Monday, June 20, 2011

Real Estate Loops

When selling your home it’s quite common for a buyer to make an offer that is conditional on the buyer selling his or her own home. Your buyer might then receive a conditional offer on his or her own home. This can lead to a chain of homes that will all be sold like dominos if someone makes an unconditional offer on the first home in the chain. An interesting situation arises when a chain of conditional offers forms a loop.

It’s not uncommon for two people to buy each other’s homes. But what if we a have a loop of three people? Suppose that A makes a conditional offer on B’s home, B makes a conditional offer on C’s home, and C makes a conditional offer on A’s home? If everyone is aware of this loop then all the deals can close. But if nobody becomes aware of the loop then it’s possible for all of the deals to expire and no homes get sold.

Longer loops are possible as well. I’d be interested to know whether real estate brokers share enough information to try to detect such loops. Loops may not be common but brokers are leaving money on the table if they fail to notice them.


  1. @Patrick: This looks like the same problem except that in the programming case you hope to detect loops in nanoseconds and in the real estate case, an hour of computer time would be fine.

  2. I believe you have too much confidence in the system, if we were to admit there is one. I personally know somebody in QC who was able to buy 4 homes with minimum deposit of 3% on a 2200$/mo net salary before the banks figured out (when she went for the 5th). Luckily for the banks she was responsible and kept the payments up to date but this shows how weak the system is.

  3. @Andi: I'm more concerned with the real estate agent end of thing where they shouldn't care too much whether banks are making foolish loans. If the agents can detect these loops then they can collect more commissions.