All that appears short....is not a short sale......

John - so true! Agents can't agree on what is a Short Sale, so we see everything in the MLS. Did they pick a list price out of the wind? Sometimes. When we met with a seller that we determined would need a short sale, we referred it out to an agent who is current on that - we shouldn't try to handle something for which we don't have the knowledge and expertise. I warn buyers  that if they want to look at "short sales" it's like the old Wild West - no rules, no standards, lots of waiting with no assurances.

John-I agree. Negotiations with the Lender should be done in advance regarding price and Seller's pre-approval for a short sale. The Seller needs to prove to the Lender that they have no savings, no investments, no IRA's, "no assets"; just barely making it. Also, as you say, price needs to be discussed. I have seen some short sales coming out to the open market at 50% of the price they sold for.  Those short sales are not going to fly. Lenders are sophisticated and they want to get as much as they can of their money. If price and Seller's approval have not been taken out of the way then all offers could be an exercise in futility.  

 

Isaac Bensussen www.besthomesinlajolla.com

 

 

Good Piece. It would be smart to iinitiate some policies now so in or around 2032 when our next real estate recession hits we'll have everything in place to remedy the imperfections with the process.

It's only a short sale if the bank has pre approved this status and agrees to look at offers. Conversely, one dollar under the current loan amount is "short", it doesn't have to be a significant loss to classify it as such.

I love seeking equity opportunities for my buyers but for the past two weeks have been dealing with a listing agent wholly unqualified to represent the property properly. My clients and I feel the listing's representation is actually forcing seller to lose his home by not communicating with us.

Win-Win counts!

 

 

Great post, we are at least one company that is trying to help create these standards.  The CDPE Designation shows agents the correct way to list, maintain, negotiate and close these deals.

Alex Charfen
www.1cdpe.com

 

If folks understand how short sales work and have the patience and ability to counsel the buyers and sellers, if they meet short sale qualification, they are not a problem. 

I've added two short sale listing brokers to my network in the past week.  I've added 3 short sale agents to my network in the past week.  I've dropped two agents from the network.  One of these brokers closed 17 of my referrals last year.  However, his bias towards short sales and foreclosures now disqualifies him because of the nature of the buyers contacting me for help. 

The REALTOR COE clearly states that agents should limit their practice to their areas of expertise.  If agents have no expertise with short sales, they should not be accepting buyer and seller listings for these properties.  For listing agents it's easy, they simply don't get involved.  For buyer's agents it's more difficult because we can't eliminate short sales or foreclosures from consideration for our buyer clients to purchase.  While short sales and foreclosures are a small percentage of overall listings, they are concentrated in the lower and first time buyer range.  These buyers are who are now coming back in to the market. 

Brokers have to take the responsibility to train their agents in these matters. 

Thank you for the great post which in a nutshell expresses what I have been feeling since I first heard of short sales. I haven't gotten onto the bandwagon to represent or seek out short sales. I personally do not have enough knowledge about how it works to feel comfortable representing either side of the deal. If I do have a buyer come along that decides on a short sale property then I would like basic guidelines in place. I'm an information person, give me the details and I will learn them. Otherwise I can't represent my client's best interest.

SInce I was the first comment on this I'd like to come back around again after reading all the comments.  We've had quite a bit of education in our company regarding short sales and very few agents show up.  Yet many of them have short sale listings. 

We have our seller ready to go with the hardship package from the lender completed.  We have names of who we have talked to at the lender who have advised us on how to proceed.  We are far more ready to go than some short sales I have attempted to offer on.  How fast will the bank respond is the true unknown.  How fast will they order the BPO or apprisial is unknown.  You would think they would rather answer our contract than let a home go to foreclosure but maybe they like owning a depreciating assest.  Who knows.

This is a complicated situation that takes the agents, the lenders and the seller to work together to get to the settlement table. 

Great points.  I've dealt with some sellers who want to short their home because it's upside down, but they haven't missed a payment and are in good financial standing. 

If there were some National Guideline across the board that had to be adhered to, that would be great.  Unfortunately, every lending institution is different.  They are the ones that really need the guidelines/regulations which in turn make the transactions run a lot smoother and hopefully quicker for all parties involved. 

You can't read this and continue to have the questions many are having about short sales.

I do understand the frustration written here concerning short sales. I had one recently (Nov,07) that went rather smoothly. It's all in how the bank will handle it. It's pretty much out of the seller's hands.

John....great post.  You bring out some very valid points.  We have agents in our area listing short sales 200K below market.  It is really teeing people off.  rules and guidelines would be great.

Due to the confusion in this arena there are many agents who refuse to do short sales. I do them but am at a loss to find good plausible advice other than stressing to the sellers and potential buyers that they are in for a waiting game, and wall of silence. These matters are best handled by the extremely persistent and patient.

