Neighbors flipping townhouse - does this make any sense?
February 11, 2020 10:55 AM Subscribe
Our longtime neighbors recently sold their townhome, allegedly to a family member. The alleged family member has immediately turned around and offered the house for sale at a higher price - but I can't see how their numbers make any sense. What's going on here?
Madame Naberius and I have a townhouse, and we're thinking of moving in the vaguely defined future, so we watch the movement of the other townhouses in our little cluster to see what we might be able to get for ours.
Last November, our immediate neighbors told us they were moving out of state. They said they'd sold privately to a family member and would be out by the end of the year. According to Zillow, the house was sold for $660,000. This was good news to us as we are right next door, in an identical house, with the same woods behind us and everything. It's a perfect comparable and that's a strong price for our neighborhood.
So neighbors finished moving out around New Year's. Nobody moved in, and within a week or two the place was back on the market. Asking price $699,500. Unlike last time, there's now a sign out front, open houses, all that. A realtor is putting in some work to resell the place. And that's what confuses me. I'm no realtor, but my understanding is that the realtors' commission, split between seller's and buyer's agents and paid by the seller is six percent.
I get flipping a house (though I thought typically you did some improvements to justify the higher price), but if the current owner really did pay $660,000 and really gets $699,500 for the place, won't they actually be losing money by the time they pay that 6 percent?
What's a likely explanation for what's going on here and what the new owner is thinking?
Madame Naberius and I have a townhouse, and we're thinking of moving in the vaguely defined future, so we watch the movement of the other townhouses in our little cluster to see what we might be able to get for ours.
Last November, our immediate neighbors told us they were moving out of state. They said they'd sold privately to a family member and would be out by the end of the year. According to Zillow, the house was sold for $660,000. This was good news to us as we are right next door, in an identical house, with the same woods behind us and everything. It's a perfect comparable and that's a strong price for our neighborhood.
So neighbors finished moving out around New Year's. Nobody moved in, and within a week or two the place was back on the market. Asking price $699,500. Unlike last time, there's now a sign out front, open houses, all that. A realtor is putting in some work to resell the place. And that's what confuses me. I'm no realtor, but my understanding is that the realtors' commission, split between seller's and buyer's agents and paid by the seller is six percent.
I get flipping a house (though I thought typically you did some improvements to justify the higher price), but if the current owner really did pay $660,000 and really gets $699,500 for the place, won't they actually be losing money by the time they pay that 6 percent?
What's a likely explanation for what's going on here and what the new owner is thinking?
What's a likely explanation for what's going on here
Divorce.
posted by DarlingBri at 11:06 AM on February 11, 2020 [23 favorites]
Divorce.
posted by DarlingBri at 11:06 AM on February 11, 2020 [23 favorites]
There are also some discount agents like Redfin who charge one or two percentage points less than the standard 5–6% commission.
posted by mbrubeck at 11:09 AM on February 11, 2020 [2 favorites]
posted by mbrubeck at 11:09 AM on February 11, 2020 [2 favorites]
Private family deals can be weird in all kinds of ways. It's possible something came up with the new owners and they decided they couldn't move into the house after all (family/job/money circumstances changed). The goal may not be to make money but to mitigate losses.
posted by LKWorking at 11:09 AM on February 11, 2020 [11 favorites]
posted by LKWorking at 11:09 AM on February 11, 2020 [11 favorites]
Is it possible the property has appreciated in value during that time? It's not much time, but if you're in a really hot market...
posted by kevinbelt at 11:16 AM on February 11, 2020
posted by kevinbelt at 11:16 AM on February 11, 2020
Don't assume Zillow / Redfin, etc. are always accurate, either. We followed the sale of a house across from my fiance's, and we knew the buyer/sellers. The amount reported was wildly inaccurate somehow.
posted by jzb at 11:17 AM on February 11, 2020 [6 favorites]
posted by jzb at 11:17 AM on February 11, 2020 [6 favorites]
The person I bought my house from did something very like this, though in our case there were no relatives involved along the way. We assumed that there was a sudden and serious financial and/or family change—had an offer to get bought out of their business, inheritance, divorce, etc. The person we bought from seemed perfectly happy when we met him at the closing so the financial loss (which it was in his case, very slightly) didn’t seem to hurt him too badly, but I also always kind of wondered.
posted by tchemgrrl at 11:18 AM on February 11, 2020
posted by tchemgrrl at 11:18 AM on February 11, 2020
It's also possible that they made a silly mistake. If you take $660,000 and add 6% of that number, you get $699,600, and maybe they then decide to round it off to the nearest $500. So I can see someone saying "well, I'll add 6% to the price I paid, to compensate for the 6% that the realtor will take when it sells, and re-list it for that amount, and I'll come out more or less even."
Of course, what they might have forgotten is that it doesn't work that way in reverse: if you subtract 6% from $699,600, you don't get $660,000 back. You get about $657,600, since that 6% you subtracted is taken from the new, higher price.
posted by Johnny Assay at 11:31 AM on February 11, 2020 [13 favorites]
Of course, what they might have forgotten is that it doesn't work that way in reverse: if you subtract 6% from $699,600, you don't get $660,000 back. You get about $657,600, since that 6% you subtracted is taken from the new, higher price.
posted by Johnny Assay at 11:31 AM on February 11, 2020 [13 favorites]
I've found Zillow to be unreliable in many cases. Have you checked your county auditor's website for the actual sale price of the condo (assuming you're in the US with no "u" in "neighbor"; disregard if not)?
posted by cooker girl at 11:51 AM on February 11, 2020
posted by cooker girl at 11:51 AM on February 11, 2020
I currently work with three different people who bought homes, had life changes before their closing date (but after inspections, etc), and who immediately re-listed those newly bought homes. Two were exciting new jobs, the third was a divorce.
posted by whisk(e)y neat at 11:56 AM on February 11, 2020 [2 favorites]
posted by whisk(e)y neat at 11:56 AM on February 11, 2020 [2 favorites]
I have noticed that Zillow and other sites show the contract price but does not show the actual price (like money back for closing costs, etc.).
