Attn: Distressed Homeowners & Listing Agents: BEWARE OF THE NEGOTIATOR/INVESTOR!
Attn: Distressed Homeowners & Listing Agents: BEWARE OF THE NEGOTIATOR/INVESTOR!
If you are a Real Estate Agent who specializes in helping homeowners avoid foreclosure through short-selling their home, you've undoubtedly received phone calls from investors. Usually, the conversation starts off with the caller asking for details about the home (i.e. price, any offers yet, etc.). Eventually, they get to what I call their "punch-line", and it goes something like this...
"I'd like to make an offer on your listing, but, I must tell you that it will be well below what you have the home listed for. You see, I know that the lender does not want that home back, and I think they will accept our offer. I know that you are asking $300,000, but I'd like to come with an offer at $200,000, and allow my experienced team of short sale negotiators (usually they say they are attorneys) handle the negotiations for your client. We will tie the property up with an "option", and while we are in negotiations with the lender(s), you can re-list the property and we will pay you a 3% commission for closing on it the day we close (simultaneous close). So, in essence, you will double your commission on this deal, we will handle all of the negotiations so you can go out and "do what you do best" (I love that line) and go get more listings. It's a win-win situation for you, your clients, and our firm."
Sometimes, they even have the guts to ask for a cut of the commission.
My response is very short and to the point....
"Thanks but no thanks. When I accept a listing, I'm agreeing to look out for the best interests of my clients. If I were to take your offer, I'd stand a very good chance of ending up in court and/or losing my Broker's license".
Their typical response is, "No way you'll end up in court. We DISCLOSE EVERYTHING TO ALL PARTIES INVOLVED".
I then say, "Well that's great. I'm glad to see that you have covered your butts. Now what about me? These are the questions agents need to ask themselves before being lured by the almighty dollar:
What happens when my client gets a 1099A or 1099C at the end of the year, and asks me if his/her deficiency would have been less had we sold the home for market value as a short sale?
What happens when the lender sues my client for a deficiency judgement, and his deficiency would have been less had we sold the home for market value as a short sale?
What happens if the home goes to foreclosure because a ridiculously low offer has caused the banks to delay even further? Usually, these negotiator/investors request multiple BPO's in order to hopefully get lucky and get one at a lower price.
Last but not least, let's say you have the home listed at $300,000, and FMV is $275,000. What happens when the lender counters the investor offer at $275,000? The investor knows that he is not going to make much, if any profit buying it at market value. He now has the OPTION to either allow the home to go to foreclosure, or close on the home. In other words, he now controls the destiny of your client's home. Nice huh?
Now, let's say they lose the house to foreclosure. Imagine standing in front of a judge and explaining to him why you felt you were looking out for your client by recommending they use these clowns. Your client will not only lose the ability purchase another home for 5-7 years, but you have also just cost them a 200+ point hit to their credit report, and their current/future employability could be affected as well due to the foreclosure being on their credit report. For some, foreclosure forces a bankruptcy. Great things to have on your conscience, huh?
Now, let's say you get lucky and the short sale goes through. Congratulations! You've just made a boat-load of money for your new found investor friend, you have doubled your commission, and some lucky soul has purchased the home of his/her dreams. Two weeks later, when your client moves out and finds a new place to live, he looks in the newspaper and sees that his "buyer" made $50,000 by simply flipping his home to someone else. I bet he can't wait to refer you to his friends, family members, co-workers, etc. I could here him/her now..."You really need to call this guy if you are getting ready to lose your home. Look at how he was able to help me avoid foreclosure, and he still helped someone else flip my home to another buyer for a handsome profit! What a great guy"!
Three days ago, I was interviewed by the local news station on this topic. I actually wrote a blog that includes the interview, and you can view it here.
Good to see that the FBI is catching on.
Like I've said before, short sales are a contact sport. If you don't want to do the work yourself and/or you don't have experience with short sales, stay away from them. I pride myself on negotiating on my client's behalf in order to help them avoid foreclosure, and my skills have led to an average referral rate of 1.5 referrals/client.
Agents who jump in with negotiators/investors that employ these tactics are asking for two things:
1. The use of their E&O Insurance Policy (make sure it's up-to-date)
2. No referral business
If you're in this business for the long-haul, stay away from these "get rich quick" schemes, and focus on building your business by helping your clients through these difficult times. Experience tells me that helping someone through a difficult situation such as avoiding foreclosure has led to a very healthy referral based business, of which I am very proud.
Bob Hertzog
Bob Hertzog
Designated Broker-Summit Home Consultants 2009:
95% Success Rate Closing Short Sales
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