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Reality Check #6: For Agents who list Short Sales

By Adriana West

Real Estate Agent with Home Expo Gallery, LLC (Keller Williams)

December 30, 2008 02:06 PM

Before the end of the year, I wanted to finish my Reality Check series. I think I have VERY GOOD NEWS for the new year!.

But I think it important to make a remark about the responses I've received from this series - like Gene Allen: "Seems like everyone will be a short sale expert by the time all this is said and done."

Ladies and Gentlemen, I have to say that there are very FEW experts in short sales in this market. Recently I have come across several agents who think they know short sales, such as the case of one of my Alpharetta Short Sales. The client was referred to me by an agent in Illinois. Her ‘strategy' was to list the property for 10% below the cheapest in the subdivision, and lower it 5-10,000 every week.

Another case is one I ran across yesterday. I was looking for a condominium for my buyer in Atlanta. I found a Short Sale for $20,000 below the foreclosures that sold in the same building, and that agent proudly commented that she had multiple offers on the property.

OK, so you are all going to ask me: And what does it matter? For me, a lot. The mentality of many agents that start working in Short Sales is to reduce the price of the property, without studying the area and the subdivision to have a clear idea of how much the lender will be likely to accept in an offer. Since they do not do this homework, their idea is to get the most offers under that percentage, send them to the lender, and the buyer waits for a month or two without a response thinking that the lender is going to accept it. When the lender comes back with a counter for more than the listing price of the property, the buyer is so involved in the transaction that he'll accept the increased price.

If I were the buyer, making an offer for the listing price, and after two months I am told to accept a price higher than the listing price, I would not buy that property. Why? Because I would feel like I was being scammed. Nor would I ever work again with the Agent "representing" me, the one who involved me in this transaction.

If I as the buyer have the option to choose between several equal properties (such as a cluster home, townhouse, or condo) on the market, and I have to wait for months only to have the price increased on me, I would rather buy one of the foreclosures where I don't have to wait for months for a transaction that is never going to happen.

Now: do you think the agent that listed the Short Sale was really helping their client? Acting in their best interest? How many of these offers have a realistic chance to work? Lenders pay for appraisals and BPOS, and if the numbers do not make sense, they foreclose anyway.

Negotiators have way too much work to review all the offers submitted by agents who follow this shotgun strategy - especially when those offers do not make sense. It is difficult to sell Short Sales, and these kind of agents are not helping the market at all.

Let me know your opinions, now that we know we are going to all be experts... Or maybe just a little more realistic about the market, lenders, and short sales.

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Kent Simpson

Realty One Group Mountain Desert - Tucson, AZ

Real Estate Is About People

It all comes down to those who care enough to do the necessary work when listing property, doesn't it? Short sale, foreclosure or straight resale...if you just want to stick a sign in a yard & call yourself an "expert" it is time to hit the mall for a job!

Dec 30, 2008 02:22 PM

Myra Jensen

BRIX Real Estate - Minneapolis, MN

MN Luxury & Lake Homes - www.LuxHomesMN.com

I totally agree. These artificial prices are devastating to the sellers who are not in foreclosure as well, they can't compete with these listings. And the buyers, once burned on an artificially priced property, still use it to compare other homes with, so it is difficult to help them find another, realistically priced home.

Jan 01, 2009 10:50 AM

Anonymous

Loran Johnson, Jr Realtor WPI/ Cape Fear Real Estate Solutions

Remember the question to the bank robber, why do you rob banks? The robber answered, that's where the money is. In today's market place, REO's and Short Sales have become a larger and larger percentage of overall sales. Entering the REO listing side of the market has traditionally been hard to break into, so realtors who want to survive, have been forced to seriously consider doing short sales. After a 4 hour continuing education class on Short Sales taught by instructors with little or no hands on experience, the realtor is now a self professsed "Short Sale Expert". As a realtor, listing, negotiating and ,yes, actually closing over 35 short sales over the past two years, I can say that I know enough to be dangerous on the subject of Short Sales.

