Someone I know recently passed a client along to me who owns a decent number of homes in the Phoenix area. Less than half have any equity in them; the rest would turn out to be short sales.
I passed them on to someone else without a blink.
This morning I received a possible referral on two more listings. Both are short sales.
I’ve not decided what I want to do.
This evening, another offer from someone across town to help with a short sale close to my office.
Again, I’m undecided.
Should I be?
I’m on record as being absolutely against the idea of short sales, primarily because I view them from the buyers’ perspective.
I’ve termed them “bait-and-switches.”
I’ve asked for them to be shunted to another page on the MLS.
I’ve told buyers not to waste their time.
I’ve written about the topic over and over again (not that Google notices, but I digress.)
But is this really the smart money these days?
Let’s look at this as cynically as possible, shall we? Is it worth it take the listing in hopes of planting a sign and generating ancillary business on a home I know almost certainly won’t sell? When I’m 100% against agents who do so on non-short sale listings, basically buying the listing with a bulls*** list price?
Is it different on a short sale when the seller isn’t going to get a thing anyway, especially if you’ve set the expectation that it’s almost certainly not going to happen? Do I plant the sign and spend a minimum of marketing figuring my chances of seeing a return are little better than the sellers’ chances of escaping the house with a foreclosure?
The seller’s not getting anything. Ought I jump in and try and get some money from the bank?
I’m nauseated at the thought, to be honest. But that doesn’t mean my brand of moral indignation is correct. Many agents do them. Some even do them well. Frankly, I could do them well if I chose to do so.
But I’m not sure they’re worth the time. And I’m not sure they’re consistent with how I think things ought to be done.
I could be wrong. Convince me, mein kinderlich. Convince me.
Jonathan Dalton is a Realtor with RE/MAX Desert Showcase in Peoria, Arizona and is the author of the All Phoenix Real Estate blog as well as a half-dozen neighborhood sites. His partner, Tobey, is a somewhat rotund beagle who sleeps 21 hours a day.
ines
January 22, 2008 at 8:50 pm
Jonathan – as much as I may agree with you the question comes when a loyal customer of yours asks that you please handle their short sale. After years of loyalty they may find themselves in trouble and want their trustworthy Realtor to work with their bank and help them get out of the hole without a foreclosure.
Do you help them? or do you turn your back. I have a couple on my plate right now and I take a deep breath every time I think about them. The reality is that I may be working for the bank in the end, but in the eyes of my loyal customer, I would have done them a favor.
Jonathan Dalton
January 22, 2008 at 8:55 pm
Ines – I could argue it’s a different situation. I hate doing rentals but I do them for my clients. I’d almost certainly do a short sale for a past client.
But for those sent to me … I don’t know.
My moral certitude wavers.
Ines
January 22, 2008 at 9:01 pm
I think we’re on the same page here
Linda Davis
January 22, 2008 at 9:04 pm
I’ve done a few in the last couple months. I would certainly do a short sale to help a past client but I’m working on one now where the seller refuses to call the bank himself. I think I need to create a list of requirements/conditions before I do another one. And if I do it again it certainly wouldn’t be for the money. It is just not worth it.
Christina Ethridge
January 22, 2008 at 9:16 pm
I’ve become fairly proficient at short sales in recent months and while I’m not prospecting for them, I’m also not turning them away.
You made a comment in your blog “the sellers not getting anything anyway” which shouts to me that people simply don’t understand.
So ok, the seller isn’t getting any cash at the table. But, they are getting the ability to buy a home again in as few as a couple months vs. a foreclosure on their credit report which is generally a minimum of 4 years to purchase. Additionally, they are being forgiven (if owner occupied) the amount of the difference between what the bank nets and what is owed and not being charged a ‘phantom tax’ on this forgiveness. This prevents them having to file for bankruptcy.
Frankly, most sellers that we work with (split evenly investors vs. owner occupieds) desperately want to sell it via short sale as opposed to going through foreclosure. They want to ‘make good’ on their debts as best as possible.
Short sales take a horrendous amount of time. Horrendous. This is why we don’t prospect for them, but will take them if they look doable. There are ways to weed out properties/lenders/situations that will never short sale vs. ones that will.
The key with short sales actually selling is to list the property approximately 1-5% under the lowest comparable value and then back up your price with comparables (provided to the bank of course).
I definitely don’t recommend it as a foundational niche to build a business on, that’s for sure!!
Bob in San Diego
January 22, 2008 at 9:20 pm
Short sales are a multi-faceted concern.
First off, they are only increasing in numbers, so something has to be done. Removing them from the mls is only begging for a lawsuit though.
A “Contingent” status would be a start.
As for the bait and switch list price, I believe that to be a tactic with its days numbered. The methodology for many is to get a low ball offer to present to the lender to “get the ball rolling”, or to get the lender to come back with a price they like and show their hand. The problem with that strategy is that lenders like IndyMac don’t like to play that game. They are moving to a “approve” or “disapprove” answer.
It also ticks off the loss mit guys because they are getting hundreds of new files every day and the low ball listing approach wastes their time.
