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Is Your MLS Behind the 8 Ball When It Comes to Short Sales?

Is your local MLS behind the eight(8) ball when it comes to Short Sales?

Mine is and here is why!!

According to my local MLS, all signed contract between buyer and seller must be shown as “Under Contract”.

Here is the problem. Short Sales are not your typical sales between buyer and seller.

Short Sales are contingent upon the “Approval” from a third party “The Bank”. This “Approval” can often take between 3 -4 months.

So what does this mean for the Seller. It means taking the property off the market for 3-4 months, getting fewer showings and this can affect the outcome of a Short Sale.

In my opinion I think my MLS board is behind the 8 ball when it comes to understanding how Short Sales work. In Short Sales your orginal buyer often is not your final buyer but if you take it off the market in order to comply with the board rules you are missing crucial marketing time for the property.

I wish the MLS would change the rules or modify the rules when dealing with Short Sales because as a Listing broker my fudiciary relationhip is with the Seller, not the bank. And as a Listing Broker I want the bank to approve a short sale for my seller.

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Posted by Jack Lewitz on 07/16/2009 08:11 PM

Comments (27)

MLS and Short Sales in the Online Marketing Channel

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27 Comments on Is Your MLS Behind the 8 Ball When It Comes to Short Sales?

JUL

You are right about this and it causes confusion. There should be something to add to indicate offers or pending review

Our MLS requires "Pending subject lender approval" in our county in California.

The contract is between the seller and buyer. The short sale lender is only approving the terms of their payoff...really nothing more than that. Whatever the principals negotiate should be the guide for the transaction. A short sale with an accepted offer, is actually a pending offer but that status is handled in many different ways around the country. For our area, we are required by our MLS to go short sale contingent. If buyers and seller's negotiate it - we have even seen them go pending. There are issues and concerns with each catagory, we have had good success with our sellers/buyers whichever way they choose to go.

JUL

It's hard to say whether an MLS is behind the eight ball by:

Mandating pending sale status...thereby discouraging further offers -- to the possible detriment of both seller and lender.

Mandating keeping the house listed as active... to the potential detriment of the buyer.

Our clients are not the lenders...though sometimes it seems that way.

On the other hand: the seller has actually entered into a sale agreement which he cannot perform...without lender approval.

We're required to place any listing in either Active-Contingent or Pending Status, within 24 hours of having an accepted contract. That applies to short sales, too. Fortunately, a lot of agents are understanding short sales around here, so they know that a Short Sale listing with a Contract doesn't mean it's a done deal, so their buyers will still submit an offer. And, in most cases, if their offer is better, it could kick out the other offer, if the 1st position buyer doesn't to compete. Our Short Sale Addendum basically states that the seller must notify the buyer if they intend to submit any backup offers, alongside theirs.

For me, I WANT to know if there's an accepted offer on a listing. Saves me a lot of time.

Our MLS is so far removed from reality. They're hoping that this is a short-term phenomenon so they don't have to modify their system. We can't even search for short sales without creating a custom search in the agent remarks for the term "short sale". Their argument is that it's not a short sale until approved by the lender, so they don't want a category for it. How about "potential short sale"?

Additionally, the practice among Atlanta agents seems to be to leave all short sales active even if there are a couple contracts on the home, simply because there is not a good Contingency - Short Sale Approval status category. I can't blame them as you don't really want the house going off the market when you don't know when the first buyer will lose patience and decide to walk-away. However, this has created a bloated inventory number and a nightmare in terms of determining what homes are and are not really available.

Our go pending with contingency, not stated what the contingency may be, same as any other sales. It could be financing or inspection etc. But they are listed as a Short Sale on the MLS - so there is a heads up as to what you are dealing with.

Our MLS has a "contingent" option, which is nice for exactly this reason. The home may or may not continue to be available for showings and/or offers, but that is left up to the seller, not the MLS. This allows for continued marketing.

In the Triangle area of North Carolina, the sale is shown as Contingent in the MLS. You can explain the contingency in the Agent Only notes. You are right that this decreases the showings, as most agents search only for properties that are Active (i.e. for sale without a contingency). This does give the first buyer to make an offer some respect for getting there first.