In order to do what is in the seller's best interest in this type of transaction it is crucial that the new "Expert" seek the help of an experienced Short Sale realtor. Although Short Sales are by no means rocket science, they do require patience, persisitence and specialized knowledge. One screw up could result in a foreclosure for the seller, which is not a good thing. Bottom line , get help, even if you have to give up some of your commission. Remember, saving a seller from foreclosure will get you a client for life and help stabilize your real estate market.

Loran Johnson, Jr Realtor WPI/Cape Fear Real Estate Solutions

www.wpicapefear.com

www.wilmingtonshortsale-pros.com

Jan 01, 2009 02:00 PM

Kathy Torline

ERA Herman Group Real Estate - Colorado Springs, CO

Colorado Springs Real Estate Blog 719-287-1049

Great article! Since I have several short sale listings, I think it is an art to get them priced correctly; low enough to attract interest in the property to high enough for the lender to accept the offer.

Jan 01, 2009 11:35 PM

Adriana West

Home Expo Gallery, LLC (Keller Williams) - Roswell, GA

Pat:

While money is why we are all in this business, helping people is a great feeling and makes all the extra effort and frustration all feel worthwhile. You have to be careful because you will hear heart-wrenching stories, but that makes it all the better when it works out.

Kent:

You hit it right on the head. It doesn't matter what type of transaction it is, the good agent does the homework to make it work, the lazy "expert" does not. And more and more of them are finding their way to other careers. Not all, but many.

Myra: It becomes part of our job to educate the buyers about those "artificially priced" properties, difficult as that can be. It has always been our job, just a little harder now as we have to compensate for these less conscientious agents.

Jan 04, 2009 02:57 AM

Adriana West

Home Expo Gallery, LLC (Keller Williams) - Roswell, GA

Loran:

Here here! I could not agree more. I have several agents who refer their short sales to me because they understand that they don't have the experience to get it done. Your last paragraph actually sounds like one of my blog posts, exactly how I feel and how I work. Those of us who work and feel this way are better positioned for the current market, and even better when the market stabilizes with our constant referral stream from past clients who enthusiastically sing our praises. Good luck!

Adriana

Jan 04, 2009 03:02 AM

Adriana West

Home Expo Gallery, LLC (Keller Williams) - Roswell, GA

Kathy:

As with any listing, pricing is the most critical factor that we have to get right. For a short sale, it just requires a little more thought. But that's the right way to be thinking. Good luck with your shorts.

Adriana

Jan 04, 2009 03:04 AM

RC Cutcher

Texas Landmark Properties - Round Rock, TX

Good thoughtful post! I have a couple of problems with your analysis. In your example, your agent sends mutlple offers, then you shift your comments to one buyer's offer. Why would you send mutlitple offers to the Lender and expect the Lender to choose an offer not the highest? Perhaps you are just commenting upon the bad practice of others.

Also, the agent who has a 'Dutch Auction' approach to finding the true market value is doing a good service in my opinion. Most Short Sale Classes and the Gurus teach a 'build your price' scenario to make sure that the Lender and Seller are clear of the Sold when the highest offer is delivered. This truly makes little sense to finding the true street value of any property as defined as a buyer willing to pay on any given day. By starting with a low asking price, it is possible to save the Lender, Seller, and Buyer valuable time and effort if the property is headed to foreclosure because of the false numbers which is typical of most Agents who 'build their price.'

RC Cutcher, Realtor Austin Texas Homes, LLC, www.austintexashomes.com

Short Sale/Foreclosure Workshops

Jan 04, 2009 03:12 AM

Anonymous

A Martinez, Realtor, Keller Williams Realty www.RealEstateHomesN

Loran,

I couldn't agree with you more.

In a Short Sale the homeowner is coming to you for HELP. If you are willing to accept the challenge of really helping these homeowners out. Banks are not in the Real Estate business they are in the lending money out business. They will absolutely work with an agent to perform a short sale. If you guys didn't know, the bank spends more money holding on to a property than getting rid of it. If you don't price your short sale listings at a competitive price to get it SOLD, then your clients are looking at Foreclosure on their record, the bank having to auction it for pennies on the dollar, or having to hold it. So in turn did you do the job they hired you to do and who won?

