Property Grunt

Saturday, March 11, 2006


Oh, how long can trusty Cadet Stimpy hold out? How can he possibly resist the diabolical urge to push the button that could erase his very existence? Will his tortured mind give in to its uncontrollable desires?
(Announcer grabs Stimpy, forces him closer to the button.) Can he resist the temptation to push the button that, even now, beckons him even closer? Will he succumb to the maddening urge to eradicate history? At the MERE...PUSH...of a SINGLE...BUTTON! The beeyootiful SHINY button! The jolly CANDY-LIKE button! Will he hold out, folks? CAN he hold out?

-Ren and Stimpy

When I first saw this article my initial REACTION was "What the f**k is the matter with THESE people?"

I thought I could lay to rest the subject of ignorance in real estate after this entry. But it appears this topic is like Paris Hilton's career. It refuses to die.

However I realize with the introduction of a new medium, there is an initial period where people drop their guard and make mistakes. But folks, I am just flabbergasted about how naive people are.

March 11, 2006
On the Internet, Some Home Buyers Find a House of Cards
For the last few years, real estate transactions over the Internet — where buyers need never set eyes on the property they purchase — have become increasingly common.

On eBay, the biggest online marketplace, and dozens of other Web sites with names like and, sales involving tens of thousands of dollars can occur entirely online. EBay, for example, may have more than 1,800 residential properties listed on any given day — from multimillion-dollar vacation houses in Florida to thousand-dollar fixer-uppers in the rural Midwest.

But now, with plenty of buyers eager to get in on the real estate boom, such online sites have become perfect places for unscrupulous sellers who have bought dilapidated houses at, say, foreclosure auctions, to resell, or flip, them quickly for inflated prices. Many of the deals sound too good to be true. But the gullible are lured by nice photos and a belief that online transactions on big Web sites are generally safe.

Let's get something straight. Bait and switch tactics and other types of con artistry are par for the course in real estate. People were getting ripped off waaay before a government brain trust decided to create a communications system that would survive a nuclear holocaust and be used for porn. What is happening to these people is, unfortunately, normal.

Online flipping is happening in economically distressed cities in New York, Ohio, Michigan and Pennsylvania. The practice, local government leaders say, is destabilizing already weakened urban neighborhoods by displacing legitimate investment.

Buffalo has been particularly hard hit by online flipping, as the city's persistent population decline and high foreclosure rates have created a glut of some 20,000 vacant houses.

"Ninety-nine percent of these online ads have some kind of fraud or lies," said Tracy Krug, a building inspector in Buffalo. "They paint a nice rosy picture: 'on a bus line, near a nice market.' They don't tell you you're going to be across the street from a crack house."

Buffalo. Buffalo. Good old Buffalo. I remember a certain group of real estate zealots who were pushing Buffalo as the next big thing. I am not surprised that it has become a hotbed for scam artists due to the fact it is one of the few places in the country where people aren't priced out in buying properties. Coupled with irrational exuberance you have alot of idiots running around writing checks they can't cash.

Does not anyone read the newspapers? If they did they would know that Buffalo is suffering from a huge brain drain to the point that hospitals are starting to close up. In order to rent out homes, you need a population to rent to. Buffalo is lacking that.

Safeguards that protect buyers, like state laws requiring disclosures about a property's condition, are rarely effective when the transaction is online. Although such laws apply to most transactions, online or not, a long-distance buyer will not necessarily know about them.

Government safeguards will probably be one of the driving forces for taxing transactions on the internet. If Ebay and other e-commerce sites want to avoid losing a chunk of their profits to taxes, they will have to take every iniative to protect their customers since the government will most likely demand compensation to fund any type of protection they create for consumers.

This might help explain why Greg Tanner, who says he has a knack for "turning one dollar into two dollars," is now more than $30,000 in debt.

He should have stuck to making two dollars.

Three years ago, Mr. Tanner, a pawnbroker in Salida, Colo., hoping to make money in real estate, went to eBay and found low-price houses for sale in Buffalo.

One ad, for a house at 173 Paderewski Drive on the city's East Side, read: "Attractive, warm, two-story home has great potential."

Forty years ago, that might have been true. Through much of the 20th century, the residents of Paderewski Drive, most of them Polish immigrants, took pride in their hard-earned homes.

But since the 1980's, as working families fled the East Side, a neighborhood increasingly vulnerable to crime, many of the houses on Paderewski and the surrounding streets have been abandoned or demolished.

