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It's all in the state of mind...

Buying a new home is almost always a positive emotional experience. Selling a home though, can stir up complex emotions and negative feelings about leaving behind cherished memories and a sense of security. This is commonly true of even the most ambitious sellers who prepare for the decision months in advance... and are excited about the prospect of the change. Now, can you just imagine the emotional state of a distressed homeowner?!

I got a phone call yesterday regarding a letter I had sent to a homeowner in foreclosure...

We talked for a few minutes and went over some of the things he could do avoid the foreclosure, and try to keep the house. Quickly my list of options for saving the house were eliminated for one reason or another, and he asked me to meet with him today to list the house for sale.

When I got there, I presented him with closed comps the area from the last 6 months that would help him decide on a selling price... he didn't want to see them. He already had a price in his head before I got there based on an appraisal for a re-finance over a year ago, (re-fi appraisals always seem to come back higher than traditional purchase appraisals...). I tried to explain how using that number would be fine, but that it wasn't a good idea to inflate that estimate by $20K.

Not only do I imagine it won't sell at that price... but even if it did, I don't know of any bank will lend money $20K over the highest comp in the neighborhood unless the buyer pays the difference in cash. We are not seeing the same kind of appreciation in the market here in Plainfield, IL that we did a few years ago. Could it have happened in 2004, 2005, and even the first half of 2006, probably. But now?

He needed to see an equity sheet for the breakdown in the cost of selling his house. He needed to see exactly where he stood financially, in relation to how much he could realistically sell the house for. After doing the numbers based on where he stood today, the outlook was grim. He really does need to sell the house for much more than it is worth... just to break even.

I don't believe the house or the neighborhood warrant the asking price he needs to get... but I can't make him understand, what he doesn't want to see. He really needs to do a short sale on the mortgage just to get out from underneath it... the problem is, isn't really the owner of the property. The house is in his fathers name and he won't consent to a short sale because of the implications to his credit.

I was extremely frustrated by the experience, but none the less enlightened. I know this experience will make me be more prepared the next time I come across this situation. I need to develop my ability to overcome objections, especially when those objections are the very things keeping my clients in their current undesirable situation.

I will most likely not earn a commission for the listing on this house, and I'm okay with that... really. I know it will come back to me in some way... and because the process I went through to get it, taught me a valuable lesson...which may be payment enough for me!

How would you have handled this?

Posted by Julie Ferenzi on 03/11/2007 04:57 PM

Comments (33)

foreclosure, short sale, dealing with clients, appraisals, listing price

Post is included in group: Chicago Area Foreclosure Investors
Post is included in group: Consumer Foreclosure Help

33 Comments on It's all in the state of mind...

MAR

2007

Julie,

Some people are reasonable and listen to a professional and some will simply not. Some people, like your seller feel they can bank on information that they choose to believe in, not necessarily what is fact. I have learned over the years to just "Take the High" road and walk away. "Mr. Seller, I know you would like to get a higher price but the market simply does not support the price you would like to see. It is better that I did not list your home because if we over price it by $20K it will likely not get shown, you would be unhappy, and I would spend time and money on a transaction that will likely never take place". I have learned that walking away and spending time on clients that are realistic is much more profitable in the long run. Good luck to you.

Julie...

Personally I would not have taken this listing. Especially if you took it at the inflated price. Odds are you will not sell it. This will create even more hardship on the Seller. As well as false hope. There are just times in this business where you have to say NEXT. Although difficult, there's very little you can do when the Seller and other parties involved do not want to hear the truth. The truth here is that he owes more money than the house is worth in today's market. The Seller's best move would be to find a way to muddle through and sit on the house for awhile. I am not in your market, but that's how I would have handled it. I would also strongly urge the Seller to seek legal advise about his situation. I believe this listing is going to be riddled with problems. You may want to consider sitting down and talking to the Dad, as he will also be involved in this. It sounds to me like the Dad may not want the house sold?

TLW...ROAR!

An overpriced listing will eat you alive.

All things considered, I'd rather go fishing.

Julie, I think George and TLW said it for me. I wouldn't have taken such a listing. I did a few of these in the beginning of my career and they floundered on the market for months with no positive results. In the end, my sign in the yard for 6 months or more with no activity just made me look bad and ticked off the sellers. Not worth it. I wish you luck but each listing is always a learning experience. Thanks for sharing with us.

Julie, let me add to that, selling a home is a cooperative effort and it doesn't sound like your seller or his Dad want to cooperate with you to obtain the desired result. Without cooperation of all parties, the transaction is most likely doomed. Sorry, I hate to be such a doom & gloom guy on this but I truly believe that in order to build a successful business, there are times you have to say no, or NEXT as TLW pointed out.

Julie,

I am in Ca. and we are seeing these types of things regularly. In the last few months we have seen sellers get somewhat realistic in acknowledging that the prices have come down a little and they are beginning to listen a little more. I am thankful that most of my business are with friends or ref. and for the most part they will listen to what I have to say. The best I think we can do is just be upfront and honest even if they do not want to listen they will eventually come down or chase the market.