Agents, it's crucial for you to become educated in this process or you will be out of the market. If you don't have the experience or the time I perform short sales for other agents on a day to day basis. Email me at AMartinez13@kw.com

Jan 06, 2009 01:02 AM

#10

Keji Ogunleye

Fairfax Realty, Inc - Greenbelt, MD

GRI, SFR, KejiYour Realtor

Loran

While we have a lots of agent in the market that are professing to be short sale expert the pricing strategy you described above seems to make sense sometimes- why if you do your research and you can see based on the properties in the market that value will go down in few months why would you price a property at or above the current market value. Case in Point- I listed a short sale property in Sept '08 and based on the current comparables the property value is $480K, but there are have several foreclosures and short sale in the community under contract for between $430K-$450K. I listed the property for $425K, even with this price my first offer was $390K which does not make sense. I informed the buyer's agent that the offer may be too low but she stated they want the bank to counter the offer, I did get additional 3 offers for full price and one $500 over the full price. Bottom line by the time bank did the their appraisal the property value is $435K and they accept offer price of $425,500. I have seen short sale properties that are priced above the comparables and this does not make sense. Also I have seen foreclosure properties priced using this strategy and they get into a competitive bid. Sometimes the BPO or appraisal is way off track and in this market value is a moving target. Agent listing short sale need to constantly monitor the property value and buyer's agent writing contract for short sale need to educate buyers about low ball offer. Low ball offer just wast agents time.

Jan 06, 2009 04:38 AM

Dan Downey

ForeclosureRadar - Folsom, CA

Great post on an important issue. We see a lot of agents struggling with denials after submitting unsupportably low offers. But often, even a fair "market" price won't find support from the lender's BPO, particularly in areas with lower volumes and relatively few recent sales. One thing that can help a lot in these cases is a Foreclosure Comp Report that shows the impact foreclosures are having on similar homes. Nothing motivates a lender more than seeing five bank owned homes on the same street that are not yet listed. We have a number of short sale experts and short sale processing companies using these reports to help get offers approved when they can't otherwise be easily supported by current MLS activity.

Also note that there are huge differences between lenders. Succeeding in short sales has a lot to do with choosing the lenders you work with. Check out the Short Sale Report we developed in partnership with Mortgage Resolution Inc. for details on which lenders are best (or worst) to work with. If you are in CA, you can use our foreclosure tools to find homeowners in your farm area with loans from your target lenders.

It is critical, in any case, for Realtors listing short sales to do their homework! Not only homework on the property, prevailing market values and the owner's situation and motivation for the sale (think hardship letter) but also researching lenders.

Jan 06, 2009 08:44 AM

Angela Pitre-Reddy

Senez Real Estate Inc - Orange City, FL

I started dealing with short sales a little over 2 years ago to help a friend out and let me tell you it was a daunting experience to go through, mainly because of the duty I felt I owed my friend. However,now we are starting to look at house for her to buy again! Since then, she has referred many people to me- 5 of them being successfully closed.

I have had may short sales and the key ingredient is competitive pricing, which is why I do my own BPO at the time of the listing and send it to the lender along with the financials. Sometimes, the lender will choose to accept my BPO and not even do one of their own. This greatly speeds up the transaction. I have taken so many education classes because I didn't feel I knew enough about short sales. The responsibility I feel towards my clients is very heavy on my shoulders. I think- these people need my help and I need to do my very best to help them out. Unfortunately there are too many agents out there who have no sense of responsibility. We as Realtors can do so much to help people's lives in this difficult time and if we take the time it can be very rewarding work.

Angela Pitre-Reddy, Realtor

Orange City, FL Senez Real Estate Inc.

Jan 06, 2009 09:37 AM

Jim McNinch

Trademark Loss Mitigation - Spring, TX

Short Sale Specialist, Texas

Great point Angela. Not enough people doing short sales realize that the lenders BPO is THE most critical part of any short sale because that establishes the base line from where the lender will evaluate what they will take as a payoff.

We always pay to have our own BPO down by an independent broker. We use this with our own CMA data to establish our starting listing price. We will lower the price slightly every two weeks to find the true market price point. This is also provided to the lender's BPO agent to show true market value.

One other point, many agent neglect to factor in a true and complete repair cost analysis that can have a large impact of the selling and BPO price,

Since we've started this, our success rate has increased significantly

Jan 12, 2009 12:52 AM

Sergio Rebollo Jr.

