What is a Short Sale

By Kai Lani

Real Estate Broker/Owner with RE/MAX Kai Lani

December 01, 2007 07:44 PM

We had a class on Short Sales last week and it really opened our eyes. The Brokers who have been through a couple of buyer's markets before had already been down the short sale road, but our newer agents had their eyes opened to the considerable risks involved in a short sale.

To manage a short sale either as the seller's agent or buyers agent requires some special skills and lots of specialized training. The complications are such that the unwary should not venture into the experience without someone who has "been there and done that" looking over their shoulder. If possible, that someone might better be a qualified real estate attorney as the water can get deep rapidly even for a seasoned broker. I overheard a group of agents talking after the class and the thrust of the discussion seemed to be that short sales fall into the "too hard" category.

As we run into more and more owners who are "upside" down on their loans, we are going to be hard pressed to guide these poor souls as to how they can best extricate themselves from a desperate situation. From my perspective, I recommend calling for help!

At times like this, I think to myself often the phrase "Lucky Come Hawaii" runs thru my mind over and over and over. Then I think of the sea!

Father and Son admiring the "Mokes"

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Jesse Clifton

Jesse Clifton & Associates - Fairbanks, AK

Now that is a gorgeous picture. I have to admit we certainly miss being on the coast. If all goes according to plan (haha - how funny is that statement) we will be doing a lot more blue water exploring in the next few years.

Dec 01, 2007 08:28 PM

Allison Stewart

St.Cloud Homes - Saint Cloud, FL

St. Cloud Fl Realtor, Osceola County Real Estate 407-616-9904

I agree. The short sale process is not for everyone. Some buyers view it as an escape clause. Most owners do not realize there is tax penalty involved.

Dec 01, 2007 09:14 PM

Jennifer Fivelsdal

JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY

Mid Hudson Valley real estate connection

I agree with Allison many seller don't realise the tax implication so if we are involved with a Short Sales it would be good to educate the seller so it doen't come as a shock.

Dec 01, 2007 09:43 PM

Kai Lani

RE/MAX Kai Lani - Kailua, HI

RE/MAX

Hi Fairbanks! The father and son in the photo are my son-in-law and grandson. Great people. Now on to meatier things, Allison and Jennifer 's comments. The tax considerations are of such magnitude in a short sale, that we should all advise our seller's early on that they should contact a tax attorney or CPA to get these consequences defined. GREAT POINT you are making. Jerry

Dec 02, 2007 04:01 AM

Jack Hartzell

HomeAuctionAdvantage - San Diego, CA

You have identified the need in the present market for short sale specialists - consultants, realtor specialists or referral sources that do primarily short sales.

Would an agent be doing his client a service if he does not know the tax and credit ramifications of a short sale? What are the best strategies for pricing so that the lender will open a short sale file and start reviewing the proposal, anticipating superior offers about the time the file is getting to the counter offer stage. What information holds weight with the lenders regarding BPO's and Appraisal's and how can they be ethically affected (e.g. did the appraiser address the 18 month inventory or blow it off and just mark the box 90-120 days as typical marketing/exposure time?) Will your agent fight to keep unlicensed personnel from doing the BPO's? Do you realize that it usually takes 3 offers for a successful short sale and why? Can you make 2nds come to the table for $1000 when they ask for $100,000? Can you refer to 10 failed short sale attempts(out of 100) and make their present listings as REO's work in your favor (now listed for $20k to $40k less than the rejected offers 6 months ago)?

There are the short sale specialty agents who do a reasonable job of servicing their own listings. There are agents that will take over your listing for a 30% referral fee - they will pay to you. There are the attorneys and non profits that have a small portion of support for short sales. But where do you agents go that do not want to be doing short sales, do not want to become experts at short sales but have clients seeking help with upside down listings? Where are the specialists that provide the hands on, work-out expertise that will change the likelyhood of your short sale success from about 20% to about 60-80 percent? Find those of us that are doing just that and you have have found a good thing that needs to be encouraged and expanded.

Dec 02, 2007 06:38 AM

Kai Lani

RE/MAX Kai Lani - Kailua, HI

RE/MAX

Jack, You have raised a ton of questions. I surely don't perceive myself as an expert in this after only nine years in the business, no short sales under my belt, and only a three hour course to hang my hat on. Nevertheless, I think we all need to remember the old adage, "disclose, disclose, disclose". This was one of the red flags the instructor told us to watch out for. Everyone needs to know as much about all of the risk up front, as possible.

The lender is the person or agency in the power seat on short sales, and what they say will drive the terms of the sale. Agents might think they have a commission locked in by shifting the burden of ALL closing expenses, including the commission, to the buyer, only to have the lender step in and say something like "oh no you don't". We will allow the selling and listing agent only x% commission to be split however they want, but under no circumstances will it exceed x%. Sometimes commissions are disallowed in total giving both the listing agent and selling agent zero % to split between them. This fact is a major factor for an agent to consider. (I guess that goes without saying?)

The other issues you raise are each red flags that the agent must consider when thinking about taking a short sale opportunity at all. The issue of a sale taking several months must be carefully articulated to all parties, especially the buyers.

I can see already that I am in deep water on these issues. Perhaps others can better address some of these concerns. From my own perspective, the one major point is, as you so specifically noted up front, that one needs to get either a real estate lawyer or CPA involved very early on in any short sale decision. I stick by my guns on this. These opportunities are just too risky.

I guess the only reason I wrote the blog in the first place is that we have recently received several short sale opportunities, and I suspect these opportunities will continue for the immediate and foreseeable future. A good discussion of the issues is invited. Jack, you have raised some great questions. I hope others will chime in with some answers. Jerry

Dec 02, 2007 11:19 AM

John Fariss

Fariss Appraisal Services - Bakersfield, CA

Appraiser - Bakersfield, CA

Wow, you agents sure have a lot more to worry about on these transactions then appraisers. I can pretty much do my normal mode of operation with some additional documentation and research, but I don't have to worry about explaining the tax ramifications, commissions, rescinded offers, etc., etc.

There are quite a few short sales out there though, and someone is helping them. Do you take the risk and jump into the game? There's a lot to consider as an agent. My sympathies are with you.

Dec 02, 2007 11:26 PM

Kai Lani

RE/MAX Kai Lani - Kailua, HI

RE/MAX

Hi John, In this market, Agents are screwing up their courage and moving forward. One of our agents brought in an offer yesterday on another short sale. Our PB simply has to be very involved with the agents doing this kind of thing to be sure that the deal is clean as a pin. It is at times like this that "Sam" really earns her keep! Jerry

Dec 03, 2007 11:30 AM