We are having these kinds of problems starting in South Florida now. It is good to remind the person in this position that it may be better to do a Short Sale and work with the bank. Short Sale will damage the credit about 60 points where a foreclosure can damage up to 200 points. Talk to your mortgage people to confirm this. You will truly be the trusted consultant when you are informed.

Julie- I feel for you. I just vowed to never again take an overpriced listing. Way too much stress and your chances of selling it are slim to none. You know the market better than your seller - go with your gut and walk away from the situation.

Julie, An overpriced listing rarely helps you, learn when to walk and when to talk.

More importantly you may be alright with not getting paid but do you offer a co-broke on the MLS? The buyers agent will expect payment. Not sure of the technicalities but if you specify a co-broke percentage the listing agency may be on the hook for payment if the seller comes up short... and chances are they would turn to you with their hand out.

Julie,

Not earning a commission is not the answer. You need to learn when to pick your battles other wise this business will eat you up. Some years ago my very first Broker made a statement to me that I did not like.

Indeed it still bothers me today. But the lesson wrapped inside is so true.

" Poor people have poor ways " We can't give our services away. We can only offer our expertise. That of course does not mean that we have to Gouge the seller or that we shouldn't be compassionate.

Julie:

Have to agree with the above - sometimes you have to learn to "just say no" and walk away. Taking on an overpriced listing that is heading for foreclosure, sounds like a lot of stress and no one will be happy. You or your client.

Sandra

Julie,

The only Statement I would like to make is the following:

1 - You did not create their Situation

2 - Foreclosure is a Process and they had months to avoid it

3 - It seems they are still not being realistic to their problems

Run do not walk away!

Julie,

The father will not consent to short sale due to the implications to his credit?

Guess what? a home about to go into foreclosure has already damaged his credit AND the damage will be much worse if the property actually goes through foreclosure.

Nothing is more frustrating than sellers using an outdated and over inflated appraisal. Some sellers have exactly in their head what they "want" to walk away with and they are just not interested in reality.

Sometimes you just have to walk away.

Good luck!

Julie,

You will learn when to walk away.

I've walked away from 'over priced' listings and very glad I have. All we can do as Realtors is tell the seller the truth about the market conditions, price according to the market and show them the comps. Like it or not....that's the market! It gives them food for thought and usually most sellers see the benefit of what you are saying if they truly are motivated to sell the house. Otherwise, forget it.

Patricia Aulson/Seacoast REALTOR/NH & ME

patricia4realestate.com

Not to beat a dead horse, but I took one of these just before Thanksgiving. I knew the seller in better times and he called and asked me to list his house and then dropped the F bomb as we were finishing up the paperwork.

I had to fire him, he would not cooperate with broker tour, video shoot, open houses, etc. Julie - don't let this one eat you up. Find a way out gracefully!

Have to agree with all the comments here. You can tell someone that you will do your best to sell their property for the best price the market will bear but that you won't lie to them and then let them decide which outcome they want. You can't possibly be a hero for everyone so chose the ones you can help and take a pass on those you can't. It's painful at times and it's never easy to see someone in need that you can't help but it's a fact of life. Good luck to you and I'd say you took away a valuable lesson from the experience.

YOU CAN SAVE THE CLIENTS CREDIT RATING!!!!

My wife and I did many short sales in the late 80's, and part of our focus was on maintaining our clients credit!! REMEMBER THE "ART" OF NEGOTIATION!! The bank does NOT want to foreclose!!! They want the non-performing asset OFF their balance sheet!

I am assuming with your post of the short sale, that the payments are late, and both borrower and mortgage company are facing the fact of foreclosure. This is a necessary element of doing a short sale!

Last time we dealt with short sales, the cost to the lender was 22% of the foreclosed value! Tell the lender the only way the borrower will agree to sell the asset, and GET THE LENDER out of their situation is to allow a Short Sale, with no negative credit reported AND (this is a big one) NOT to report the loss as a TAXABLE EVENT to the borrower!!! TAKE CONTROL of the situation. The lender is in the worst position!! They are the one that is about to loose a lot of money!!

TAXABLE EVENT!?!?! YES, if you borrow $200,000 to buy a home, and you agree to a short sale payoff of $150,000, this COULD create a $50,000 INCOME to the borrower (we learned this lesson the hard way with one of our clients, we thought we helped, only to have the IRS later slapping liens on the family)

AS FOR WHAT YOU SHOULD DO in this situation - Your listing appointment should have been with or at least involved the FATHER!! Someone WILL sell this home, and it will be the one that DAD talks to!!!

CALL DAD!!! He is clearly making the decision

Thank you all for your input!!!

You have all helped me make a very wise decision. The listing is not active at this point since I am waiting on some papers to be signed. If I were speaking to, or had a way of contacting the father directly, it would be a different story. He would be motivated to sell, whereas his son is not... he's only trying to buy some time. I'll try to gracefully let him know that it's not going to beneficial for either of us to hold on to a listing without any hope of actually being able to sell the house.

