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My brother-in-law is looking to buy a house. The house he wants has been on the market for a long time, and it's in pre-foreclosure. The owners are underwater on it. He submitted a lowball offer, waited a long while, and then talked to the listing agent, who said it was too low so he didn't even show it to the sellers. Then he submitted a new, higher offer. The real estate agent then came back to them and said that the offer was too high, and he needed my BiL to submit a LOWER offer. This seems incredibly sketchy, but nobody has any idea what game this guy is playing. Why would a seller's agent ask a buyer to submit a lower offer?

Update: My BiL got some clarification (?) that seems to just muddy the water more in my mind. Keep in mind, I'm not sure he's a reliable reporter, so something may be lost in translation a bit. I'll just paste what he said verbatim: "I've talked to a couple of people that have done short sales and foreclosures before - apparently they're still planning to declare bankruptcy, but with me buying the house, they'll have less to pay out of pocket, so they have to hit a specific number to legally do it."

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    Perhaps so their friend can buy it. – A.K. Jul 31 '18 at 15:38
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    He probably needs a new agent. – Pete B. Jul 31 '18 at 16:01
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    Bit of a stretch, but perhaps the "seller" is looking for ways to convince the foreclosing bank that it would be better off forgiving some of the debt and refinancing the house for a lesser amount ... ? – brhans Jul 31 '18 at 18:39
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    "The real estate agent then came back to them and said that the offer was too high, and he needed my BiL to submit a LOWER offer." I would have immediately responded that the sellers are welcome to counter with a lower price if that's what they need to accept the offer. – David Schwartz Jul 31 '18 at 20:58
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    "who said it was too low so he didn't even show it to the sellers", You don't say what state you are in but it is possible the realtor has broken the law by doing that. – Eric Aug 1 '18 at 15:29
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Something sketchy is definitely going on. Real Estate agents are obligated under the National Association of Realtors Code of Ethics to take all written offers to the homeowners, regardless of how low it is unless the homeowner has specified a minimum offer amount or waived, in writing, that obligation. Your brother in law can ask for rejections in writing so that there is a more formal trail, especially in the case of rejecting an offer for being too high.

Standard of Practice 1-7

When acting as listing brokers, Realtors® shall continue to submit to the seller/landlord all offers and counter-offers until closing or execution of a lease unless the seller/landlord has waived this obligation in writing. Realtors® shall not be obligated to continue to market the property after an offer has been accepted by the seller/landlord. Realtors® shall recommend that sellers/landlords obtain the advice of legal counsel prior to acceptance of a subsequent offer except where the acceptance is contingent on the termination of the pre-existing purchase contract or lease.

Really, it sounds like the listing agent is trying to avoid selling to your BiL, for whatever reason. Your BiL should have his own agent who should be taking care of this for him. He could contact the seller directly and let them know of the "too high" offer he made and ensure it was actually passed on to them. Not ideal for a variety of reasons, but if he really wants the place and believes the seller's agent isn't operating above-board, it might be a good tactic to take.

Additional note: Not all real estate agents are members of the NAR, however there is still an expectation that the ethical standards would be followed. There are also state laws that could come into play with regards to presenting all offers to a seller.

See Makyen's comment re: Realtor vs real estate agent:

All Realtors® are members of NAR. Realtors®, as your quote indicates, is a registered mark. It's owned by NAR and they define its permitted use. What you were probably intending to say in your "Additional note" is that all real estate agents are not Realtors®. Without being a Realtor®, there's no guarantee as to their agreement to the NAR code of ethics. However, their duty to their client is usually defined by law, which may be a fiduciary relationship. Also, it's necessary to be clear as to who their real client is.

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    I once had a listing agent take several days to deliver an offer ... until after another client for whom she was the buyer's agent submitted an offer on the same property. Seemed, umm, somewhat suspicious. Another possibility: brother-in-law is from an ethnic group or otherwise realtor considers him undesirable and thinks he will bring down property values in neighborhood this realtor regularly works. – Jay Jul 31 '18 at 16:33
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    Way back when I was bidding on a fix it up foreclosed house and the broker showing me the property told me something similar. I did some digging and found out that he had several rentals in the development and was bidding on this house himself - a conflict of interest indeed. He was high bidder and I was about $2k below him. I contacted a friend in the business and we crafted a bogus story about additional problems with the house. I fed the story to the broker, told him I lowered my offer $2k (I didn't) and he lowered his offer below mine. Winner, winner, chicken dinner :->) – Bob Baerker Jul 31 '18 at 21:55
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    All Realtors® are members of NAR. Realtors®, as your quote indicates, is a registered mark. It's owned by NAR and they define its permitted use. What you were probably intending to say in your "Additional note" is that all real estate agents are not Realtors®. Without being a Realtor®, there's no guarantee as to their agreement to the NAR code of ethics. However, their duty to their client is usually defined by law, which may be a fiduciary relationship. Also, it's necessary to be clear as to who their real client is. – Makyen Aug 1 '18 at 2:15
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    @Makyen - Today I learned! I'll update my note accordingly. – BobbyScon Aug 1 '18 at 12:37
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    @BobbyScon "See Makyen's comment re: Realtor vs real estate agent." - Comment are not made to stay, they can be deleted anytime. You should add that comment's content to your answer (while still giving credit to Makyen of course). You could rewrite it, but there's nothing wrong with just copying the comment as-is. – R. Schmitz Aug 1 '18 at 15:56
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Based on the question update, the seller intends to declare bankruptcy, and in order to do so they must have a certain minimum amount of debt based on their income and assets. They must be currently hovering around the minimum debt mark, and if the house sells for too much their total debt will be slightly too low to still declare bankruptcy. They need the house to sell for less so their total debt stays over the threshold.

