Representing buyers in short sales can be tough.
One chronic criticism of my short sale blog posts is that they primarily address the perils of the short sale listing agent: troubles with mortgage lenders, issues on the preliminary title report, etc. But, truth be told, short sales can be a real headache for buyer’s agents as well. Actually . . . perhaps the word migraine might describe the feeling a little better.
There are many challenges that buyer’s agents may face when writing offers on short sale properties. Let’s discuss the most obvious one: the buyer’s agent has a fiduciary obligation to get his or her buyer into the home that they desire. How on earth will that ever be possible if the property that the buyer wants is a short sale? You see, with a short sale there are absolutely no guarantees that the bank is going to accept the buyer’s offer and generate a lien holder approval letter (required to close the transaction) with terms and conditions that are also agreeable to the seller. That right there is a risky endeavor—putting your buyer into “limbo” for multiple months while other properties on the market come and go. In the end, if the deal goes south, the buyer(s) will be frustrated and disappointed and may even hold the buyer’s agent partially responsible for putting them in that disagreeable situation.
Well . . . here are some TOP SECRET tips for buyer’s agents who are inclined (or required) to show short sales:
Pre-qualify the property and the individual doing the short sale negotiations prior to showing the property. Call the listing agent and ask a few questions in order to determine who will be doing the short sale negotiations and what the process will be. If you listen carefully, you will determine whether this agent is a crackerjack listing agent who can get the deal done or whether your buyers might like to consider other properties instead. (Your first clue may come when you leave your voice mail message for the listing agent. If you do not receive a return phone call in a reasonable period of time, this might describe some of your future concerns with regard to the transaction.)
Write an offer with an “out.” The California Association of Realtors now has a Short Sale Addendum where you can specify an exact date that you will require lien holder approval (or the purchase contract will be null and void). Of course, you can always extend the date. So, write into your purchase contract some sort of clause that states that lien holder approval from all lien holders must be received within a specific time frame. If you do this and your buyers are unhappy with the status of the transaction, it will be easier to move on.
If you live in an area or work at a price point where most of the listings are short sales, then here is my favorite way to get buyers into a short sale quickly. (SSSShhhh. Do not share this with your competitors. Can you hear me whispering?) Look up all the short sales that are “pending” or “contingent” on your local MLS—especially those that have been on the market for more than 100 days. Call all of those listing agents and ask whether their buyers are still on board. Since the average short sale listing agent has a close ratio near 30%, it is likely that about five to seven of every ten short sales may be in need of a replacement buyer. If you can write an offer on one of these properties that is about to get short sale approval (or has just received an approval in the last few days), your buyers should be able to see a successful closing in short order.
If you are a buyer’s agent working short sales and you try these techniques, your migraines may dissipate into dull headaches, and you may even have additional successful closings!
Photo: The Truth about Mortgage.com
Mike
February 16, 2010 at 8:00 am
Better yet, I look up the recent, (back one year or so) sold/expired-withdrawn record of the listing agent. If they have 5 solds in the last year and 35 exp/wthd, RUN away. Many agents in my area just don’t bother to return emails or voice mails.
Another thing that I have done is write into the contract, a 48 hour time limit contingency for the property to be changed to under contract in the MLS, so they don’t continue to take offers.
Melissa Zavala
February 17, 2010 at 2:31 pm
Mike: That is a great way to pre-qualify a listing agent!
Doug Francis
February 16, 2010 at 8:38 am
Excellent idea about following up with the “pending” transactions… that little nugget is going to make someone’s day today!
Rob McCance
February 16, 2010 at 6:06 pm
There’s no reason buyers should ever be “in limbo” waiting for a bank approval.
The sales contract is between the buyer and the seller, written as normal with all the normal contingencies and time limits, etc.
Then, you add one contingency: The “Short Sale Contingency” that (most basically) states that if the mortgage lender(s) do not approve the sales price within x-days of closing, either the Buyer or Seller may terminate this agrrement without penalty.. upon notice…etc…bla bla.
Make x-days to be just before the contingencies expire. Make the contingencies as long out as you wish to be “in limbo” for.
Also, this way, you don’t order any costly items (appraisal, inspection) until the bank responds.
Or in GA, with our Due Diligence period, there’s no limbo whatsoever, regardless, if you write it up correctly.
