SHORT SALES: POSSIBILITIES AND PROCEDURES
HOW MANY ARE SHORT SALE OPPORTUNITY AND HOW MANY ARE LISTING OPPORTUNITIES?
SHORT SALE ACTIVITY IS OFTEN UNCHARTED TERRITORY FOR MANY AGENTS AND BROKERS.
“SHORT SALE” has become “short hand” for the description of a house that an owner needs to sell, has tried to sell and is unable to sell.
The term short sale has been substituted by agents in the MLS listings for “must sell” or “make an
offer”, all short hand for desperate seller. We’ve always had short sales. But, until the last year or so,
we have had a proliferation of homes advertised as short sales when in fact, they are not all so.
In the MLS for homes for sale today in Montgomery County, Maryland, and this is representative of all
of the densely populated areas of the DC/MD/VA market area within the Baltimore/DC area, there are 177
homes advertised as “SHORT SALE”. There are 71 homes listed as “foreclosure and/or REO”
The listing agents for the short sales are not very concentrated although a few agents are carrying
5-6 listings, most have only 1 or 2. Foreclosure/REO sales, on the other hand, are concentrated with
a few agents and I am familiar with several of these agents as foreclosure specialists. In fact, we’ve
sold some of these bank owned homes and the processes are highly routinized and efficient.
Short sales, however, appear to be taken by an agent who sees it as an opportunity for a listing,
but that doesn’t mean that they have any short sale experience.
Below is a profile of a cross section of homes that are advertised in the MLS as “short sale” homes.
There are several levels of short sale listings:
Bank Approved Short Sale
Approved Short Sale
Short Sale
Short Sale Opportunity
Possible Short Sale
We contacted a number of listing agents for these listings to determine the true picture.
Bank Approved Short Sale
We contacted 4 agents for homes advertising “bank approved short sale” and on only two has the seller
actually been in touch with the mortgage company. One agent thought that a short sale was automatic.
Approved Short Sale
Of the 5 agents we contacted, none of the homes had been “approved” and only one owner had presented
any contracts to the mortgage company, which was rejected.
Short Sale
The owner is behind in their payments. Make an offer and we’ll present it to the bank. No, the owner has not
contacted the bank. No, the owner cannot settle at the present list price.
financing quite hard.
Short Sale Opportunity
See “Short Sale” above.
Possible Short Sale
See “Short Sale” above
We contacted 17 listing agents selected at random. All were offering “short sale” in the Agent Comments.
Of the listing agents we spoke with, only one has closed a short sale, but it was as a selling agent, not a listing
agent. So, the experience level is quite low. Many did not understand that short sales are not automatic.
The list prices appeared to be a sum of what the owner owed, the real estate commission and some “walking
away” money. Clearly, the 5-10% by which market values have fallen in some of our areas have hit owner who
purchased 100%. Many of the homes offered as short sales are owned by real estate agents and brokers
and loan officers and the homes have never been occupied. These are real estate practitioners who purchased
at the peak of the market in late 2005 and, I found hard to believe, many in 2006.
ARE THE “SHORT SALES” SELLING??
There have been 21 closed sales of homes advertised as “short sales” in 2007. Clearly, additional homes
sold as short sales that may not have been advertised as such. However, 21 short sales is a very small
percentage of the numbers advertised as short sale opportunity with about 177 listed as of today. Most
of the homes that were advertised as short sales sold for list or slightly below. Short sale is not yet
a keystroke selection in listings. The information is in the Agent Comments. “Pre-foreclosure” is rarely
used.
It can be assumed that a number of the homes advertised as short sales are going to foreclosure, deed
in lieu of foreclosure, or the owner managed a work-out or refinanced.