Real Estate TeamMates - Miami, FL

You're 100% correct!!! Listing agents need to study the market and be REALISTIC with their listing prices.

Jan 13, 2009 11:21 AM

Adriana West

Home Expo Gallery, LLC (Keller Williams) - Roswell, GA

RC:

You are correct that I am commenting on the "bad practice of others." I was providing a couple of illustrations where the listing agents were under-pricing the property. They may well have sent the highest (or all) to the lender. My problem with it was setting the price significantly under the market when the lender is unlikely to accept even a full price offer.

A Dutch Auction may work when the property is reasonably priced to begin with, or when there are no workable comparables. But when the property is underpriced, in this market, how many offers do you think they are going to receive AT the listing price - more likely the best offer will be 75% of the listing price which is already too low for the lender. Why do you think an investor's lowball offer on a property will be accepted by the lender when it is priced below recently SOLD properties in the same building?

Adriana

Jan 21, 2009 09:38 AM

Adriana West

Home Expo Gallery, LLC (Keller Williams) - Roswell, GA

"A" Martinez:

You are right that the price needs to be competitive, but it should not be ridiculous either. If you price it too high, it isn't going to sell. But if you price it way too low, the bank is not going to accept it either. They'll do their BPO and decide that they are not getting a fair deal, and foreclose anyway.

But when we do our job right and the Short Sale happens, EVERYONE (except the foreclosure lawyers) wins.

As for your "Ad" seeking referrals, I think most of the folks on this list also do a lot of Short Sales for themselves and for others, I do as well for many agents here in Georgia. I'd rather we did not use comments on each others posts to try to capture referrals or advertise for classes. We each have our own blogs for that.

Adriana

Jan 21, 2009 09:46 AM

Adriana West

Home Expo Gallery, LLC (Keller Williams) - Roswell, GA

Keji:

You talk about predicting a declining market and factoring that into your pricing strategy. Certainly, IF you are right about the declining market, you should factor that in. But in a stable market (granted a LOW market, but it is relatively stable right now in Georgia), you can't count on that. I normally price my Short Sales at either market or payoff amount, then reduce every so often (usually 3 weeks), and this adjusts for a declining market as well - because I watch the market around my property and factor in increases in activity or decreases in price in my regular price reductions.

Yes, the BPO may be way off track, and often is. I have successfully challenged most of the off-base BPOs.

Congratulations on your sale.

Adriana

Jan 21, 2009 09:55 AM

Adriana West

Home Expo Gallery, LLC (Keller Williams) - Roswell, GA

Dan:

I also use the Foreclosure Comp approach when the lender is being stubborn or has gotten back a way off-base BPO. It really helps. As does having a solid relationship with the lenders (not just researching a report). When they know you know what you're doing and you know how they work, it's a ton easier.

Adriana

Jan 21, 2009 10:00 AM

Adriana West

Home Expo Gallery, LLC (Keller Williams) - Roswell, GA

Angela:

The human side of the Short Sale transaction is what keeps me going when things get really difficult - the lender is stubborn, the buyer is antsy, the offer is a lowball, etc. Knowing how I am helping my clients who are in distress keeps me motivated. The testimonials I receive from them after the transaction are truly inspiring. But you must also learn to separate your feelings from the business transaction. Some of their stories are heart-wrenching, I have often sat their at the listing appointment crying with the seller. You have to learn detatchment and to limit your empathy, or you will damage your own psychology - just like a doctor.

Jim:

The BPO often comes very close to being a deal-killer. It is probably the most common cause of a failed transaction. But I fight back with some very strong tools to show why the BPO is flawed, and in most cases it works - as long as the offer is reasonable, that is. I see that my pricing strategy is similar to yours. And as you point out, it is a great factor in increasing the success rate.

Adriana

Jan 21, 2009 10:06 AM

Adriana West

Home Expo Gallery, LLC (Keller Williams) - Roswell, GA

Sergio:

Yep. Too high and nothing moves, too low and the lender won't sign off. You have to think about the price, set it right, and be ready to justify it to anyone.

Adriana

Jan 21, 2009 10:08 AM