Short Sale Rant...

By
Real Estate Agent with Real Living Real Estate Solutions

 

Can you imagine just a few short months ago that banks were asking congress for permission to get into the real estate business...?  Based on how well they are currently managing their own business, I have to thank God; once in a while our representatives get things right.   And, what do you think about the 2008 version of a short sale?  What genius at the bank thought this one up?  Let's come up with a plan that sells for less than a foreclosure and takes 2 months to approve... whose idea was it to create a whole new market value lower than foreclosures while simultaneously reducing the overall value of the market place in the process.   

Don't get me wrong, I know some great folks who need to sell short... I feel very bad for their financial situation.   Some banks are finally trying to give customers, who want to keep their home, a substantial workout plan.  This is a very complicated problem and I do tend to oversimplify but what if the National Association of Realtors required all sellers, who are unable to satisfy their lien holders to confirm the asking price with their primary lenders before placing their home on the market.  What a novel thought, an asking price that someone could actually pay to complete a transaction...  In essence, it would force the bank to make a judgment on the property prior to marketing the home and adversely affecting neighborhood sales.   Will someone tell me the downside to this? I mean that rhetorically... there is no downside, get it...No Downside!

So follow this... a customer can't make the payments:

 They call the bank,

The bank does an appraisal,

 Collects the supporting documentation,

Approves an asking price,

Customer calls a realtor to put the house on the market (with agreed compensation),

 An offer comes in,

Approval by the seller,

Presented to the bank for final approval and it goes to closing...

Instead, our current system:

Realtor prices the home based on market value but low enough to get an offer ASAP...Which is it?

Generate an offer even lower than the unconfirmed sale price,

Bundle the paperwork,

 Send it to a lender several times to get one person to look at the paperwork for the 1st time,

 Talk to at least 7 different people not familiar with the situation,

Lender orders the BPO or maybe an appraisal,

 Off to the loss mitigator to establish the workout with the customer,

Finally establish the sale price...  

And repeat steps 6, 7 and 8 every time you get an offer... and I forgot, fight for your commission...

To borrow a line from Steven Covey, they clearly didn't begin with the end in mind.   Am I the only one that sees the follie in all of this?

Firm asking price? Novel Idea... all offers considered?  NO! Of course...  Would you rather make potential owners purchasing their primary residence wait 8 weeks to get a decision on whether their offer will be accepted?  The part I like best is the opening that the banks have created to let the professional short sale buyers to come in and buy at 65 cents on the dollar or less.  Some are even on the fast track.   Have I convinced you yet?  Does anyone begin to see the flaw with this marketing strategy... no one is without blame. Congress, the NAR, Local Realtor Boards, and me... I did choose this line of work...

 One final question...  should we be advertising prices that require a 3rd party approval, think about that...when was that ever a good idea?... Isn't that a violation of at least a few codes...?  I understand final price and terms but not the asking prices... Let's get real. Where have all the smart people gone?

My father used to say... Anthony," Don't ever trust a Bank because they are first to loan you an umbrella and the first one to ask for it back on a rainy day..." Common sense...Thanks Dad.

 

Tuesdays with Tony

Comments (17)

Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos
Excellent post, Anthony !  Your common well thought out approach makes way too much sense !  Like the advice dad had for you ! 
Apr 16, 2008 04:29 AM
Lu Kalaj
Vision Realty Centers - Brighton Township, MI
For some its called "creative thinking", and for others its called "thinking about yourself."  I like the old fashioned worker, get paid for what you work for, but work for what you can get paid for.  I'm not sure where this is going, but its unfortunate that too many things are being done at the expense of others.   Thanks for sharing your thoughts in your blog.  Lu 
Apr 16, 2008 04:30 AM
Lisa Lambert
The Law Offices of Elisabeth A. Lambert - Fresno, CA
Esq. 1031 Exchange Expert

The biggest problem is that the lenders didn't anticipate the magnitude of short sales and foreclosures. They took a hard stand early in the game and only now (after their underqualified staff (as it relates to real estate sales) is completely overwhelmed) are they willing to be more realistic. But it's too late. The loss mitigators are completely buried and can't find their way out of a paper bag. I truly believe some have just let the short sales go with the attitude "we'll deal with it when we own it."