Melissa Zavala
February 17, 2010 at 2:33 pm
Rob: Each state has different documents as you point out here. The important thing (as you definitely state here) is to make sure to write an offer that protects your client.
Rob McCance
February 17, 2010 at 2:56 pm
I agree completely. And good article btw, didn’t want to sound disagreeable, just pointing out how we do it here in GA. (or should!)
🙂
Bruce
February 16, 2010 at 9:20 pm
Interesting ideas. I’m seeing a rise in deals falling through on short sales in our market. This may be just what some of my buyer’s needed, a shred of hope.
Barry Cunningham
February 17, 2010 at 8:03 am
“Your first clue may come when you leave your voice mail message for the listing agent. If you do not receive a return phone call in a reasonable period of time, this might describe some of your future concerns with regard to the transaction”
That’s funny! Do that and you eliminate 90% of the agents doing business…at least in South Florida that is. They NEVER return phone calls. I received a reply to an email that I sent 6 months ago…last week! Amazing…the more things change the more they stay the same.
What you’ve written here, we have been teaching for nearly 3 years…but your post underscores the main problem with short sales. That being that by this time there are still so many agents who don’t know how to execute them.
That’s a really sad state of affairs. I applaud you for doing your best to bring agents kicking and screaming into a state of proficiency. Keep it up…PLEASE!
Don Jacks
February 20, 2010 at 10:21 am
Great info.
Mike, the 48 hrs to change to pend in MLS, priceless. Thanks
Bottom line, do your homework on the property as well as the agent and you will begin chosing the “closeable” short sales to write offers on.
Missy Caulk
February 21, 2010 at 7:13 pm
In my area, we always have to call the listing agent because agents don’t change the status until the bank signs.
We have a form we are now using that says the buyer must be prepared to wait 90 days before moving on. We do this so they will understand it is long wait.
Barry Cunningham
February 21, 2010 at 7:53 pm
Ummm…Missy..Until the bank signs what?
Please tell me some nearly three years into this that agents STILL don’t understand that the deal is between the buyer and the homeowner? The homeowner MUST sign the contract with the Buyer and THEN approval is obtained…but where I come from as soon as the contract is signed, the deal is pending…regardless of how long it takes for the bank to come back with a SHORT PAYOFF” approval.
Are you intimating that there are actually agents out there who STILL don’t understand that the Seller has to sign the contract and that the bank isn’t party to that contract?
Hopefully I misread you but your response blew me away!
Joan Lorberbaum Moore
February 21, 2010 at 8:04 pm
And in my area once the seller has signed the presented contract the listing agent has 48 hours to place the listing on contingent status with the contingency being 3rd party approval.
Missy Caulk
February 21, 2010 at 8:17 pm
The agents in my area, do not change the status to CTS= Continue to Show but Active.
They do not do this until the bank accepts the Short Sale, it shows Active in the MLS.
Heck, Barry one big agency here just told their agents to NOT deposit the EMD until the bank approved. We had just had con-ed with our MAR Legal Counsel and he said the opposite.
As you know…some agents have no clue.
One of my team members wrote an offer on a short sale, very competitive offer a few months ago. The listing agent countered, they went back and forth and it never came together. The house is now bank-owned and listed for less than my team member offered. I don’t counter short sales, (only 1 time) I just send the offer and package to the bank, signed by the sellers. The one time, we did counter was when the offer was 100K under asking price and I knew the BPO would not justify this, but if they are in range I don’t have my sellers counter.
So when I call, I have ask the listing agent, “do you have the package ready to go.” I can’t tell you how many times I have been asked, “what package?”
Melissa Zavala
February 21, 2010 at 8:31 pm
Missy: I do think that it is sometimes a good idea (as a listing agent) to counter some of the other terms and conditions of a short sale offer (but leave the price to the bank if it is within reason)–in order to assure that the buyer is serious. There seem to be so many ‘outs’ for both the buyer and the seller.
Barry Cunningham
February 21, 2010 at 9:32 pm
Wow Missy…that’s really a sad state of affairs. What’s wrong with so many agents not getting it…still? Something should be done about it….you know we get our shorts done in under a weekn when there’s no agent involved. They make the business seem so difficult when it really isn’t.