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Comment by JTon | Hacker News Reader

Here's an image from the article that explains it all:

> http://www.theglobeandmail.com/news/national/article28634862...

It seems like being Buyer #1 or #2 is a great spot, as they walk away with $300k without doing that much.

They are being paid $300k in return for passing on the opportunity to buy a property at a below-market price. If they are still aiming to buy in the same market, this could be a bad decision -- if the market keeps going up, they might have to pay even more.

Well, one of the sub-themes of the article was that Chinese investors are underpinning this situation. So you've got a lot of players in the market with no interest in actually living in the city.

I think the effect you mention is probably a lot more relevant to the people selling at below market to speculators that approached them, because if they were assuming that they could finance a home purchase in the city with the proceeds of the sale, they're going to find their purchasing power significantly weaker than they were probably expecting (given that they just clear 3x their original investment, "YAY!"). On top of that, with many agents speculating themselves, and a lot of foreign investors on the buy side of the market, they're likely to find that they are now swimming with sharks having just sold their boat.

Additional commentary: If you find yourself in this situation, you might as well try to get a loan to buy a new house before you sell your current shelter from the elements. If you're no longer able to get a loan for an amount that would get you a house in your area, perhaps that's an indication that you should be very careful with how you proceed. It still may be worth selling, even taking a below market offer (conceivably). But now you know that selling your house is going to mean moving to a more buyer friendly market in advance of committing yourself. Or... if you're the gambling type, renting in anticipation of a bubble burst (though I think heavy foreign investment messes with people's expectations of what is too hot for a given market; certainly it is fickle, but can potentially prop prices up significantly above historical levels for a long time).

I imagine they would provide the capital to finance the deal, otherwise there is nothing stopping the realtors from flipping those houses themselves and pocket all the profit.

The buyer's agent can't just assign the property to another buyer, the first buyer has to actually agree to sell it along at the higher price. Of course, then the first buyer might have to go find another house to buy... The purchase price isn't paid until an actual closing, by the final buyer.

I really don't like this image, and I think it's pretty misleading. Where's the seller's agent pictured? Where's 'Buyer 1' agreeing to sell to 'Buyer 2' and so on...?

This is simply 3 rapid sales compressed into a single closing to save on the transfer taxes. Literally everyone wins.

How is this different from, for example, complaining that it's unfair for a stock to continue going up after you sell it?

I think part of the frustration comes from sellers who have an interest in who they sell their house to. Once the deal is signed and the original buyer flips the house (buyer #1) the seller now loses control of who ends up owning the house. It might be legal but that is little consolation to the seller who might have had reasons to sell, or not sell, to some party.

How that is legal, ethically, I'll never understand.

It seems like a grey area. In a market where buyers intentionally overpay above market prices to get the house of their choice and if everyone involved is aware and understands what they are getting into and more critically has options to negotiate a deal that is best for them, perhaps it makes some sort of free-market sense.

> buyers intentionally overpay above market prices to get the house of their choice

If buyers are willing to pay a certain amount for a house of their choice, isn't that the definition of market price?

It's totally ethical.

The contract is very clear when it says, "Buyer and/or assigns." In most states, that is written at the very beginning of the contract as well.

You're mistaking legality with ethics. The assignment clause makes it legal, but that doesn't mean that the brokers are acting ethically.

Ethics revolves around ensuring that everybody's interests are protected. A broker is supposed to be a neutral party that does not have an interest in the transaction. The seller's interests are not being represented.

The real estate agents are clearly violating their fiduciary duty to all non-agent parties involved in the transaction by misrepresenting the market value of the property.

The average property owner doesn't understand the market and is expecting the real estate agent to provide accurate price estimations.

I don't understand, ethically, how this sort of thing could be legal as its clearly a clause meant to allow misrepresentation to take rubes for their money.

I feel like there is a lot of opportunity for the agent to act like they are working for the seller while not informing them fully of their knowledge of the market.

If they are acting like an adviser, there's something at least a bit smarmy about not actually advising. If they were simply interested buyers, its harder to impute an obligation to the seller.

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