Although Mr. Tanner, 48, had never set foot in Buffalo, he called the seller, a real estate investor named Scott Burton, who had paid $1,000 for the house a few months earlier. Based on what he learned from Mr. Burton, Mr. Tanner said he believed that the house was in decent shape and needed only minor repairs. Mr. Burton, who has bought and sold dozens of houses in Buffalo, could not be reached for comment.

Mr. Tanner made two key errors. He did not do his due diligence. He did not stage any type of personal recon of the area in question. He did not talk to locals or do a search on the web for the property. If he did, he would have figured out that this was a bad investment.

His second error was being too trusting. When you buy real estate you want more than one source of information and the last thing you want to do is rely on the seller's data alone. I mean seriously, Mr. Tanner is a pawnbroker so he has probably developed a very strong BS detector dealing with customers hocking their valuables. I am surprised it didn't work this time.

Mr. Tanner and his business partner paid Mr. Burton $3,000 for the house on Paderewski Drive, and $10,000 for two other houses in the same area, on Lombard Street. They paid with a credit card, using PayPal. Eventually, the deeds were transferred and recorded in the Erie County clerk's office.

Two of the houses were considerably run-down, Mr. Tanner said, but it was the 130-year-old two-story house at 173 Paderewski that was to become his albatross.

Over the next few months, he paid nearly $7,000 to a Buffalo contractor, recommended by Mr. Burton, who told him that all that was needed were a few thousand dollars in repairs. After a while, the contractor reported to him that the work had been completed, Mr. Tanner said, and the house was ready to be rented. The contractor e-mailed photos to Mr. Tanner to show his work.


Counting on a profit, several months after buying the Paderewski Drive house Mr. Tanner advertised it for sale on eBay. He quickly found a buyer in Britain: Claire Fennelly, a residential landlord in West Yorkshire who was looking for investment property in the United States.

Ms. Fennelly paid $14,900 to Mr. Tanner and his business partner, and $2,500 more to the same contractor for further repairs.

Then Ms. Fennelly decided to do what Mr. Tanner had not: she and her husband got on a plane and flew to Buffalo in November 2003. When they took a cab to Paderewski Drive and arrived at the house, the cab driver refused to let them out. The neighborhood was just too dangerous, he said. When she saw the house, Ms. Fennelly said, it had missing windows, holes in the roof and the siding was gone.

This is what Ms. Fennelly should have done in the first place.

"You've never seen anything like it," she said. "We sat there in the cab thinking, 'What have we done.' "

You f**ked up. Now get over it.

Ms. Fennelly called Mr. Tanner immediately. He said hers was the first true description of the house he had heard. He promised to pay her back and called the county clerk's office to make sure that the title would not be transferred to her. Ms. Fennelly said she was still waiting for a refund and had not taken legal action against him.

Consider that money gone. Tanner is already $30,000 in the hole. Even with the more rigid bankruptcy laws he probably will go that route to avoid refunding her money. No blood from this stone.

A few months later, Mr. Tanner received a Housing Court summons for a lengthy list of code violations, so he drove the 1,600 miles from Colorado to Buffalo. He said he received little sympathy from the Housing Court judge. Mr. Tanner called Mr. Burton to demand his money back, but could reach only Mr. Burton's business partner, Stephen Fox, who, Mr. Tanner said, hung up on him.

Of course the judge has no sympathy for Mr. Tanner. If Mr. Tanner had just made a call to the county clerk he would have discovered his investment was a money pit. Burton and Fox are under no legal obligation to even listen to him so why bother calling them?

Calls placed to Mr. Burton's home in Gulfport, Miss., seeking comment about his real estate transactions, were not returned. Mr. Fox, reached in Roseburg, Ore., said Mr. Burton had no interest in commenting. (Mr. Tanner said recently that he was not pursuing any legal action against Mr. Burton or the contractor. "I'm already too drained, financially," he said.)

This is actually the smartest thing he has done. Litigation is not cheap so Mr. Tanner is better off letting his pride go and cutting his losses.

Sam Hoyt, a Democratic state assemblyman and co-chairman of the Buffalo mayor's task force on real estate flipping, whose aim is to educate consumers on the destructive effects of the practice, blames eBay, saying it enables dishonest flippers to lure buyers.

Mr. Hoyt said he had repeatedly appealed to eBay officials, asking the company to make specific changes, like informing sellers that they must comply with New York State disclosure laws and requiring a copy of written sales contracts. But Mr. Hoyt said he had received little cooperation from the company.