In North Carolina, the seller signs the first offer and submit it to the bank. If you get subsequent offers that are better, the seller may sign it with a Back Up Addendum to make it effective only if the first offer is terminated. The North Carolina Real Estate Commission requires that Realtors disclose these better back up offers to the lender. It is only polite to call the agent for the first offer and let them know that there is another offer (but you cannot tell them the terms). Any good agent will know that the other offer is better, otherwise you would not be calling. So, you give the first agent an opportunity to improve their offer, which is permissible under the terms of the Back Up Offer Addendum. If the back up offer is still better, the lender can reject the first offer and accept the second offer. As you can tell, I teach a class approved by the North Carolina Real Estate Commission on short sales, and I do a lot of them, with my first one in 1992.

Once the bank approves an offer, this problem is over. You have a non-contingent contract.

I maintain a free website that is an encyclopedia of information on short sales at www.CreateAShortSale.com., or agents can buy my book Create A Short Sale. I am on a mission to get more Realtors to do short sales so we can avoid more foreclosures, have a better result for the banks, help the sellers out of trouble and preserve neighborhood values. So, thank you for doing short sales.

In New Mexico we have a new short sale addendum that states the seller can continue to market the property and accept offers until here is bank approval. However, I still think if a buyer presents an offer with earnest money to a seller and the seller signs it that the property should be placed in pending status. However, if the bank is going to take so long to get back to the buyer and they are probably going to walk anyway why make the property unavailable, it's just going to make the house impossible to sell, and that's certainly not in my seller's best interest.

In AZ, it depends on how the listing agent and seller deal with the offer. If they sign the offer and send it to the bank, it is supposed to be changed to "Active with Contract" However if the listing agent doesn't have the seller sign the contract and wants to accumulate multiple offers, it remains active. It doesn't go pending until you have an acceptance letter back from the bank and open escrow.

When I show properties I call the listing agents and "interview" them. If they don't know what they are doing in terms of the short sale or are collecting offers, we don't see the property. Too many of these agents are flying by the seat of their pants and it's hurting everyone involved. I have one buyer who insisted on putting an offer in on a short sale property because the listing agent PROMISED an answer within 2 weeks. I counseled my clients that would not happen and guess what 2 months later, we are still waiting. They loved the house and hopefully it will work out in the end, but they keep coming back to me....."it's been more than 2 weeks!" My response, laughingly of course....."told you so!"

We have a comment. Pending subject to approval of lender. This covers it pretty well. The biggest problem is people not updating the MLS.

Hello - aren't you in my MLS? We have the SS for short sale contingency now and a bunch of others for all these wacky scenarios. CONT turned out to be too broad a brush for all these different circumstances. Bone up on the rules, because they are there to make your life easier.

I actually prefer our SS contingency so I know when I'm working with buyers that we would most likely be a back-up offer and we can plan accordingly. On my current short sale listing I have educated my seller to continue showing her home, which she balked at in the beginning (this is taking an emotional toll on her). She has gotten over that hurdle and we're still getting calls on the home from my sign and online marketing.

Jack:

I couldn't disagree with you more. If the seller has accepted an offer it is an accepted offer. Between one seller and one buyer that is contingent on the lender approving the sale. Whether the mls mandates contingent, as my mls does, or pending. If that buyer backs out you can encourage other offers or submit a back up offer. I have a 100% success rate keeping my fiduciary duty to my seller and staying loyal to one buyer in a short sale.

There is no reason to do it any other way. Honest and ethical. What agents tend to forget is a even in a regular sale a buyer can back out and often does. The property still is changed to pending during the contingency period and then comes back on active if buyer backs out. Short sales should be no different.

I find buyers in San Diego don't stay loyal because listing agents play games trying to get more offers and bump the current buyer out which is not only unethical but a violation of contract law. If the buyer knows that he is the only one in line for the home, they normally will stay loyal to the property however long it takes. If the buyer doesn't take a back up offer and move on.

It San Diego, the problem is still agents who do not update the mls and also don't answer their phones or return emails. Very frustrating............................

I must say I have stirred up a lot of interest here and find I must respond to some people. As we can see from comments not all MLS boards have the same rules regarding Short Sales.

In response to Lyn Sims, I do see we have a SS contingency status and that is moving in the right direction but there many levels of contingency status during a short sale that is not explained here. How about SS contingent- lender approval needed, SS contingent- back up offers only, or a variety of other options. My point is that when you put a Short sale as contingent no matter what it will reduce showings and that is a fact. So we have to think about that a little more for the seller.