The argument the agent has to make and win is that the short sale is cheaper for the lender than to foreclose. Some lenders are doing some basic math and finding that they’ll net more by taking it back. They are starting to see the same thing that we are seeing – that often comparable REOs sell for equal or greater than many of the short sales.
It’s a shame because it is a disservice to the distressed seller, as the low hanging fruit tends to attract the scavenger. This compunds the problem because now you have more of the incompetent, inexperienced or desperate dealing with these situations**. Everyone loses.
**(This is not to suggest that all agents who handle short sales fit one or more of those labels, merely that the pros are outnumbered.)
I probably didn’t do much toward persuading you. The two reasons in favor are that a)they are plentiful and b)those agents who you like to work with would prefer that an agent like you be on the listing side.
Chris Johnson
January 22, 2008 at 9:23 pm
JD-
Good post. I get it, there’s a ton of noise. There is some non noise; i don’t know from the buy side. My best buyer’s agent writes two offers each weekend…here in columbus. Get’s em through by including the right to take over the process in the deal. Works like a charm for ametuers, and the ones who resist know what they are doing.
Tim has a deal at agentshortsalesecrets.com for $97 or something. I’m a fan of Tim and Julie’s stuff,so forgive the link.
Cyndee Haydon
January 22, 2008 at 9:25 pm
Jonathan – I couldn’t agree more – I think Ines has identified the one instance that we would entertain it – however, I have REALTOR friends saying they are making a good living doing it. I can tell you having just closed a short sale on the buyer side that was UNDER contract for 5 months it’s not the “deal” buyers seem to think. After 5 months in a declining market the value proposition had changed considerably. We have done several on the buyer side this year and honestly most buyers don’t have the stomach for it – we had another buyer walk from a short sale contract this week – she’s ready to look a other deals but understands you often earn every penny in the process – lol!
Jonathan Dalton
January 22, 2008 at 10:48 pm
Good thoughts all around. A couple I want to pull.
Christina – monetarily there’s no gain but in theory it does give the ability to buy again. Though if you can’t afford payments now, why you’d take the plunge again in a couple of months is beyond me (aside from a drastic downsize). But that’s a different debate for a different day.
Bob – OK, we can’t ban them from the MLS. I wish there were a rule that a list price has to be a legit offer to sell at that price but I already can see so many loopholes it’s not even funny. I would take a different tab as a step, though.
My wife ended up giving me the one statement that may sway me. Last month I took a listing three weeks ahead of the trustee’s sale. There was just about no chance to sell (and none at all once the seller incredibly RAISED her list price above the market, even with the sale pending.)
I took the listing solely to not take away the seller’s lone bit of hope, disclosing all the way that it was a long shot.
Maybe that’s where the answer is. Explain the process. Let the seller know what they’re up against. Let them know there are a lot of agents out there who tell their buyers to avoid short sales, just as I’ve done consistently.
And then tell them I’ll do whatever I can to make that glimmer of hope a reality. Sounds like a bit of a plan, possibly.
Matthew Rathbun
January 23, 2008 at 7:47 am
Jonathan,
Before moving into education full time, I did distressed property listings – now it seems in my area that’s all everyone is doing.
I agree with your views and it took me a bit to come around to them. In our market (Northern VA) short sells just seem to be all that there is any longer.
From a good client service standpoint, I applaud your decision to not take on a client that you fundamentally don’t support. It shows integrity, in my opinion.
Chris Lengquist
January 23, 2008 at 1:36 pm
For the right buyer, the patient buyer, short sales can lead to instant equity. I’ve done this successfully many times. Just a thought.
Christina Ethridge
January 23, 2008 at 5:24 pm
Jonathan:
It’s more than “monetarily there’s no gain but in theory it does give the ability to buy again.”
I’ve never been one that has subscribed to the whole “I sell real estate and it’s not about the money, it’s about helping people” philosophy. I work because I want to make a living and create a better life for myself and my family. If I didn’t have to work, I would not be interested in helping other people buy and sell real estate on, I would only be doing it for our family foundation.
Now, with my selfish motives out in the open – working the short sales that we have is a way to truly help people, and provide a life for my family at the same time.
It really does help people. Our sellers are ever so thankful. It’s a huge stress off their backs. Foreclosure is THE worst thing you can do to your credit, period. It’s a horrendous experience and stressful for sellers.
It’s about doing the best they can to ‘make good’ on a financial commitment. It’s about getting the stress off their back. It’s about securing the ability to overcome your mistakes and have a future. It’s about trying to save both them and the lender money by not having to go forward with foreclosure.
No, not every seller cares about any of this. But most do, no matter what types of loans they took out or how they spent the equity.
I needed to say all of this right now – I just got off the phone with the absolute worst “Recovery Specialist” I have ever dealt with and it’s taken me almost an hour just to ‘cool off’.
John Wake
January 23, 2008 at 7:39 pm
I don’t want to do short sales because they are a lot more work for a lot less money. The time I would be working on a short sale I would not be working on a more profitable transactions, or developing systems to find more profitable transactions.
