As a commercial real estate agent having just spent 3 hours in an ethics update class last Thursday morning, the IANA(real estate)L, real world answer is “it depends”.
Properties (including raw land) in the current go-go market sell for the asking price all the time. People are motivated, and money is as cheap as it’s likely to be for some time. Sometimes there are multiple offers just after listing if the property is desirable. This does not necessarily mean that the properties are under priced.
Often, if you raise the price just a bit north of the “reasonable investor - good deal” asking price range, where everyone was interested, virtually all interest disappears. People are looking for deals, and most investors did not fall off the turnip truck yesterday. In speculating on land or income properties, the notion of what market price is “a deal” and “not a deal”, can be a remarkably narrow range in many cases.
The fact that the agent has a past relationship of doing deals with this person is not at all unusual. Often the first calls an agent will make are to reliable investors and developers (who often develop into friends and casual acquaintances over time) who can perform, and with whom the agent has done business in the past. I have a list of investor prospects I call immediately when a good deal comes on the market. So, in terms of looking at who he did the deal with, it’s really not that out of the ordinary.
The issue of the pricing recommendation is a different matter, and may, or may not, speak to whether the property was competently analyzed in terms of a prospective market price. Sometimes it’s more complicated than you might imagine to determine an appropriate listing price in a dynamic market. Our commercial division has sold a number of properties over the past year or so that were subsequently sold within a few months to a year, for a substantial premium over the purchase price. And this happens in the context of my commercial group knowing the regional market backwards, forwards and sideways re making competent pricing recommendations to sellers. Even we, who making our living doing this, are sometimes stunned at what some properties have flipped for in relatively short periods.
It should also be noted that an equal number of speculative properties that investors have tried to do this with have remained unsold as cash draining debts, and these were properties that the investors thought were “deals” at the time. The pendulum swings both ways.
The investor / re-seller does not operate in a vacuum. In several of the instances where an investor does flip the property in a short amount of time for a decent premium, it’s often to someone the investor is working with, or via a relationship with some prospective user whom they have in mind as an ideal user for the property, and who may be willing to pay a premium for just the right property. Sometimes the investor is also a developer, and has a build to suit deal with the user, or holds financing, or makes the property more developable by acquiring additional zoning approvals, combining it with adjacent properties to form a larger composite property, etc. etc…
One of the main issues is the question to how much re-sale value, (if any) the re-selling investor added by their knowledge of potential uses and prospects for the property. Often he investor may have build and/or lease to suit user contacts in their pocket that the Realtor does not have.
Beyond this, there is also the question of whether this property was in the Realtor’s area of expertise. I have to deal with residential agents all the time who want to co-list properties where they have a seller contact, but don’t know the first thing about commercial valuation, and want me (as a commercial agent) to do all the heavy lifting re analysis and marketing. If this agent was not a commercial agent, or was being lazy and using old comps, or simply did not have a good grasp of land valuation in the current market for that location, it’s easily imaginable they could have made a substantial pricing error in a dynamic market.
Proving a conspiracy (vs. lack of pricing competence) between the Realtor and re-seller to defraud the original seller is likely to be difficult without some smoking gun in the form of a provable side agreement or kickback. Also, just as a practical matter it really doesn’t help the agent to under-price properties as this reduces his commission. If the agent under priced a property by 20,000 to 30,000 dollars, depending on the commission and the split (if cooperating) they just took 1,000. to 3,000 dollars out of their pocket and threw it away.
Having said all this, if the original seller can reasonably determine and prove fairly conclusively, that none of the extra 30K in the flipped selling price came from any of value adding relationships, actions or special/expert market knowledge by the re-seller, they may have a case that the Realtor gave them bum advice. The first move should be to find an attorney who is experienced in local real estate, or they can also go to their state’s real estate licensing website where contacts for the real estate licensing board (and for ethical complaints) should be listed.
As indicated above, there are a lot of different reasons a property might be flipped for a substantial premium. It would be prudent for your friends to get all the facts re these inputs before initiating a lawsuit or making an ethical complaint against the agent.
The above post simply reflects my personal observations, and is not to be relied upon in any way, shape or form, re any actions your friend may take, Seek competent legal advice, and wear plenty of sunscreen.