(TNS)– For 15 years, Realtor® Doug Shafer has watched with frustration and dismay to see hundreds of what he calls “predatory” signs—with offers such as “CA$H For Your House,” or “We Buy Houses,” or “Sell Your House Fast for Cash”—posted in his neighborhood on Kansas City’s poorer east side.
Convinced that the signs were meant to lure in and take advantage of needy and unsuspecting homeowners, Shafer, each time he saw a sign, would stop his car, or halt his walk to yank the signs from the ground or tear them from posts to add to his mounting collection.
“I collected them personally,” said Shafer who, in 2012, moved into a home he bought at auction in Kansas City’s eastside Manheim Park neighborhood, “because I didn’t want any of my neighbors calling them and getting taken advantage of.
“To me, it’s an equity issue. It’s a fairness issue. For me, it’s a matter of faith.”
On Thursday, at the El Torreon event space, 3101 E. Gillham Plaza, Shafer was celebrating.
New law to protect vulnerable homeowners
Surrounded by scores of signs that he and his neighbor, Bill Drummond, had collected over a decade, he—together with Rep. Chris Brown, a Clay County Republican, and colleagues representing the Kansas City branch of the National Association of Real Estate Brokers—were marking the enactment of Senate Bill 973.
Passed in May, the bill, introduced by Sen. Curtis Trent, a Republican, and championed by Brown in the House, went into effect statewide on Aug. 28.
Central to the law is a provision that mandates that homeowners be given 14 days to consider any offer presented to them by what are known as “real estate wholesalers.”
The point of the law, Brown said, is to give potentially unaware or financially vulnerable homeowners time to think, and perhaps time to consider other offers, or to investigate the true value of their homes.
Real estate wholesalers are not the same real estate agents or brokers, Shafer said. Nor are they bound by the same ethical rules. Shafer, who is a member of the Kansas City racial and economic equity organization, More 2, is also the owner of Next Door Real Estate. He has been an agent for 36 years and a broker for 34.
When a real estate wholesaler makes an offer on a home for a certain price, Shafer said, they are often, in reality, not offering to use their own money to buy a home. Instead, they are looking for the owner to sign a purchasing agreement. Once the agreement is signed, the wholesaler, as a middleman, has been given the right to sell or “assign” the house to a third party.
The business model, Shafer said, is to get the purchase agreement by offering to “buy” a house for cash—usually as cheaply as possible, and often at a price far less than a home’s market value.
With the agreement in hand, and without using one’s own money, a wholesaler will then “assign” the house to a third party buyer for its true market value—paying the homeowner the smaller amount promised while pocketing the difference, a profit that can often reach into the tens of thousands of dollars or more.
‘Theft of equity’
It is common for wholesalers, advocates said, to target the poor and elderly, predominantly in minority neighborhoods.
“Predatory wholesaling is the modern-day cousin of redlining, restrictive covenants, racial steering, blockbusting, contract bias and appraisal bias,” the Rev. Terrell E. Walls, president of the Greater Kansas City Association of Real Estate Brokers, said in a written statement. “These practices have historically denied Black families homeownership and stripped wealth from our communities.”
Shafer laid out a scenario:
“Let’s imagine you’re the first Black person to buy on Troost Avenue in 1968, and you paid $16,000 for your house,” he said. “Somebody calls you up. You don’t have any family around. You’re old. You don’t know. You’re somebody who really should have somebody taking care of your money for you.
“Somebody offers you twice what you paid for it. That seems like a good deal. But when they make these calls, they are looking for people that are both desperate in some way and ignorant of the market. So $32,000 seems like a deal. Even though it’s worth $50,000.”
Shafer said the unaware homeowner is being cheated out of $18,000 in what he called “theft of equity.”
‘It’s predatory’
Gwen Goins, a lender with Bell Bank Mortgage who is also a member of the National Association of Real Estate Brokers, said the more underhanded players will make an offer, get an owner to sign an agreement, and then fail to pay the promised amount, claiming that potential repairs make the house less valuable.
“I’ve had clients, they get these people that come and say, ‘We’ll buy your house for $100,000,’” Goins said. The homeowners are so excited, she said, some put in offers on new homes in expectation of the money.
“Then they (the wholesaler) will come back two, three weeks later,” Goins said, “and they’ll say, ‘We’re sorry, we got inspections. And our inspections show so much work is to be done. So instead of $100,000 we can offer you $50,000.’”
Coley Williams, the president and co-founder of Ches, Inc., a Kansas City financial and housing counseling non-profit, said his organization sees people’s equity “fly out the window.”
“When we look at a house that’s worth $80,000, then it sells for six cents on the dollar, you are losing more equity than people have earned in years,” Williams said. “These guys are looking to buy your house for the least amount that they can.
“We see it on a regular basis. They (the homeowner) get a little bit of money, then they don’t have any place to go. Now they’ve got the bigger issue of trying to find a place to live. Their mortgage payment was probably less than what their rental payment is going to be.”
Talk to an attorney, a real estate agent, call your brother
Shafer conceded that some homeowners may be fine with making an agreement with a wholesaler. Perhaps they are out-of-town owners of an empty house that belonged to a deceased relative. They want quick cash and understand that they may be receiving a price far below a home’s market value.
Brown, the state representative who has held a real estate license for 30 years, said the new law provides homeowners time to consider their decisions.
“The unfortunate truth is that these wholesalers are preying on people who are in duress,” Brown said. “Maybe they’re having some financial troubles, foreclosure, bankruptcy, divorce. . . .They (the wholesaler) don’t want to own that property. They want to get you to sign a contract well under market value and then transfer that purchase agreement to somebody else.”
The 14-day waiting period, Brown said, is designed to be “a think-it-over period.”
“The disclosure explicitly advises them to seek legal counsel before they enter into any agreement with a wholesaler,” Brown said. “And it explicitly says the wholesaler is working for the wholesaler, not for the seller of the property and not for a buyer. They’re working for themselves.
“I mean, ideally, they talk to an attorney. They call a real estate agent. Call your brother, Call somebody. Talk to somebody else before you enter into this agreement that could cost you $30,000.
“That’s the hope.”
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