The Real Deal Miami

Short sale listings a classic bait and switch?

By Jennifer LeClaire | June 18, 2008 03:27PM

Some markets are seller’s markets. Others are buyers markets.

Still others markets – markets where short sales and pre-foreclosure properties are making up as many as half of the MLS inventory – could be deemed investors markets.

Realtors from the tri-county area are reporting as many 50 percent of the MLS listings are distressed properties. But could those listings be misleading? Could some of those listings, in fact, be a classic bait and switch?

Jeremy Larkin, a principal at commercial brokerage NAI Miami, said some of the short sale buzz in today’s market may indeed be misleading.

“If you tell people a property is pre-bankruptcy or pre-foreclosure, it gives buyers a sense that they are getting a good deal,” Larkin says. “The fact is, the seller many times overpaid and the home isn’t really worth that much.”

“It’s the Darwin theory playing out,” he said. “Some people are losing their homes because they purchased more than they could afford.”

Here’s Larkin’s point: Some buyers couldn’t afford to spend more than $200,000 on a house. But that didn’t keep them from getting a $350,000 mortgage because a broker promised the payments were within their comfort zone.

Now, home values have decreased and the seller doesn’t have much equity in the property. So the short sale deal isn’t always as sweet as it may seem.

So, then, is it possible that agents are falsely advertising short sales? Yes, it’s possible, said Denny Grimes, a broker in Fort Meyers. But, he added, he’s never run across the practice.

“If someone was going to break the law and risk losing their real estate license,” he argued, “I would think they could come up with a program that was more attractive to potential buyers.”

Joe Russo, author of “Selling Your House/Condo in this Housing Emergency of 2008,” said there are plenty of problems with short sales. But he doesn’t believe willful deceit or bait and switch is one of them.

“Advertising short sales may be a good way to get calls to the office, but I find that those calls are of a low quality anyway,” Russo said. “There is such a large inventory of houses out there now. Short sales are too much work for too little benefit.”