I agree. Some sort of standard procedures and training would be helpful.  I think the main problem is that a lot of people don't understand short sales. 

There are two problems here.

Problem 1 - Agents who do not know what they are doing are taking on short sales when they shouldn't. One of the problems is the lack of training in these areas. In some cases this is due to an UNWILLINGNESS on the part of experienced brokers to pass along their knowledge to anyone new because why should they train someone to compete with them. Those who venture into this area may indeed have to be self-taught or take what little they learned in a USELESS class and attempt to apply it.  That's scary, but experienced agents in this area should not be attempting to hog it all for themselves. 

Problem 2 - The banks are no longer the bank down the street that would deal directly with agents and work out something that makes sense.  Even experienced agents and brokers are getting a brick wall of silence.  This is often becuase it is very hard to find someone who has the actual authority to MAKE A DECISION that involves a LOSS.  At least that is what I am getting from people who do short sales now - and have a history of doing them in the past.  In other words, there has been a quantum shift in how the banks are functioning - and it is totally dysfunctional!  This makes an orderly short sale impossible - and that brings us right back to where you started, J Mac...you wanted some rules and regulations, but if no one will answer the phone, that's not going to be possible. 

Now, I know I'm not saying anything unique here. I'm just saying that there are two issues being batted around and that both are factors that need to be addressed. 

  

I have done about 4 short sales in the last 6-7 months in Howard, Anne Arundel, & Carroll County, and have 3 more listed (one of those under contract).  I learned the basics from a short sale coach who is also a practicing Realtor in Oregon - so she had no problem teaching me since we are in different markets -- on opposite sides of the country!  The rest of it I have learned as I go - with advice from my coach as I moved along.  With a few of these deals under my belt (only one has gone to foreclosure), I would say I have a very good grasp on what it takes to get a short sale done.

For the most part, the banks all need the same information as part of the "short sale package" (hardship letter, borrowers financial statements, last 2 paystubs, last 2 yrs of tax returns, last 2 months of bank statements, etc, and MOST important, an offer from a pre-approved buyer).  All the banks I have dealt with want the entire package all together.  None of the banks I have dealt with will even let me speak with a negotiator until I have submitted the FULL short sale package.  So, basically, I cannot speak with a negotiator on how much they will accept, until we have an offer.  Believe me, I have tried to get to a negotiator without an offer, but to no avail.  I am starting to build a database of different negotiators with each bank - maybe that will help get to a decision maker quicker in the future - who knows.

Of course, to get an offer, we need to list the property.  We list a lttle under market value, but not so low where the bank will not accept the offer.  (I have heard strategies of listing at 50-60% of market value and generating a bidding war.  I dont know if that strategy works first hand, but our strategy seems to be working, so we will continue with that.)  In my experience, banks will accept a little less than market value - 5 to 10% - more if the property is in bad condition.

One of the biggest challenge in getting the deal done is keeping the buyer to hang on while the short sale package goes through the loooooonnngg process of getting through the banks system where they can actaully make a decision.  Some banks are more efficient than others.  I have had the short sale package get to a negotiator as quickly as 48 hours, or sometimes as long as 30 days.  Then once it gets to a negotiator, it could be 30-90 days before a decision is made - again depending on the bank.  I have noticed the larger banks take longer - I think because they have so many short sales they need to process and a limited number of negotiators to handle them.  One deal I recently closed on was passed along to several different negotiators within the bank - not because it was going up some chain of command, but because the previous negotiator was so overwhelmed, they could no longer handle their work load.  That buyer ended up walking, but we got another buyer pretty quickly and since the first offer was already working its way through the banks process, we did not have to resubmit everything - I was able to replace the new offer with the first offer - and the deal settled within 1 month of receiving the new offer.

Now I stress to any buyers who want to write offers on a short sale listing (whether it's mine or another agents), that they will need to be patient.  If they can be patient, sometimes waiting up to 4 months to get to settlement, they can get a good deal on a home.  If a buyer MUST settle in 30-60 days, putting in an offer on a short sale is probably not a good idea.

With short sales (as is the case in traditional real estate sales) each deal presents a new set of challenges and opportunities to learn. 

I was already think about my comment until I read your last line...That's it, simply.  I think the best way is to advertise a 'possible short-sale', with all of the lender requirements.  It's tough, though because at some point in time the negotiation process gets muddied by this admission.  What does a buyer have to lose with a lowball?  And who knows what possible repercussions are in store for the seller if the lender decides to pursue their loss?  How do you explain away the 7-10 day response time on the offer?  You just have to be honest...

Good answer above from Matt Fein.

Isaac Bensussen www.besthomesinlajolla.com