PROBLEMS WITH SHORT SALES
The agents in the Homefinders network closed 3 short sales in the past 4 months. Of the 3 closed,
none were “bank approved”, “approved” prior to advertising the home as a short sale. We also wrote
2 additional contracts that were rejected and the buyers wouldn’t pay more than their original offer
which was woefully low, about than 50% of market value, a percentage that bargain hunting home buyers
love to offer. Short sales have been around forever and we don’t find that the procedures have changed
over the years. Some of the same old, same old.
Listing agents rarely know that the owner/seller is in default when they take the listing.
Short sales often occur when the title company contacts the bank for the seller pay-off.
Selling agents rarely understand that the bank must approve a short sale.
Buyers often believe that banks will sell homes far below what is owed.
Banks believe that buyers will always accept an offer that reduces their agent’s commission.
Listing agents believe that the bank dictates the commission to the buyer’s agent.
PREPARE YOUR BUYER FOR A SHORT SALE OFFER
Get your buyer pre-approved. If the buyer is pre-approved, the contract is completely in order with all
addenda, disclosures and notices completed when the contract is presented, the mortgage company or
bank will be much more receptive. If and when the bank counters the offer and presents additional
documents for the buyer to accept and sign, do it quickly. If the buyer needs legal advice, do it
quickly and if the attorney insists on editing the bank addenda, expect the bank to reject. The bank
addenda is prepared to protect the bank. Often a local title attorney is helpful in explaining the bank
addenda to the buyer if the agent is unable to do so. That is usually sufficient to give the buyer comfort
that the documents are for information. Of course, if an agent has experience with short sales,
they can usually explain the bank documents and get them signed quickly. I have found that when
an agent becomes overly cautious (suspicious) about bank documents, the agent doesn’t understand
and can’t explain to the buyer the meaning. This is also true of the listing agent who thought that
all they had to do was get an offer and send it to the bank and they’d get an answer quickly. There
are a number of understandings and documents that must be completed by the owner/seller to
prepare for acceptance/counter or rejection of a contract offer.
SHORT SALES AREN’T GOING TO GO AWAY, SO TRAINING WILL FOLLOW
Since there is no standardization of short sale procedures within the financial industry, I believe that
agents are taking these listings as opportunities for business because the market is so slow and
buyers are scarce. With the exception of the 50% buyers, few buyers have any understanding of
what short sale buying means and fewer have the patience to wait for the offer, counter offer process
which, in most cases, is much slower than a normal sale.
PROTECT YOUR COMMISSION
On one of our short sales closed, the bank did reduce the commission. The selling agent accepted
the reduced fee and listened to Lenn rant and rave about it for about 5 minutes. That sale took
5 months and the listing agent had no short sale experience. Another agent made a $400 broker
credit to the buyer in order to close which made sense. She had worked with that buyer who
had limited resources for 6 months. Lenn didn’t rant and rave because that credit went to the
buyer.
If a property is sold as a “short sale” or “possible short sale”, buyers agents must protect their
commission by refusing to reduce or modify your commission when the listing office requests,
which they quite often do. The listing broker is paying your commission. If they agree to reduce
the listing commission, fine. The listing broker still owes the commission offered in the MLS as a
co-op. There is no 50-50 rule. Agents who do not perform due diligence when researching a
potential listing can’t expect buyers agents to subsidize the listing office when the sale turns
into a short sale.
If the MLS listing states that the house is a short sale and the listing broker cannot make any
assurance that the co-op amount will be paid, unless the buyer’s agent is desperate and willing
to work for hand-outs, don’t show the property.
The new real estate cottage industry: SHORT SALE TRAINING
List Price Sold Price DOM
Bank Approved 369,000 230,000 279
Bank Approved 375,000 350,000 237
Approved Short Sale 499,000 520,000 228
Approved Short Sale 1,320,280 1,199,000 244
Possible Short Sale 421,666 490,000 250
Short Sale 310,000 310,000 167
Short Sale 424,000 415,000 160
Short Sale Opportunity 425,000 400,000 298
Short Sale Opportunity 383,000 485,000 93
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