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Real Fake Sales

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CindyR

Senior Member
Joined
Oct 26, 2003
Professional Status
Certified Residential Appraiser
State
Arizona
Well here is an interesting situation I came across this week. A real estate agent sent over an odd sale in response to a VA tidewater request. It was a property last listed in MLS in 2013 for $44,000 and expired. An investor bought the tiny condo in 2015 for $50,000. In November 2016 it transferred to another investor for $60,000 and on the same date to yet another investor for $70,000.

So I looked at all these transactions and one odd fact intrigued me. Both the November sales were to two LLCs who had the same Statutory Agent and business address. For my Tidewater response, I explained that there was no evidence that these were market based transactions and this sale at $70,000 was not a relevant indicator of value for the subject. Actually I did include a model match from that complex that sold for $51,000 and noted in the report that it was the highest sale in the complex in the past year as further support that the $70,000 sale was not really a valid market sale.

But as I continued working on this assignment I found 2 or my comps in the subject complex had similar extra transactions. Comp 1 sold through MLS for $52,000 and on the same day transferred to another LLC for $71,000. Comp 2 sold through MLS for $50,000 and transferred on the same day to another LLC for $62,000. All recorded documents signed by the same Statutory Agent. These 2 LLC's own 5 and 4 other properties respectively.

So I do some more research. Said agent is the Statutory Agent for 203 LLCs here in AZ. All of the LLCs involved in my appraisal were for foreign investors in New Caledonia. I looked at some more Corporation Commission records for some of the other LLCs and found some from France and Australia. Bottom line is that these high dollar transfers to these LLCs are not in any way market based transactions or indicators of market value. The foreign investors probably don't care how much they pay but the typical buyer would likely be more well informed. These are not really sales but they are valid transactions. I also looked at a sample of the properties owned by some of the other LLCs and all of these transactions I saw involve very low priced properties – not one had a real sale price over $60,000 and none of the LLC transfers were over $75,000.

And while these are really some low dollar properties, if you do the math and assuming all 203 LLCs own 5 $50,000 properties that is still a $50 million enterprise. And that Statutory agent and her LLC is making some serious money on managing these properties and transactions.

But these transfers are now part of Public Records. And surely most appraisers are smart enough to question these transactions and not use the higher price as a comparable sale, but likely it will happen. And all those computer models, AVMs, LSAMs, CUs etc will use those higher transaction prices as though there were really sales. And if this is going on here it is surely happening in other parts of the country as well so be on the lookout. I am calling them Real Fake Sales.
 

Renee Healion

Elite Member
Gold Supporting Member
Joined
Feb 21, 2004
Professional Status
Certified Residential Appraiser
State
Connecticut
Same thing happened in SE CT. Conspicuously bad sales strikingly obvious to anyone paying attention but very likely also used without question. FBI came in and sorted it out.

More locally it went on for years with multi's--same set of investors selling amongst themselves, a merry-go-round of fraud, cranking up the "sales" prices, pulling out money. No one was locked up as I recall. Too bad.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
I tend not to use such "Sales" as comps... if these transactions make their way into BPO's or AVM's, that's their (the lenders) problem for wanting to save $ by using alternate valuation systems.
 

Meandering

Elite Member
Joined
Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
They don't sound like sales to me.

They sound like a Ponzi scheme duping foreign investors as they trade the same properties between themselves, looking to set a higher market precedence, so that one day ......... :whistle: Other sellers and appraisers will catch on to "increasing prices", then they'll sell the properties on the open market at a higher price.

Maybe one day they'll end up on Rachel Dollar's blog.

.
 

jay trotta

Elite Member
Joined
Feb 8, 2004
Professional Status
Certified Residential Appraiser
State
Connecticut
Appears to be a True Flip scheme, must be all Cash deals or if Lenders are involved, where's the due diligence ?
 

CindyR

Senior Member
Joined
Oct 26, 2003
Professional Status
Certified Residential Appraiser
State
Arizona
Appears to be a True Flip scheme, must be all Cash deals or if Lenders are involved, where's the due diligence ?
absolutely all cash for for all the ones i looked at, which is very common for these subdivisions. i actually researched my subject condo complex and the last FHA loan in there was 1987, the last conventional loan was 2007 and there were a couple seller financed deals in 2011 and 2012. ALL the other transactions were cash.
 

Meandering

Elite Member
Joined
Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
The Statutory Agent is smarter than the average bear. Until they get caught.
 

CindyR

Senior Member
Joined
Oct 26, 2003
Professional Status
Certified Residential Appraiser
State
Arizona
The Statutory Agent is smarter than the average bear. Until they get caught.
You got that right. But i don't know if she is really doing anything illegal. i'm sure all her investors are happy with the returns they are getting for their american real estate investments or they wouldn't buy another one every six months.
 

Renee Healion

Elite Member
Gold Supporting Member
Joined
Feb 21, 2004
Professional Status
Certified Residential Appraiser
State
Connecticut
According to the old formula, the cash "sales" bring up the "values", up and up. At some point, a crooked buyer applies for a mortgage and a credulous appraiser is found (or maybe now we just need computer models). "Equity" is cashed out, borrower takes off. Or an ill-informed ordinary borrower ends up upside down fast when it goes bad. multiple instances.

Everything old is new again. Not so sure the investors are innocent dupes. Maybe it is pyramid or maybe they are in it knowingly, creating a heated market, waiting for the big payout. What seems different is that it is a larger-scale organized project. Any way to tell from what you see?

It is frustrating if for no other reason than it contaminates the data pool.
 
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