A mini controversy erupted last week when the Massachusetts Association of Buyer Agents (MABA) issued a press release that cautioned home buyers about the potential complications and pitfalls of purchasing short sale properties, which are homes that are being marketed at a price that is below the mortgage balance owed.
In a short sale, homeowners must receive approval from their lender in order to proceed with a short sale. Simply put, the seller is asking a lender to forgive the balance of the loan, and, in case you haven't heard, there isn't anything short about a short sale. Lenders are not in any hurry to forgive the balance of the loan, but lenders do in many cases. Nearly all short sales involve homeowners behind on their mortgage.
I should disclose that I have been on the MABA Board of Directors since 2010, and I can tell you the nonprofit organization is made up of men and women who really care about protecting home buyers from making real estate mistakes they'll regret in the future and getting those home buyers the best deal possible.
The press release resulted in an article in Banker & Tradesman that had a headline, which read "Buyers’ Agents Caution: Stay Away From Short Sales, If You Can." The article quoted MABA president Sam Schneiderman, and it led to many angry comments on the B&T Web site from individuals who make their living participating in the sale of short sale homes. That article led to a post on Attorney Richard Vetstein's Massachusetts real estate law blog titled, "Why Is The Massachusetts Association of Buyers Agents Scaring Short Sale Buyers?" Even Boston.com's Boston Real Estate Now blog reported on the brouhaha in a post titled, "Why is Sam and MABA so down on short sales?"
There are a few important points that should be made about this war of words. First, the MABA press release, which is printed in its entirety below, doesn't urge consumers to stay away from short sales. It urges consumers to use caution and to work with qualified professionals who understand the short sale process and potential pitfalls. That sounds like pretty solid advice to me.
Second, short sales are a hassle for buyers because they are unpredictable. From my perspective as an exclusive buyer agent, it isn't a whole lot more work than any other transaction. The agreement just potentially takes a long time to close. I have made offers on many short sales over the past several years for clients and some have proceeded to closing and others have not. Some deals take a couple of months to get lender approval and other short sales take six to 12 months for short sale approval. The lender may choose to not approve the short sale. Most of the short sales that I've worked on that didn't make it to closing involved buyers that just got tired of waiting for lender approval. The experience of the listing agent plays a large role in whether short sale transactions proceed smoothly. Of course, as a buyer, you have no control over who the seller hires to list his or her home.
The third point I want to make is that buyers of short sales really should have an attorney experienced with short sales draft the offer. The standard form offer used by most real estate professionals, in my opinion, is not adequate to use for a short sale offer. In many cases, the lender will want a purchase and sale agreement signed before it will consider approving the short sale. A buyer having an attorney involved in the transaction is especially prudent with a short sale.
Well, here is the press release in question. As you'll see, it really wasn't that controversial, but the subsequent dust up was fun to observe none the less.
ASSOCIATION OF MASS BUYER’S AGENTS CAUTIONS CONSUMERS ABOUT SHORT SALES
‘Despite All the Activity in the Short Sale Market, Many Never Close,’ says MABA President
Boston, MA – February 6, 2012 – Short sales, for some time now touted as a way for sellers to get out of homes that are “underwater” and for buyers to get that dream house at a bargain price, may not be delivering on either count. Despite all the activity in the short sale market here in Massachusetts, many of these transactions never close, says Sam Schneiderman, president of the Massachusetts Association of Buyer Agents.
If you’re not familiar with how short sales work, here’s a brief rundown. The short sale is an option for a homeowner who may be facing foreclosure – or is simply looking to move or divest of a property. The bottom line is the seller can’t get enough money for the property to pay off the mortgage balance in full. The process can become quite complex as the mortgage holders are under no obligation to accept any offers by prospective buyers. The homeowner must convince the lender or lenders to accept less than the total amount due. Some will, some won’t – depends on the lender, the property involved, market conditions, and the seller’s financial position.
Schneiderman, who has been in the real estate business for the past 28 years, has been tracking short sales for MABA and says the figures don’t lie. “I found that depending on the community, 30 to 50 percent of these deals never closed,” he says. “There’s this excitement, this fantasy about short sales, because they appear to be good deals, but the reality is quite different and consumers need to beware of the challenges and difficulties associated with these transactions.”
According to Schneiderman, many buyers who pursue short sales have little or no idea what they’re getting into. They don’t understand the process or know what questions to ask – who is the lender or are there multiple lenders, are there other liens on the property, how are offers to be submitted/reviewed, etc. – and vastly underestimate how long a successful (yes, some go through) short sale can take. It could be six months or more.
If you’re inclined to pursue a short sale, teaming up with a qualified buyer’s agent who has a thorough knowledge of the short sale experience is essential, says Schneiderman. “First off, they’ll know the fair market value of the property, and they’ll know what questions to ask up front, and what documents to request and review. And while it doesn’t guarantee that the short sale will work out for you, at least you’ll know what you’re getting into and with the right agent – one who is both committed and loyal to you – your interests will be protected.”
Here are some key questions that Schneiderman and MABA recommend asking buyer’s agents before making the decision to work with them on a short sale or other real estate transaction; additional tips and resources can be found on the organization’s website at www.massbuyersagent.org.
- What specific training and designations do you have as a buyer’s agent?
- How long have you worked as an agent and how long have you worked on the buyer’s side?
- What types of properties and transactions are you most knowledgeable about?
- Do you show For Sale by Owner (FSBO), short sales, and foreclosed properties?
- How will working with you give me a competitive advantage when I make an offer?
About the Massachusetts Association of Buyer Agents (MABA)
Founded in 1990, the Massachusetts Association of Buyer Agents (MABA) is a non-profit organization of select real estate agents dedicated to the highest ethical standards of buyer agency. They advocate for buyers at each step of the process – from initial negotiations through closings – when purchasing a home or condominium. With their comprehensive knowledge, member agents are a critical resource to first-time buyers, those moving into the state through relocation, and repeat buyers seeking to streamline the purchase process. When working with home buyers, MABA agents’ allegiance is to the buyer only and their transaction – never to the seller, the seller’s agent or the listing brokerage company. For additional information on MABA and a free list of MABA buyer’s agents, go to www.massbuyeragents.org.