this is to simply not be the realtor.

Not that simple, people. First, he is ALREADY the listing agent. Can’t simply decide not to be, then, oh by the way, I’m going to make an offer now. The RE commission people would frown upon that.

Second, you can’t just turn your RE license on and off. You either ARE an agent, or you’re NOT an agent. You can’t be an agent in this transaction and not be an agent in that transaction.

In some states, ElToro, that would work. In others, it wouldn’t. As an agent (and investor) it’s important to know exactly what your laws are concerning agency, and their duties to their clients (as well as what makes a person a client).


Raj, am I understanding you correctly that you’re saying that there are some states that make it illegal for realtors to invest personally in real estate? If so, that’s absurd.

I didn’t realize that NJBird_Dog already had the listing. Even so, some posters in this forum would have you believe that there are law enforcement hiding in the bushes ready and willing to slap cold bracelets on you the second you fudge up. In an academic environment, that may be the case, but in reality it just doesn’t happen unless you’re some kind of malicious moron.

If you think it’s a liability to try to switch from a realtor to buyer/investor then don’t. Let it go. There’s only a million other properties in foreclosure. Go find another one. It’s not that hard in this market.

Also, unless I’m missing something (entirely possible), NJBird_Dog’s initial post discussed a plan of attack for doing some short sale deals… My post was in response to that. His strategy suggested becoming the agent… my post suggested another option: Don’t become the agent. Become the buyer. That’s all.

Raj, am I understanding you correctly that you’re saying that there are some states that make it illegal for realtors to invest personally in real estate? If so, that’s absurd.

No, what I said was that you simply can’t stop being an agent because you’re the buyer. That’s absurd.

In many states, if you are the only agent involved in the transaction, then you are obligated to represent the seller in the transaction. Makes it kind of hard to be a neutral party. On that same line, in many states, whether you actually represent the seller or not, you still have to disclose your professional opinion of value to them. And if you also happen to be a card carrying Realtor, then your code of ethics requires you to do so regardless of your state’s opinion of it.


I don’t think I ever suggested someone switch from a bona fide realtor to an investor on the same transaction… we’re talking strategy here, not an actual deal as I understand it.

You CAN’T switch either way. If you are an acitve licensed RE agent, you can’t simply be a buyer. You are ALWAYS an agent. Period. The only time you stop being one is when your license goes inactive. And even with that, you STILL have to disclose you HAD a license for a number of years before you are considered “just” a buyer.


Raj, just take a deep breath and relax (don’t worry, we’re the only ones reading this post at this point anyway).

Let’s walk through this together. You say…

If an active licensed RE agent “CAN’T BE A BUYER” please tell me how it is that RE agents buy their own homes.

Let’s start there and see where we end up.

I’m not trying to pick a fight here, but if you’re saying you can’t be a buyer as a real estate agent, then that’s ridiculous. Help me understand what you’re saying here because I don’t think that’s the case.

Guys you both make sense and you’re both right.

If I understand correctly,

  1. If I approach a homeowner as a buyer, I also have to disclose that I’m a realtor.
  2. And if I already have the listing, I definitely cannot be the buyer b/c of conflict of interest. (I’m sure there’s exceptions to this).

It turns out that my deal will no longer be a double close. It will just be a straight closing where I make my commission and walk away. I thought I lost this deal, but thankfully, we can still close on it. These deals get so complicated that I wonder how I could avoid these pit falls. Even though they are good learning lessons, I feel like I’ll be sued before I master any of it. :banghead

Pete, to quote a line from a movie, “Do you understand the words that are coming out of my mouth?”

I did NOT say that an agent could NOT be a buyer for real estate. What I said was that they canNOT JUST be a buyer.

You are ALWAYS a RE agent. You canNOT say that “Since I’m a buyer in this transaction, Mr. Seller, I’m not going to be an RE agent at this moment in time. Just assume that I don’t have a RE license.”

That’s ridiculous.


Yes, if you approach a seller, either in your career as an agent, or JUST a plain ol’ buyer, you have to disclose that you are a licensed agent. Depending on your state laws and especially that you’re a Realtor, you may very well have to disclose much more. Some possibles, the current value of the home, what you indeed to do with the property, that they need representation, that you either ARE or ARE NOT representing them, a list of agents that may help them, a list of attorneys that may help them, your BIC’s contact info, your RE commissions contact info, etc., etc.


I would just go after them as an investor and then you just have to disclose your a realtor. If you need it listed, just do all the paperwork, have a agent friend show up for $500 and have the HO sign all the paperwork. You take care of everything to do with listing ( price reductions, showings (we use showing solutions) pictures and entering it into the mls) Just pay the agent for his name basically, or if some people dont like that idea, just have the agent then hire you back for an hourly wage and pay you a nice fee for all your work.

What does everyone else think about this?