"What eBay is doing, in my opinion, is immoral," he said. "They have a responsibility to not facilitate activity like this."

Representatives of eBay say the company has few legal obligations to buyers of real estate on the site. "The people responsible for house flipping," an eBay spokesman, Hani Durzy, said, "are the people selling these houses and the people buying them sight unseen. How these sellers and buyers are connecting is not as important as the fact that the buyers are not doing the proper due diligence when buying a property."

All eBay is doing is facilitating the sale. That is why they feel they are under no obligation to listen to Mr. Hoyt. However as I have stated before they might want to initate a series of protocols to protect customers because if the government gets involved they may demand e-commerce serivces to pay up for the cost of protecting customers online.

(Although eBay holds real estate licenses in many states, it does not act as a real estate agent and does not charge a commission. Instead, it charges a flat listing fee of $100 to $300 for residential property, depending on the duration and the type of listing.)

Joe Tseng, a real estate investor from San Marino in Los Angeles County, also saw what looked like a great deal on eBay — in his case, an apartment building in Youngstown, Ohio. Mr. Tseng did fly to Ohio to inspect the property, which turned out to be a run-down and nearly vacant 11-unit building.

He withdrew from the deal, lost his $5,000 deposit, and learned a hard lesson about buying real estate online. "It's very dangerous," Mr. Tseng said.

Mr. Tseng, with all due respect, real estate is always dangerous. Even before the internet. If you had simply applied the same skillsets you utilized investing in San Marino I am sure you would have never lost your $5000.

Richard W. Hayman, president of Bid4Assets in Silver Spring, Md., agreed with Mr. Durzy that buyers needed to be cautious. "Some of this actually amazes me," he said. "People seem to think 'caveat emptor' doesn't apply when you're sitting at your computer."

You and me both. I think by now people should know that the internet is privy to all sorts of big bads ranging from spyware, adware, viruses and child predators. Online real estate is not immune to that.

Yet Ms. Fennelly, who has been shopping on eBay for years without a problem, said it was the feeling of safety she got from eBay that made her buy property before setting eyes on it. "You get lulled into a false sense of security with the name eBay, then get scammed in a big way," she said. "If it wasn't eBay, I wouldn't have gone ahead with it."

She is not alone. Mr. Krug, who has been a building inspector in Buffalo for 18 years, said he was now dealing with online buyers as far away as Australia and Israel. "You're talking all over the world, people buying stuff in Buffalo, saying, 'Nine thousand dollars. I can't beat that.' "

In other words people are treating real estate like an all you can eat chinese buffet. As long as it is cheap and they can fill themselves up to their heart's content they are happy. It doesn't matter if the food is substandard and will give them the mud butt. A brand name can only do so much. People need to make the effort to protect themselves.

Michele Johnson, a resident of Buffalo's East Side and one of the founders of the task force on flipping, said she had reported hundreds of misleading real estate listings to eBay, with little effect. Still, Ms. Johnson said: "It's hard to say that taking the listings off eBay would fix the problem. These sellers are just going to find another avenue."

Where there is blood there are wolves. Where there is money to be made, there will be scam artists and unethical behavior.

The house at 173 Paderewski, which was claimed by the city for back taxes Mr. Tanner had not paid, was deemed a safety hazard and razed several weeks ago. The cost of the demolition, which Buffalo expects Mr. Tanner to pay, is $9,000.

Mr. Tanner's two houses on Lombard Street were also taken by the city. They, too, are in line for demolition. Mr. Tanner, whose business partner has declared bankruptcy, said he lay in bed at night, wondering where he went wrong.

Mr. Krug said Mr. Tanner had asked him the same question. "I told him the first thing he did wrong was buy a computer," Mr. Krug said.
David Staba contributed reporting for this article.

No. The first thing he did wrong was not to use his computer properly. A simple Google search would have opened up a plethora of information that would educate him and prevent him from doing anything stupid.

Real estate investing beyond your local area is very difficult because you have to hire someone to keep an eye on things and sometimes you have to hire somone to keep eye on the person who is keeping an eye things.

It is a standard rule in real estate not to overpay. But for the love of mike, if a property is selling below market then something isn't right. Just a simple indication of the cap rates of that particular area should give you an indication what to expect in price.

Remember. Before you even put a dime down for a property you should do your due diligence. Which means actually going to the property and examining every nook and cranny. It also means talking to neighbors and researching the area. This is all common sense. If you don't follow procedure and screw yourself over, I can guarantee you that no one will shed any tears for you. SO DON'T BE STUPID!