Also if they sold to family without a real estate agent, I'm guessing they didn't pay the full RA fees.
posted by jraz at 11:58 AM on February 11, 2020 [2 favorites]
Also if they sold to family without a real estate agent, I'm guessing they didn't pay the full RA fees.
posted by jraz at 11:58 AM on February 11, 2020 [2 favorites]
There's a term in real estate, "arm's length transaction" -- selling to a family member is not an arm's length transaction and typically would not be considered for comps because family sales are full of all kinds of abnormalities. So your only comp would be the current sale between the family member and (one assumes) a total stranger (and therefore an arm's length transaction). Don't bother trying to figure out what's going on, it could be all kinds of things, including shenanigans.
posted by rabbitrabbit at 12:01 PM on February 11, 2020 [5 favorites]
posted by rabbitrabbit at 12:01 PM on February 11, 2020 [5 favorites]
The family member/current owner could be a real estate agent themself, and thus save lots of money on the transaction fees.
posted by mskyle at 12:05 PM on February 11, 2020 [4 favorites]
posted by mskyle at 12:05 PM on February 11, 2020 [4 favorites]
I wouldn't expect there to have been a realtor involved in the private sale to family. Why would there be?
posted by fingersandtoes at 12:21 PM on February 11, 2020 [3 favorites]
posted by fingersandtoes at 12:21 PM on February 11, 2020 [3 favorites]
I'm with Johnny Assay - they probably added 6% of the previous price "to account for realtors' fees" when they should have divided by 0.94 instead.
As for whether the transaction "makes any sense," I wouldn't read too much into other peoples' purposes or strategies in selling real estate. In this case it really does look like they are trying to re-sell the property "without losing anything" (though as you note, they will lose a bit). It certainly appears they've made no improvements nor any effort to make a profit on the next sale. Maybe somewhere along the line they realized they couldn't use the property after all, but they didn't feel able to back out of their purchase since they are related to the previous seller. Or maybe they're hoping for a bidding war, using their own purchase price effectively as a reserve - maybe if it doesn't sell over asking, they'll move in after all. Or rent it out.
posted by Joey Buttafoucault at 1:33 PM on February 11, 2020 [1 favorite]
As for whether the transaction "makes any sense," I wouldn't read too much into other peoples' purposes or strategies in selling real estate. In this case it really does look like they are trying to re-sell the property "without losing anything" (though as you note, they will lose a bit). It certainly appears they've made no improvements nor any effort to make a profit on the next sale. Maybe somewhere along the line they realized they couldn't use the property after all, but they didn't feel able to back out of their purchase since they are related to the previous seller. Or maybe they're hoping for a bidding war, using their own purchase price effectively as a reserve - maybe if it doesn't sell over asking, they'll move in after all. Or rent it out.
posted by Joey Buttafoucault at 1:33 PM on February 11, 2020 [1 favorite]
Sometimes a new employer agrees to buy your house in order to facilitate the move, and then puts it on the market to sell whenever it can and for whatever it can get. The new asking price is (normally) just a starting point.
posted by megatherium at 1:49 PM on February 11, 2020 [2 favorites]
posted by megatherium at 1:49 PM on February 11, 2020 [2 favorites]
Two years ago, as part of my divorce, I bought out my ex-husband from my house. Zillow lists the sales price as being the amount of cash I paid him in the settlement, an amount less than $100,000. We got to that number based on a complicated list of various things we each had and were keeping. The price on Zillow is literally the amount of cash I paid him, but it's not half the value/price of the house (if that makes sense). Zillow seems to know this, as the Zestimate is unrelated to that number.
All of this is to say: that number might not mean much. If I had put my house on the market back then, rather than buying (half of) it from my ex-husband, the listing price would have been several times the number listed.
posted by bluedaisy at 2:41 PM on February 11, 2020 [1 favorite]
All of this is to say: that number might not mean much. If I had put my house on the market back then, rather than buying (half of) it from my ex-husband, the listing price would have been several times the number listed.
posted by bluedaisy at 2:41 PM on February 11, 2020 [1 favorite]
There’s also 1031 and all kinds of crazy tax things that don’t always make sense by looking at just one transaction. A net loss might actually be a net gain when you need to move money around for tax purposes.
posted by geoff. at 4:54 PM on February 11, 2020 [1 favorite]
posted by geoff. at 4:54 PM on February 11, 2020 [1 favorite]
In many states you have to pay a real estate sales tax that is probably public information. In my town, the information is eventually on the town website.
posted by theora55 at 6:25 AM on February 12, 2020
posted by theora55 at 6:25 AM on February 12, 2020
There may also have been other things that conveyed with the house on the first sale. Was there a boat or RV in the garage? Maybe some property elsewhere, a hunting patch or lake cottage? These things may have made the entire deal more valuable to the purchasing family member, so that breaking even(ish) on the house isn't a big deal.
I'd bet on a sudden change in circumstances though.
posted by the christopher hundreds at 12:53 PM on February 12, 2020
I'd bet on a sudden change in circumstances though.
posted by the christopher hundreds at 12:53 PM on February 12, 2020
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They might also have slightly underestimated what the eventual asking price would be, or they might think there's a reasonable chance they will get offers above the asking price.
posted by mbrubeck at 11:06 AM on February 11, 2020 [4 favorites]