A couple of years ago I was approached by a homeowner who had a problem with a small house on which she owed over $100,000 (1st and 2nd) and realistically the market value of the home was under $40,000. At that time I had never listed a short sale but thought I knew what it was and assumed I could figure it out along the way.
For starters, I listed the property at $75,000 (my first mistake) and predictably had only a few lookers and no one close to making an offer. We even tried advertising an auction and no buyers showed up for the sale. I kept trying to contact the 1st lender (buyer had already decided she would borrow money from her parents and pay the 2nd mortgage so I was focusing on the 1st. I could go on with a blow by blow of how I kept making mistakes due to my complete lack of experience and expertise. The seller was great -- she knew I was working hard (but unfortunately not working very smart). When the listing expired I advised her to notify the lender that she could not make her payments and would not make any defense of a foreclosure proceeding.
In the two intervening years, I have made it a point to attend every seminar and workshop, search the Internet for everything I could find relating to short sales and turn my weakness into a strength. I partipate in the RealTown Short Sales Strategies Group which includes some of the most experienced and capable agents in the country who are always available to lend support, encouragement, and information when anyone in the group needs help. Whether this makes me an expert I leave to others. All I know is that I now approach a Short Sale listing with confidence that I at least know how to do it right. I don't promise the seller success because that depends on two elements out of control -- the lender and a buyer.
Generally the training programs that exist and the available literature focuses primarily on the listing agent and the process one should follow in listing a short sale property. By now there is a general consensus that the process is driven by the lender(s) and we have simply accepted that each lender will have their own set of procedures, timelines, communication style, etc. Even though there are common elements in all -- hardship letter, financial worksheet, etc. -- each lender has a different requirement about when to send these documents and how much time they allow themselves before responding.
But there is another critically important issue that if not handled properly may diminish the chances of successful conclusion of the short sale. As a Buyer's Agent, I will discourage my buyers from considering your short sales if your answer to the question: What is the proper course of action for the seller's agent when an offer is received? is unsatisfactory!
The correct answer is simply, You handle an offer on a short sale listing the same way you handle an offer on any other sale, EXCEPT that if the Seller accepts the offer, you then forward the offer to the lender(s) following the stated procedures of the lender. That means you review the offer with the seller; you make sure they understand what happens if they do, or do not, sign it; and if they sign it (which they should since the only impact on the seller will be the possible request by the lender for the seller to sign a promissory note for the difference between the offer and the mortgage) you forward it to the lender for approval. If the seller signs the offer you MUST change the MLS status of the property from ACTIVE to CONTINGENT or SHOW FOR BACKUPS or whatever local MLS guidelines permit. Failure to change the status is grossly unfair to buyers and buying agents who have a right to know whether their offer will be considered immediately or will simply be placed in a file to be considered only if other offers are denied approval by the lender.
I owe it to my buyer clients to perform due diligence on any property they are considering. Before they submit an offer I want them to know what similar properties in the area have sold for recently, what changes may be expected in the neighborhood in the future, etc. I also want them to know if there are any other offers pending on the property. I should be able to rely on the MLS status for this information. If I learn after submitting an offer on your short sale property that you already have 3 other offers awaiting approval by the lender, I will courteously inform you that a) your seller cannot legally enter into a sales contract with 3 buyers simultaneously; or b) only one offer should be submitted to a lender at a time and only if the seller has signed and accepted the offer; c) I am immediately withdrawing our offer which was submitted under false assumptions about the property; and d) unless I have assurance that the status of your short sale listings will be changed in the future to reflect offers received, I will not submit any offers in the future for your listings.
If you are the Listing Agent for a short sale property, you are short changing your clients when you fail to handle their listing properly. You not only short change the seller for a single property; you short change all future sellers who may entrust you with the listing of their short sale property.
But Buyer's Agents are not without blame. Showing and preparing offers for short sale properties is different than showing and making an offer on other properties. Before showing a short sale property you should attempt to learn which lender is involved; whether there is a 2nd mortgage; has a BPO or appraisal been completed, and are there any pending offers on the property. I don't hesitate to send an email to the listing agent stating that I have a buyer who may decide to submit an offer for this property but I need some information before I can proceed. I am not asking the seller's agent to violate any confidential information. I simply want to know what I could learn by going to the courthouse or what should already be a matter of record on the MLS.
As a Buyer's Agent I may short change my buyers in another way with regard to short sales. I spend time informing them in considerable detail exactly what a short sale is, the procedure involved, the time it may take, and help them to understand how this impacts them. I make sure that the offer we submit includes an exit strategy at reasonable points along the way. For example, we always include a provision that the buyer may withdraw the offer if the lender has not accepted the offer by a specified date.
Finally, if you are the Seller's agent in a short sale, you will short change your clients if you are unclear regarding the commissions offered. Whether requested by the lender or not, you should always submit a preliminary HUD 1 with your offer. In that settlement statement you should show the commission for both agents. Frequently the lender may attempt to reduce the commission. And too often the Seller's agent, makes no attempt to defend the commission in the contract. You should know when you submit an offer to a lender whether the loan is a Freddie Mac or Fannie Mae loan (or an FHA loan). When the lender suggests that approval will not be forthcoming until the commission is reduced, the proper response is: NO. Ask them have they cleared their request with Freddie or Fannie or FHA. Some will not know of the rules laid down by these agencies; or they will claim this is not a Freddie or Fannie loan (call them on this), or they will back off and not raise the issue again. If you negotiate down my buyer's agent commission (even if you have warned me in advance that any reduction will be shared by both agents) I may have little recourse on this sale, but don't expect any future offers from my buyers on your listings.