Some lenders are beginning to see that they MUST begin negotiating with their borrowers to stop the bleeding but it's too little too late.

Apr 16, 2008 04:31 AM
Douglas Garbe
Real Living Real Estate Solutions - Orlando, FL
Real Living Real Estate Solutions

Tony- as usual, a thought provoking blog.  But I beg to differ.  This is how I understand the mess we got in.  I am going to put it in simple, blatantly anti-intellectual terms (because that is how I learn better):

1.  Banks gave money away (loans) to poor people.

2.  This process was done using 'financial instruments' that were not regulated.

3.  It turns out banks (because of the lack of accounting rules) were closer to insolvency (or ability to back up loan by cash) then anybody knew.

4.  Once the States realized what was going on they were unable to stop the banks because of "The Office Of the Comptroller of The Currency."  This 'office' was a government agency approved by congress.  This not only emboldened the banks, but it also allowed them to shift the burden of guilt.

5.  Congress, it turns out, is 'assisted' through campaign contributions by the banks and brokers whose wealth depends  on fending off the financial police.

6.  As of now, the big banks....with the permission/and or desire to look away from the treasury department.....are being allowed - on their own - to decide how much safety capital they should hold.

7.  This is the reason  we are in the trouble we are in, to begin with.

For quite a while I assumed Realtors were among the main culprits for this horrendous mess.  I now see a larger, more corrupt picture.  Money that only exists on some banker or broker's  computer screen is called 'click-click cash' and money that you can actually touch (and take out of a bank) is called 'suitcase cash.'

Could it be, irony of ironies, that this mess was created....click click....in a vacuum of financial greed and irresponsibility?

And we do know how nature feels about a vacuum.

Hmm.

Apr 16, 2008 06:13 AM
Tony Marino
Real Living Real Estate Solutions - Orlando, FL
Realtor, Broker, Owner

Douglas,

 

Little progress can be made by merely attemping to repress what is evil;our great hope lies in developing what is good...Calvin Coolidge

Greed gets the best of some...  and we shall pay the price together... Tony Marino

 

tm

 

Apr 16, 2008 10:52 AM
Tony Marino
Real Living Real Estate Solutions - Orlando, FL
Realtor, Broker, Owner

Lisa,

 

I agree the banks underestimated the Magnitude of the financial crisis they created... But most of the banks CEO's, Chairman were getting paid million of dollars because they were smarter than us...

 

thanks for the comments.

 

tm

Apr 16, 2008 10:59 AM
Kathy Torline
ERA Herman Group Real Estate - Colorado Springs, CO
Colorado Springs Real Estate Blog 719-287-1049
Tony:  I so understand your pain.   I have a buyer I've been representing and we just got acceptance after 4 1/2 months.  Then I have a short sale listing which I have an offer on.  I've submitted the paperwork three times, and finally got their approval to send the paperwork by federal express.   Every time I call, I'm hold for 30 minutes, and get a different answer from everyone I talk to.  It's definitely an exercise in patience.
Apr 16, 2008 11:04 AM
Scott Hoyt
Founding Partner, ChangingStreets.com - Cary, NC

 

Tony,

How about a market where 64% of all the homes sold this year where short sales or owned by banks?

This is a common market in a lot of the mid west, and openning in other select markets soon.

I had to laugh, on your opening line, a great reminder of the "golden days" of real estate....2005! lol

Hang in there, we practise in interesting times.

