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Ethics and the lender’s preferred short sale listing agent

Realtors that take on short sale listings may have found some listings assigned by lenders to already be listed by another agent! What to do?

short sale ethics

short sale ethics

Short Sale Lender Listing Assignments

There’s a conversation going on right now in one of those social media groups, and it’s pretty interesting. You see, in certain parts of the United States, short sale lenders have a list of “preferred” short sale listing agents. The topic of the conversation is what to do when you as a Realtor are assigned a listing (because you are a “preferred” agent), yet the property is already on the MLS and listed by another Realtor®.

Do you….

  1. Contact the other Realtor®, explain the situation, and negotiate to take over the listing (perhaps paying a referral fee)?
  2. Tell the short sale lender that the property is already listed with another Realtor® and that you cannot intercede?
  3. Contact the seller and conspire to fire the current listing agent?

While this is certainly not the topic of a game show and the correct custom and practice may seem fairly obvious, it brings up an important point about short sales, fiduciaries, and fiduciary duties. I’m not an attorney and I don’t pretend to be one, but I am aware that a short sale transaction involves a seller (represented by an agent), a buyer (also represented by an agent), and a short sale lender (who ratifies the terms and conditions of the contract).

Parties to the Short Sale Transaction

Why is it that a short sale lender (not technically a party to the real estate transaction) can dictate how the parties behave and whom they can hire?

Short sales can be challenging for this very reason. Since the short sale transaction is a form of debt settlement, often both parties (the buyer and the seller) feel that they are at the mercy of the short sale lender if they want to get this short sale closed. Sometimes lenders say that they are looking for certain terms and conditions (for example, they won’t pay for termite work or back HOA dues). Because the buyer and seller are so desperate to get the transaction closed, they agree to the terms and conditions suggested by the lender.

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The key is that the short sale lender does not own the property. The seller, whose name is on the title, owns the property and can make all decisions about who is hired as the listing agent in the transaction. The lender does not own the property, and cannot and should not make decisions on behalf of the short sale seller.

The Irony of the “Preferred” List

The truth is, however, that short sale listings are not for the inexperienced and faint of heart. And, once in a blue moon, a listing agent may bite off more than he or she can chew and take a listing out of his or her area of expertise. Even though the lender may make a better recommendation, the seller still has the right to make that ultimate decision as to the listing agent.

One alternative would be for the short sale lender, when contacted by prospective short sale sellers, to provide an online list of preferred agents—agents with the proven experience necessary to get the job done. And, therein lies the final rub; some agents on those “preferred” lists are there because they are “in the know” and not necessarily because they “know” short sales.

With respect to preferred short sale listing agents, you may be damned if you do, and damned if you don’t. Overall, this is a tricky topic with a lot of varying details. But, no matter what, never steal another agent’s listing out from under them. It’ll come back to haunt you some day—for sure!

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Written By

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

2 Comments

2 Comments

  1. JoeLoomer

    April 23, 2013 at 10:04 am

    OUTSTANDING post, Melissa. On planet Joe, I’d tell the lender to go pound sand and not to call me before they do their due diligence on the property’s status as listed or not – a very, very simple thing to do in two minutes on a computer. Soliciting another agent’s listing or trying to parachute in on the commission is just despicable.

    Navy Chief, Navy Pride

  2. Aaron Dickinson

    April 24, 2013 at 12:17 am

    If an agent chooses option 3 they would most likely be found in violation of the Code of Ethics and potentially face issues with their state licensing regulator as well. Interference of a contract is a serious thing.

    Some banks have been hurt by fraudulent short sales so I can see their interest in having someone “hand picked” to deal with the transaction. In a typical short sale, there is no one looking out for the bank’s interests yet they are the one taking the loss. If they choose not to work with a seller that doesn’t use their agent, that is certainly their choice. If they are going to make that demand however, they are the ones that need to communicate with the seller and the seller should contact the preferred agent, not the other way around.

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