|
|
|
|
Join Our Mailing List Feedback/Reviews Contact Us |
||
     |
||
| Check your shopping cart: |
|
Dodgy Dealers - what to look out forOlly Newland's Column, 18 June 2009
PROPERTY IS, by its very nature, a big ticket item. It's no wonder then, that the property game attracts a variety of scam artists and fraudsters, as well as those who just push the ethical envelope whenever they think they can get away with it. We have all seen or read the suffering of those who have been caught up in dodgy deals. The likes of BlueChip, Merlot Investments, and the real estate agents from the respected firm of Barfoot & Thompson who abused their position in a multimillion dollar mortgage scam -- to name a few. As unappetising as it may be, it's necessary for you as an investor to know how to recognise the 'dirty tricks' of the property game. A little knowledge -- and a vigilant mindset -- will help you stay out of the clutches of those who would do you financial harm. Pay attention, lest one of these type of deals is ever presented to you.
Property finders and Sandwich deals In New Zealand this profession is fulfilled by local real estate agents on a smaller scale. Unfortunately, scam artists have climbed aboard in NZ and, trumpeting themselves as property finders (although NOT actually licensed agents), are playing a game called 'sandwiching'. Their objective is to simply insert themselves between a legitimate seller and a legitimate buyer with the aim of picking up a quick profit. Some even hold themselves out as property educators or wealth 'coaches' ... but they are not the least bit concerned about the welfare of either party, nor any stress and suffering they may cause. Most importantly, their scheme is designed to carry no risk to themselves -- to the disadvantage of the vendor, these 'traders' don't have the slightest intention of ever buying the property themselves.
How it works Rarely do they ever set foot on the property -- let alone inspect it. You can recognise their 'offers' as they are inevitably conditional for several weeks and are in the name of the purchaser 'or nominee', and the deposit is always very small and not payable until the offer is unconditional. During the period the property is under contract (with what is, in reality, only an option) the finder re-markets the property and hopes to on-sell it or 'trade' it by finding a legitimate buyer at a higher price. If they succeed, they simply nominate the legitimate buyer and step aside -- picking up the difference. If they fail to on-sell, they declare the contract void and move on to another sucker. By the law of averages if they put in enough offers they will succeed often enough to make it a worthwhile exercise -- for them. Auctions and tenders are the only exceptions where the system will not work. The hurt and inconvenience consequently falls on the honest seller who has been effectively taken out of the market during the 'option' period. He or she can only hope for back-up offers, which can be a highly stressful and frustrating situation for all parties -- except of course the 'finder'. Another twist in this game is for these unlicensed 'finders' to promote new developments using the 'hush-hush' method. Typically they will contact people with a "confidential deal - only available for a handful of lucky people and you have been hand-picked" etc. In many cases, the 'top secret deal' will be a property developer's existing stock which has become 'sticky'. During more buoyant times the finders are harnessed (for a fee) to try to get enough pre-sales for a development to go ahead. In either of these cases, there's often more to the deal than the de facto real estate agent will let on. When dealing with roosters like this, in times like these, what you need is timely and impartial advice and a decent due diligence process. Don't rely on hyperbolic claims and 'strategies' offered by the salesman! In any event, given the choice, keep well clear. This type of 'property finding' is merely a version of the Nigerian scam letter with the minor exception that you might end up with an over-priced, unsaleable dog of a property on some wind-swept, weed-choked lakeside subdivision where the only thing moving will be your wallet emptying at the speed of light.
Guarding yourself
1. Warn your real estate agent to be on guard against these offers. The usual method of valuing a property is by comparing recent sale prices of nearby similar properties and the last sale price of the property in question. What the dodgy dealer does is re-sell his target property to a colleague/partner who is a part of the scheme, often within days or weeks of buying it -- but for a considerably higher price than was originally paid. Then his colleague sells it back to him for a yet a higher price. This money-go-round may be repeated a few more times with one sole objective: to have the property appear to be more valuable when the records are searched for sales evidence. This trick has been used many times and was one of the causes of the massive strain (and sometimes collapse) of lenders who took the apparent sales evidence at face value instead of checking it out properly. The unfortunate result is that a lender can end up advancing too much money against the property, with the mortgage ending upside down and exceeding the real value by a wide margin. Most competent registered valuers are well aware of this practice but unfortunately these deals (and more sophisticated variations of them) do slip through from time to time. I have seen for myself a blatant example where a South Auckland home, with a real value of $250,000 at the time, was sold and resold within a few months with the last recorded sale being $550,000. Yet the house was exactly the same as before and prices in the street had hardly moved at all. The owner had jacked up the value with the sole objective of fooling the bank into lending 80% of the last sale price (i.e.$550,000 x 80% = $440,000) thereby giving him a tidy $190,000 surplus in the hand. This is a totally crooked racket which has fooled many a lender or buyer to their horrendous cost. Fortunately lending rules are much tighter now. The current generation of lenders is much more careful as a result of the recent carnage the lending market. Nevertheless, if you're a buyer, I urge you to stay alert to this practice and always use a registered valuer and their common sense before putting in an offer.
Olly Newland
FEEDBACK: Do you agree or disagree with Olly?
Order Olly's book: The Rascal's Guide to Real Estate (updated second edition) or browse our website for a wide range of investment-related resources including Olly's best-selling books: Climbing the Property Ladder, The Day the Bubble Bursts and Lost Property and audio programmes -- essential information for investors.
|
Copyright © 2000, 2001 Empower Education Ltd • Tel: 0800 66 22 55 (Int'l +64 9 535 2415)