Also I must take acception to the comment by Kristi Gonzalez. I feel your comment was a little hostile and to imply an agent is unethical or dishonest is out of line.

In our MLS, we have the option of either listing it as a pending sale, or making a comment in the private remarks that there are offer(s) accepted subject to negotiation with the seller's lender. I prefer the latter when I am the listing Broker, I feel that is is a disservice to the seller to pull the property off of the market for who knows how long to negotiate with their lender.

Our MLS finally got around to changing things so short sale escrows are marked "Contingent".

Our MLS says that when there is a contract between the parties, the status should change from ACTIVE.

I get inquiries every day for properties that say ACTIVE. The first sentance in the REMARKS is often, CONTRACT ACCEPTED. LOOKING FOR BACK UPS.

We have a status for that, CONT/BU.

Until the MLS enforces the rule, the agents will leave the properties ACTIVE.

Our board has ruled that short sales should be changed to contingent contract when an offer is accepted by the seller. However, none of the agents do it and the board does not enforce it due to significant protest from the listing brokers.

Most agents use a contract addendum and disclosure stating both buyer and seller agree to leave the listing in "Active" status and that additional offers will be submitted to the lender. I do not know if the contract addendum signed by buyer and seller will trump the MLS rule or not, but some brokers are willing to take it to arbitration or court if push comes to shove.

The big issue is that the Foreclosure Clock is ticking away. Anyone hoping for a short sale to avoid a foreclosure deserves every chance to get an acceptable offer before it is too late. Taking the listing out of "Active" status for a low offer could result in the clock running out by the time the bank comes back with a "NO".

Many agents will advise their seller client to accept a low offer in order to get the short sale process started. They know the offer won't be accepted but they will have a package reviewed and a negotiator assigned making it quicker when they get a subsequent offer. In the meantime it remains active and they actively market it hoping for a better offer.

Some agents advise their seller clients to counter low offers with something they think the lender may accept based on comps or their own BPO. That way if they're forced to take it out of "Active" status they won't be wasting time on low ballers that go nowwhere slowly.

I've been doing short sales as a private investor for several years. Prior to 2008 I never met an agent who knew what a short was much less how to process one. The Realtor "Short Sale" is relatively knew to most agents, brokers and boards and we will naturally go through a learning curve trying to determine what is best for everyone involved.

For now, my humble opinion is that we should leave the listing in "Active" status with "Full Disclosure" as that is what gives the seller the greatest chance of avoiding foreclosure and minimizing any deficiency judgments or tax consequences.

It is very difficult to get an offer on a short sale in our market as most agents and many buyers don't want to it wait 60 to 90 days to get an answer (or get paid). Until the buyer's agents start showing and promoting short sales as much as they do the REO's and conventional sales we need every opportunity possible to sell our short sales.

Mark it pending=Serve the buyer. Don't mark it pending=Serve the seller. However, the COE must be adhered to. Honesty in all dealings. That would seem to demand that the precise status of the listing must be clearly and unmistakeably revealed.

Hi Jack, thanks for sharing. very informative blog!

JUL

We have the option to put ours under backup or pending. Backup means we're still looking for backup offers.

I agree it would be nice to have another option.

JUL

I would agree with most of you....an offer is made and a seller accepts the offer subject to bank approval....the house is now pending. If you are going to keep accepting offers on a house that has already had a ratified contract, I wouldn't think you would be taking earnest money deposits. Sounds more like a loosely run auction than a real estate transaction.

I in fact agree with Kristi Gonzalez and don't see where anything she said was out of line. I think that more REALTORS need to get serious about the business and learn how to deal with short sales.

JUL

I have a lot of issues with my mls so much so that I'm thinking of running for the board.

JUL

I don't think there's a problem with our MLS as much as there's a problem with agents not being accurate. Here, we're required to disclose short sale and contract pending, but many just don't do either. Many also state more bedrooms than there are, and incorrectly enter info about garages, square footage, and basements.

AUG

The contract is between the buyer and the seller, not the bank...the properties should change to under contract accepting back ups...Lenn is absolutely correct. Leaving a property in ACTIVE status is a waste of time as an agent has to call to see if the property is actually under contract. The seller can't ratify two contracts when they have already ratified the first one and sent it the bank...This needs to be changed and MLS needs to enforce this.

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