This was my original answer which still may apply in many cases, but based on the question update, probably does not in this particular case:

This doesn't necessarily have to be sketchy. If the seller's agent knows the appraisal will come in lower than the offer, the agent could simply be protecting the sale. This is a common sequence of events in a normal (not short) sale:

  1. Seller picks a price.
  2. Buyer makes an offer.
  3. Buyer's lender does an appraisal and the value comes in lower. The lender refuses to loan the requested amount because the LTV is wrong.
  4. Seller lowers the price and the home is sold.

(This happened to my sister when she put an offer on a house. Based on a lower appraisal, her lender made them offer $8K less in order to purchase the home, and the seller agreed.)

The reason the same scenario can go badly with a short sale is the bank holding the existing mortgage has the right to veto a short sale. If the bank gets wind of a higher offer they could simply latch on to that amount, and the lower appraisal would kill the deal.

Since the seller's agent represents the seller and not the bank, in this case the agent is acting in the best interest of the seller without anything illegal or immoral going on. It's certainly possible that the seller has been informed of the offer and agrees with the request to lower it.

And BTW, your BiL could just ask the selling agent why they suggest a lower offer...

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    But what's the advantage to doing this up front? If the house does appraise for the higher offer, there's no problem. If it doesn't, the buyer and seller can then agree on a lower offer. The buyer would be happy to see the appraisal come in low and the seller lower the sale price. It would seem very odd to me for a bank to "latch on" to an offer that's later retracted, and insist being paid more than the house is appraised for. – Nuclear Wang Aug 1 '18 at 12:50
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    @NuclearWang - It is odd but short sales are a different animal. Banks don't like to do it and oftentimes make up seemingly weird excuses to reject a sale. Sometimes they would prefer to foreclose and let it go to auction than accept a short sale. This might be because auctions are oftentimes cash deals, and when the buyer pays cash the appraisals don't matter as much. – TTT Aug 1 '18 at 14:16
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    @Brad - Yep- it is that story. The buyers are oftentimes already maxing out their down payment and can't come up with more. – TTT Aug 1 '18 at 15:56
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    @NuclearWang - regarding your first question- for homes on the market for a long time, it's likely the agent already has seen an appraisal from another deal gone bad. – TTT Aug 1 '18 at 15:57
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    this is probably the correct answer although the author of the other answer "thinks he's right" yourlogicalfallacyis.com/bandwagon – Abdul Ahad Aug 2 '18 at 19:23
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Another possibility that the other answers haven't mentioned is that the house might be part of a divorce settlement. If the current owner is being forced to sell the house to pay out half of the value, s/he might be motivated to get the sale value as low as possible to spite the other party in the divorce.

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    Spiting him/herself at the same time? Pretty silly, but yes, people do that. – Aganju Aug 1 '18 at 12:04
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    @Aganju It's not necessarily irrational. When one of the people in the marriage has a high earning potential and the other doesn't the pain is asymmetrical. The assets of the couple are calculated at a point in time and can affect things like alimony payments. – JimmyJames Aug 1 '18 at 13:42
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    Here in the UK, some actor or journalist, can't remember exactly, managed to blab out on live TV that he had an affair. His wife put his car on eBay for £1 "buy me now". Someone got a very nice car for £1. – gnasher729 Aug 2 '18 at 22:38
  • @gnasher729 I think you're thinking of: independent.co.uk/news/uk/this-britain/… – Ryan McDonough Aug 3 '18 at 14:33
  • @Aganju there is the anecdote of the 15 dollar ferrari. Spite is a terrible self-destructive feeling. – Mindwin Aug 4 '18 at 13:19
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Tax reasons maybe? As an example, the old UK stamp duty was a charge on the entire amount if you went above certain thresholds, so if you were say £500 over the threshold you would have to pay £3000 in tax (cannot remember the actual figures), so it was better to drop the price by £501 and save yourself £2499. Amazingly it was only a few years ago it was changed to only apply to the amount above the threshold.

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    UK stamp duty is paid by the buyer. If the buyer offered 250,000GBP rather than 249,999GBP the seller gets the extra pound, but it cost the buyer 1+1% of 250,000GBP = 2501GBP (assuming the rate went up by 1% at 250,000 - I can't remember the exact numbers either). – Martin Bonner Aug 2 '18 at 9:45

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