Short sales are a real specialization. I know there are other agents that can do it better than I can. I don’t know how to do short sales well and I hope business doesn’t get to the point where I have to learn.
As soon as I find out a lead is a short sale, I offer them sympathy, not services.
Jeanine Metts
October 21, 2008 at 3:34 pm
This is an old blog, but worth responding. I agree with Christina. Save the sellers credit is the reason. Maybe not to buy a house in 3 months, but to buy a car down the road, cell phone, etc. I’ve successfully closed 4 in the last 8 months. I have 3 more out there. I expect them to sell. More than general inventory. The secret is explaining the advantages to the seller, the bank & buyers. I take them for 15% under the lowest comp in the area. I work hard on showing these figures and suppy & demand to the banks. It is a WIN, WIN, WIN, WIN situation. I get paid, seller gets 70-120 less point reduction on their credit, Banks get more money than a auction or forclosure, the buyer gets a deal.
M. Cohen
November 2, 2008 at 3:21 pm
Is it difficult for the selling agent to get paid their commission on a short sale?
Tim Harris
November 2, 2008 at 7:51 pm
Here are a few things to consider when it comes to short sales. This is based on personally doing and coaching agents to do literally thousands of short sales.
1) The bank WILL pay normal commissions…
2) The bank WILL pay buyers closing costs…
provided that the net to the bank is within a certain percent of the BPO. For example: BPO comes in at $300k. Bank expects to net around 90% of BPO. With that said, we are now seeing banks accepts 15% less than BPO.
Short sales will soon become the defacto solution to the massive real estate mess we are now in. Expect to see short sales to become the solution. Today, its typical to see lenders closing shorts in 45-60 days. With a offer thats above the 90% BPO the lenders will close in less than 45 days. In other words, about the same time as a closing where the seller isnt upside down.
Bottom line, learn how to do short sales asap. We have a free book that you might want to grab at
Hope all of this helps!
Tim (and Julie) Harris
Jeanine Metts
November 3, 2008 at 6:40 am
M. Cohen, Yes, put 6% down, disclose in the realtor remarks that the buyer’s agent will receive 50% of the lenders approved commission. Get it in writing from the buyers agent that they will accept 1/2 of total commissions. If you have the buyer, they may want you to reduce to 4% for both sides. As Tim & Julie Harris said, take a class. I found one through Keller Williams, and one of my Title Companies.
Matthew Rathbun
November 3, 2008 at 7:34 am
Jeanine: There are no set commissions, so a specific commission being named is one step too close to a nice Anti-Trust lawsuit.
The listing broker should set their fee for service at whatever they deem necessary – not what they read on a blog.
Cohen: You need to check your local MLS rules and regs, ours (THANK GOD) have done away with remarks over-riding the commission line. There are no Variable Rate Commissions. What you list as the commission in the commission line is what the buyer agent gets paid.
Listing Brokers need to train their agents better. Most MLS state that the commission in the commission line is what is paid for procuring a ready, willing and able buyer. If the listing agent isn’t prepared to take a loss, I a.) recommend that the listing agent get a backbone and standup to the lender who IS NOT A PRINCIPAL to the listing agreement and therefore has no right to negotiate the commission. They either accept or deny the contract. I don’t see them negotiating with the settlement attorney, trustee, home inspector or any other party to reduce their commission. If the risk manager for the lender agrees to cut their salary – I’ll agree to cut mine.
b.) the broker needs to be willing to pay the buyer agent commission regardless of what they make. That’s the risk they take with agents who can’t stand up to lenders, take short sales that couldn’t possible get approved, etc…
Both my state law and the Code of Ethics forbid negotiating the commission with the offer to purchase or even after you’ve “introduced the property to the client”. Therefore you have to negotiate the commission prior to showing the client.
This is complicated in that you typically also have an obligation to show a client all properties that meet their requirements, unless you have expressed permission to exclude certain properties. My best advise is to sit with the buyer, educate them on how potentially difficult it can be to purchase a short sale and how if you wait long enough, it’ll be REO’d and they can get it for cheaper anyway. (that’s in our area – may not be the same for yours)
There is a great program out there at RealtyU, called CSP or Certified Shortsale Professional. It’s a great one day program, that can be taken online and covers all of this.
The biggest issues here is all the variables, how is YOUR market, what are the rules and regs in YOUR state and MLS, which lender are your clients dealing with and how comfortable are you with the process.
Matthew Rathbun
November 3, 2008 at 7:35 am
BTW: I’ve only heard of one lender denying the contract because the agents wouldn’t take a pay-cut. The lenders ARE paying closing cost and ARE paying commissions.
Tim Harris
November 3, 2008 at 8:59 am
Agents doing short sales will love this…we hve been told several times that the largest lenders are working on establishing their ‘prefered agents’ to represent them…ie refer their borrowers who have to do short sales to these agents.
In the next year or less there will be simply massive opportunities for agents who in the short sale/ reo end of the business. Exciting time to be in the business provided you are the flow of opportunity. Lemme know if there is anything we can do to help.
Tim and Julie Harris
http://www.AgentREOSecrets.com