Beware: New Constructions Illegally Not Disclosing Seller Subsidies

(Thank you to MRIS for warning agents about illegal MLS fudging, perhaps due to BusinessWeek’s story that referred to my blog. More at the end)*

Now I have reported to MRIS another violation.
Lets see what they do about it.

New Construction Fudging the Reporting of Seller Subsidy… how conveeee….enient.

Before I get started on tricks that the builders are using to unload inventory, did you know that it doesn’t cost you anything to have a Realtor represent you? The cost is the same to the buyer, oftentimes the on-site sales agent gets the double commission. Sometimes a “free” buyer agent can save you even more, even if you think you already squeezed $100k out of them, who cares, if your buyer agent knows they recently dropped a place $200k around the corner. Price drops are relative, and a good Realtor can help protect you. See I Need A Buyer’s Agent! But For My Car.

So back to builder fudging. On the MLS, when a listing closes a Realtor must enter in the closed price. This can easily be verified by the tax records once it comes out. A Realtor is also required to post the seller subsidy amount. The “seller subsidy” is the “cash back to buyer” or “cash toward closing costs” and it is a marketing scheme to make a listing look more favorable, even though I tell my buyers to ignore them and just to net everything out. A $515k place with $15k back should be viewed as a $500k. Don’t let that marketing confuse you.

  • Damn side note: I once had a listing for $325,000 and an agent said “but the developer is offering an amazing $15,000 in incentives, will you match that?” The builder’s price was $350,000. I said “Sure. I’ll double it! I’ll give you $30,000 back with a price of $355,000, Deal?” So make sure you NET everything out!

Anyhow, the builders are in a bad situation right now. Especially Arlington County condos in Virignia. They have already sold a ton of units at a great price, but they need to sell the rest of their inventory without pissing off the current owners and people under contract.

So how do they do this?
Well one way is through fudging the “seller subsidy”. If a place is $600,000 and they want to drop the price to $580,000, they will instead give $20,000 worth of “seller subsidies” or “cash back.” Effectively the sale is $580,000, but it gets recorded in the tax records as $600,000 (which is fine). The part that is not fine is they are leaving off the subsidy information on the MLS. Insert Dr. Evil’s voice: How convenient!

How do I know they are fudging the MLS?

  • The graph to the left shows one builder’s last 40 sales. Not one included a seller subsidy. Meanwhile I have been in their sales office. As with EVERY builder, they give huge seller subsidies. Yet not one is posted here, as required by the MLS.
  • The box on the right side of the graph are 50 Arlington Condos sold in 2006. About 40% have seller subsidies.

Why does seller subsidy disclosure matter?
If you are considering buying a $500k condo in Arlington, you will look at the past sales as one of a dozen metrics to value a home (I wish I could show all my tricks on pricing and offering on homes, but the competition might be reading this, email me if you want a sample). If the builder just sold a nearly exact unit for $500,000 and recorded no subsidy, you might actually consider buying the unit near $500k. However, if you knew that there was $20,000 cash back, and the net price was actually $480,000, that is basically a Honda Civic value of information ($20k).

So in conclusion, make sure your buyer agent knows the market well and knows about tricks like those and other listing agent tricks that could cost you $20,000.

For all those super smart people that think like my Mom (read Mom Blog on not trusting Realtors) did “I don’t need no stinking buyer agent,” this stuff happens all the time. (shameless plug here: sign up to get emails of new blogs, the sign up box is at the bottom)

And you all think all we do is push paper and get you to buy quickly?

– Written by Frank Borges LL0SA- Broker/Owner
703-827-4OO6 Please report all typos, I don’t like looking stupid. If you like this post, sign up for new blogs daily, use the form on the right of the page.

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*Thank you to MRIS continued: I would like to thank MRIS for warning agents about MLS fudging.(the local MLS system) for posting a bulletin board on Matrix (the back end Realtor system) warning listing agents that Data MLS fudging is illegal and will not be tolerated. I believe my MLS Data fudging Blog (Part 1 and Part 2) and the resulting Business Week article probably lit a fire under them. While I wanted to copy and paste that notice, it wa
s gone after 24 hours. Oh well. Update: I found the link to the notice.

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Keywords: Housing bubble? Arlington, Alexandria, mls, homes, Real estate, Virginia, Alexandria, 22201, 22314, Fairfax Va, DC Realty, Realtor

  • 3
  • February
  • 2007

7 Responses to “Beware: New Constructions Illegally Not Disclosing Seller Subsidies”

  1. Anonymous says:

    I want a Honda Civic just like that one.

  2. Anonymous says:

    thanks for some details into something we all know commonly occurs now that the craze has ended.

  3. Kate- Virginia Buyer says:

    Thank you for confirming some of my suspicions out there—fudging the MLS, like not entering seller subsidies and entering what appears to be non-arms length sales as comps, shopping offers, ABA’s, etc…

    I am only a single woman and feel like I am getting fed to the vultures out there.

  4. Erica says:

    I always thought “Hey why bring in an agent, I can do this myself.” I didn’t think in terms of a Realtor knowing what pitfalls to avoid.

  5. FRANK LL0SA Broker says:

    Hey Erica,
    Glad that helped. Did you know that as a Realtor, last year a buddy of mine wanted to buy a new construction with an 08 delivery.

    We were able to put into the contract a guarantee pricing option. That he has the right to walk or renegociate if the builder drops the prices. THat one line in the contract could save him $30,000. All for using a “Free”

  6. Lucy says:

    Thanks for the info! Didn’t realize how complicated the real estate transaction could be and the rules and regs of the MLS listing data. As a homeowner I always thought it was simple.

  7. […] 1) They don’t show seller subsidy! Sometimes the subsidy can be $30,000. So you think a home sold for $500k, but it really sold for $470,000 net. On the MLS the seller subsidy must be disclosed. (except when seller subsidy is improperly hidden) […]

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