Apr 16, 2008 02:30 PM
Michael Veri
Realty Executives Mid Florida - The Villages, FL
You are right on in your assessment & wouldn't it be great if the banks would use some common sense.  Instead, they make the actual value of the property less, because no motivated buyer can wait a month for a response.  I know a guy who is a professional short sale buyer, he has closed over 175 of them for his own personal profit.  He said that when he deals with them that they will let the properties go at 50% of current market value.  Wouldn't it make a lot more sense to the bank to let us market them at a realistic pre-approved value, sell them to a motivated buyer who would love to get a deal at 90-95% of market value, and then everyone is happy!
Apr 16, 2008 05:02 PM
Tony Marino
Real Living Real Estate Solutions - Orlando, FL
Realtor, Broker, Owner

Kathy,

 

We all feel your pain...When i think of a bank, i think of the word "Institution"... a large organization that is influential in the community... i guess i never thought of them as having a negative influence... and at this point... i would not associate them with anthing related to the word "organized"...

 

thanks for the comments.

tm

Apr 16, 2008 11:57 PM
Tony Marino
Real Living Real Estate Solutions - Orlando, FL
Realtor, Broker, Owner

Scott,

 

Please don't misunderstand.  I realize that short sales are here for a while... But, I believe when the smoke clears, everyone will look back and see that workouts for homeowners  who want to stay and foreclosures for the rest would have been a smarter way to go...

Plus, and here is the key...Why didn't the NAR step in and say we are not going to advertise prices that we can not deliver? Period. That is a leadership role.  Once again, i get it... the price is the price... but appraisers are now looking toward "actives" and "pendings" to judge marketability... These houses float around for 60-120 days ultimately lowering market values and expectaions for the buyers beyond what is necessary.

Just one man's opinion.

Thanks for the comments.

tm

Apr 17, 2008 12:09 AM
Tony Marino
Real Living Real Estate Solutions - Orlando, FL
Realtor, Broker, Owner

Michael,

thank for you comments.

 They are making some people rich at the expense of others...

 

tm

Apr 17, 2008 12:11 AM
Scott Hoyt
Founding Partner, ChangingStreets.com - Cary, NC

 

Tony,

I feel exactly the same way you do, it all makes me sick to my stomach, In my old market this started really in 2002 I am pretty sure the term Short Sale was coined in Flint MI in early 2002, by the number one repo lister, is a "short seller". Short sales have become a business model, not a tool to help the occasional desperate seller. I am still on the Board of Directors of the Flint (Michigan) Area Association of Realtors, I have been trying to convince our local, state and national boards that this was going to be a problem since early 2003, they laughed. NAR is useless.

The banks really are in Real Estate now, they are sellers and the sellers with the lowest prices and they are running many markets, dictating how the listing is entered into mls to decieve the public (yeah, no one will figure out Bank-Owned means REPO!!).

CYA on anything having to do with a short sale and even foreclosures any more.  Keep rocking call if you want to vent, I have some great, great stories.

 

 

Apr 17, 2008 01:22 AM
Matthew Heavener
ERA Heavener Realty Co. - Jacksonville, FL
Hey, you forgot get a commitment from a person who doesn't work in that department a week later, and have to start all over again!
Apr 17, 2008 01:23 AM
Douglas Garbe
Real Living Real Estate Solutions - Orlando, FL
Real Living Real Estate Solutions

Tony - You hit a nerve!  Banks have for too long evaded criticism because they are like the 'churches' in a religion.  In reality, they are the Money Lenders.  And if I remember correctly, somebody kind of lost it one day and kicked their tables around a bit at temple.

I keep forgetting that:

Schools are a Business.

Hospitals are a Business.

Religion is a Business.

And why not see it for what it is:  Banks are a business.

Apr 17, 2008 06:03 AM
Tony Marino
Real Living Real Estate Solutions - Orlando, FL
Realtor, Broker, Owner

Matthew,

I didn't forget... Polite persuasion is the only offense in white collar chaos...The rest will just raise your blood pressure...

 

thanks

tm

Apr 18, 2008 05:40 AM
Tony Marino
Real Living Real Estate Solutions - Orlando, FL
Realtor, Broker, Owner

Scott,

 

Don't get sick to your stomach... Just wait till they sublet the Loss Mitigation to India...

 

tm

Apr 18, 2008 05:42 AM