Reality Check #4: Real Estate Agents and Short Sales

To Pacita, Randall, and James:

I am a firm believer that those who thought 2008 was the year of the Short Sale will be surprised at how 2009 will dwarf it.  Like you, I expect short sales to be big until 2011 or 2012, but 2009 I project will be the peak.  Pacita, I think your comments about our Fiduciary obligation are right on the money.  Like you, Short Sales have been the major part of my practice, over 80% in my case.  Luckily, 85% of mine close.

Shawn: I've seen the same thing, the key is not to let the house get abandoned.  As long as it's lived in, it should be safe.  I council all my sellers to stay until the last minute.

I wish you all luck in the New Year.  In this market and economy, we are all going to need as much of it as we can get.

Adriana

Janice:

I represent the Seller on the vast majority of my Short Sale transactions, and I do all the negotiation myself.  The one time I had a client insist on using a lawyer to do the negotiation, the lawyer negotiated it such that BOTH agents split a 1% commission on the transaction, and even with that, he messed up the numbers with the second loan so that the transaction fell through.  I managed to salvage it at the last minute, getting the second to accept a reasonable number and a split of a 4% commission.  Not great, but at least I saved it, and everyone got something out of it.

Yet, had his original deal worked - or fallen through - the lawyer got his money.  He charged the seller directly - success or failure.  I will never again accept a short sale where I am not in charge of the negotiations - except on the Buyer side.

Adriana

Tere:

If you don't know how much you're going to get on the listing, maybe you're not doing it right?  Certainly, like any sale, it can fall through and you get nothing.  But when they close, I get my commission, my standard rate.  There are a few special cases where it gets trimmed a little in order to make the numbers work, but I always have a full commission for both sides factored in from the beginning.  A little less than half the time I need to argue the point with the lender, and the big majority of those arguments I win.  85% of my shorts make it to closing.  But I'm on the seller side.  It sounds like you are on the buyer side. 

On the buyer side, representing an investor, you very well may run into the problem you describe.  Since you represent the investor, they are going to low-ball the offer as much as possible.  The lender is going to balk at going that low and try to take it out of the agent's commissions.  If that doesn't work, the deail isn't going to happen.  The Lender counters wanting more, and the investor walks away looking for easier prey.  Completely understandable on both sides.

The buyers I work with are not investors, they're planning to live in the home.  They make more reasonable offers.

I do not believe that the 'fall through' issue is due to the fact that it is a short sale, but because it is an investor.  In better markets, the investor still tries to low-ball, and walks away if the numbers don't fit his model, and the transaction still falls through.

As for a course on how to negotiate, I have never taken one myself, and I get my short sales done.  But I have seen a couple of short sale classes, and I don't think any of the ones I've seen would prepare someone properly.  There may be one or two out there, but I have yet to see them.  My own offices are asking me to do classes every so often, but I am so busy getting the job done I don't have much time to teach them.  So good luck with finding a class, and be careful.  Investigate it well.

Adriana

Tere:

Don't misunderstand.  Short sales are hard, much harder than a 'normal' transaction, but given the huge drop in normal transactions and the dramatic increase in short sales, they certainly should not be overlooked.  Be prepared for much harder work and longer closing cycles.  But if you work at it, and keep your client's best interest as your goal, it can be rewarding both emotionally and financially.

It also is a matter of experience.  When the lenders understand that they do not need to teach you the process, and you show them you are willing to do your part (and sometimes a little of theirs), more closings occur.  Good luck.

Adriana

Al:

I do not envy you your market in Michigan, especially at this time and with this economy.  It is certainly true that there is more work in Short Sales.  The problem with REO's is how to break into the market on the listing side.  If you can do it, there's certainly less work.  On the other hand, in order to get the listings, in many markets you must start out with a cut commission.  Everyone's situation is different.

It may be, in this market, that the place to be is as the buyer's agent.

Adriana