Thanks again!

Julie, if you've already taken the listing I guess you've got to make the most of it. Keep dialoging with the seller (and Dad if possible). Hopefully the listing will at least bring you some new buyer business from sign calls - maybe that will make up for a lost commission on a no-sale listing.

I too would walk away. I don't know what you expect to learn from this. It sounds like a losing proposition. This is a business and we need to concentrate on the possible and the doable. It sounds like even if you sell the property there will be no commission. I don't think my broker would allow this deal.

Julie, when you go speak to the client to let him know that you're not going to do this with the inflated price, please let us know how he responds. Why can't you get to the father?

I don't know why it is so hard for some people to see what sometimes seems so obvious. If you could sell the house for the additional 20K, you surely would. You would make more money! In this case, you probably won't sell the house and the seller will most likely lose the house. Now what implications will the father's credit suffer. Good luck.

Great market niche to be in right now Julie.

I disagree in regards to the overpriced listing. I have had my share of 'em....everyone has. The whole point of the listing is to stick your sign in the yard..I had a dead listing for 12 mos, but guess what...of the 50+ sign calls I received (who laughed at the price of this particular home)I sold 7 buyers a home and listed 4 more properties that did sell...

Stay in front of the public and your career will blossom quickly.

Those who list, LAST!!

If you should have any clients moving to Phoenix please send them my way..www.kristareising.com

Julie - Sounds like quite the situation there. Overpriced listings can be a blessing or a curse,it just depends on how you handle and advertise it.

MAR

2007

Julie - Well, good luck. Might have been better to say "Mr. Seller I would rather disappoint you now (not take the listing) than disappoint your later (not selling)." If it doesn't sell and he won't do a short sale, it sounds like he will end up with the foreclosure anyhow. And that will be worse for the credit. Why can't you sit down with the father too? And didn't he need to sign the listing agreement since he is the owner? He might want to chat with his CPA too.

Jeff

I think sitting with the seller and his Dad is necessary and make them understand that if together they have no alternatives to losing the home that they will have no other choice but to work with the bank towards a short sale. A short sale will not affect their credit. But a Foreclosure will affect the credit of both and that is an option they do not want. If you over price it and it sits on the market to long you will lose all interest of an potential buyers. Then it may be to late to do the short sale. This seller and his Dad need to make a reasonable decision and they need to make it soon.

I totally understand Krista's take on this and have seen several agents in my area do this but is it ethical to use the sellers property simply as advertisement, giving them false hope and knowing in your heart that you'll never sell their house, meanwhile milking them for more buyers & sellers in the process?

MAR

2007

Julie:

You can work anywhere for anyone for free. Why work free for this seller? It was hard for me to say no at the beginning. But the more I learned to say no when it was necessary, the easier it became. Julie, Just Say No. :-)

UPDATE....

I thougth about this a lot... quite a few days in fact. I ulitmately decided to contact the seller and refered him to a company that charges a fee for listing the house on the MLS.

I did my best to explain why I couldn't justify listing the house so high, and the implications of not being able to get the listing closed because of an appraisal. In the end, he was probably just as relieved as I was. It seemed to be a bit of a power struggle in the end.

I'm going to be posting about this in a separate post later tonight. I just thought I'd share the ending of the story with you.

Thanks again! You all helped me make a great decision!

~Julie

Julie, I'm so glad to hear it's working out for you. It's never an easy decision to make but it sounds like you've made the right one for both you and the seller. What better example of truly looking out for your clients could you use the next time you go on a listing appointment? I'm looking forward to reading your followup post.

Great post, Julie. Blog about what you know, both as a buyer and seller and as an agent. You've learned why you need to be talking to the principal (the Dad) and decision maker. Also, when you know the property won't sell and appraise, don't waste your money or your time, turn down the listing. You learned some lessons from the preparation and presentation - you don't need to keep suffering through the listing.

MAR

2007

Julie

I am an investor and auctioneer in Maryland and I have problem situations like this all the time. I could write many words on this type of deal, but for now, I will address how the son of the owner can turn this deal around:

You mentioned "short sale", good idea, but too much paper work and it could be a negative to the owner. I would suggest making an offer to purchase the mortgage at the same discount the short sale would yield.

Make a fee by having an agreement between you and the son (consultant agreement) for an acceptable fee. Your service as a consultant would be to make the offer through a title company or lawyer to purchase the mortgage.

Let's say the defaulted mortgage is $100,000 and the bank would accept $75,000, make the offer to the bank through a third party for the assignment of the mortgage to take place within 30 days (to do title work).

Have the son 1. place that amount in escrow to buy the mortgage, 2. list the property on the market at the market value.

Sell it at market value and the son still gets higher than value due to the discount of the existing mortgage form the mortgagee. Oh, you will also get a commission for selling it. But make sure you get a fee for puttig this deal together.

This may sound complicated, but it really is not.

Charles Parrish www.CharlesParrish.com

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