Short sale myths and misunderstandings from a listing agent point of view.....

By Jeff Payne

Real Estate Agent with The Payne Group at Keller Williams Success Realty

January 19, 2009 04:45 AM

A short sale occurs when the current value of a home is less than the amount owed on the property. The homeowner has suffered a hardship, making it difficult or impossible to pay for the home. These hardships can be many, most of the time it is a job loss, relocation or divorce (at least in the short sales that I have worked). The lender has to agree to take a short payoff in order for a short sale to occur.

A few myths explained....KEEP IN MIND THAT ALL LENDERS ARE NOT THE SAME and their policies can vary and the myths are based on my experience with many lenders.

Short sales take forever, 6 to 9 months: While that can be the case, if a short sale is handled properly, this process should take 60 to 90 days. The lenders are more equipped today than even one year ago, they have some systems in place that need to be followed. The listing agent NEEDS to know the process of the bank and NEEDS to give the bank exactly what they ask for. The package MUST be complete, neat, in order and not faxed so many times that it is not legible. A good quality scanner and digital fax is a must in order to keep the package clean. The loan number on every page also helps. A good cover letter summarizing the offer is also good practice.

The homeowner has to be in default or behind on the payment: While many homeowners are behind on their mortgage when they enter into a short sale, they do not need to be behind on their mortgage, they just need to show a hardship as to why they can not afford to keep the home.

The home needs to be on the market for 90 days: Most lenders want to see the home on the market for 90 days before they will agree to a Deed in Lieu of Foreclosure. While it is to the listing agents advantage to have the home on the market for 90 days or more, the important part is the hardship, an offer and a complete package.

The lenders will cut the commission: Most lenders have a set commission that they will pay when approving a short sale. Yes, if you are asking for 7% or 8%, most likely your commission will get cut. Most lenders will pay 5% and some will pay 6%. I have yet to come across a lender who cut the commission below 5%. Know what they pay going into the short sale is the best practice.

Short sales are too hard: Nothing is easy in this business. Short sales are not HARD, they simply take time and patience and perseverance.

The contract is between the buyer and the lender: A short sale contract is between the buyer and the seller with a contingency that the lender release the lien in order for the buyer to purchase from the seller. The lender is not party to the contract.

Please use this blog to share your MYTHS and MISUNDERSTANDINGS about short sales.....

For all of your Panama City and Beaches Short Sale needs.....The Payne Group is the only name that you need to know.

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Jeff Payne

The Payne Group at Keller Williams Success Realty - Panama City, FL

Panama City Real Estate

Dacia, agreed but most of the time I think the buyers agent is trying to steer them away. Just be clear to them that they need to be patient and they could get a great deal.

Jan 20, 2009 12:44 AM

Jeff Payne

The Payne Group at Keller Williams Success Realty - Panama City, FL

Panama City Real Estate

Gabe, the next time that you get a short sale on your listing, make sure that you take the time to research everything the lender needs and submit an entire package all at once. Communicate, communicate and keep calling the lender.

Jan 20, 2009 12:45 AM

Jeff Payne

The Payne Group at Keller Williams Success Realty - Panama City, FL

Panama City Real Estate

I believe that the market will stabilize when the owner occupied, non short sale or non REO, are selling for REO and short sale price, that is when we will be out of the short sales and REOs for the most part

Jan 20, 2009 01:00 AM

Jeff Payne

The Payne Group at Keller Williams Success Realty - Panama City, FL

Panama City Real Estate

Julie, Are you also the listing agent? What is the listing agent telling you? If they did not submit a complete package, it is probably sitting on a desk somewhere. My contact at CW told me today that they have 170,000 short sale files right now and most are not complete.

Jan 20, 2009 03:52 AM

Jackie Hawley

Coldwell Banker Professionals - Oxford, MI

Southeast Michigan Real Estate

The 2 potential problems from the buyers' point of view- not all buyers have 2 months to even get an answer. The last short sale I wrote on we waited 7 weeks for a reject- no counter. And the listing agent is very experienced with short sales and seemed to be on top of things. But the point- some buyers need to get in right away and don't have the time to wait.

The other problem- a LOT of listing agents don't know what they're doing. I've called on short sale listings that have been on the market for a while and the listing agent will tell me they haven't even contacted the bank- nothing has been started.

Jan 20, 2009 04:56 AM

Jill Ford

Keller Williams Realty of Pinehurst - Pinehurst, NC

Jeff,

Julie's situation above is scary--reminds me of another favorite AR post about short sales:

http://activerain.com/blogsview/640002/Ill-Have-a-Big-Mac-a-Quarterpounder-with-Cheese-and-a-House
leaving this in the hands of "short people" over whom you have no control (or even access to) scares me to death. Don't know the Walkaway Plan from Adam, but the odds are not in your favor when you don't have a listing agent on top of the process, one who creates a comprehensive and complete short sale package and attempts to maintain contact with the loss-mit specialist involved.

jill

Jan 20, 2009 05:21 AM

Jeff Payne

The Payne Group at Keller Williams Success Realty - Panama City, FL

Panama City Real Estate

Julie, the problem lies with the 3rd party negotiating it and saying they will call back in 3 weeks. My experience has not been good with 3rd party negotiators, you lose too much control over the situation. As a selling agent, I would fire the 3rd party and take over myself, been there done that!

Jan 20, 2009 06:14 AM

Jeff Payne

The Payne Group at Keller Williams Success Realty - Panama City, FL

Panama City Real Estate

Jackie, I agree on both points, if a buyer can not or will not wait, a short sale is not right for them.

AND most importantly, the listing agents don't know what they don't know and need to be very diligent in the short sale process.

Jan 20, 2009 06:17 AM

Jeff Payne

The Payne Group at Keller Williams Success Realty - Panama City, FL

Panama City Real Estate

Jill, Thanks for that link, you are so right. I still believe that if we take a short sale listing, we NEED to service the seller throughout and work the short sale ourselves

Jan 20, 2009 06:18 AM

Jeff Payne

The Payne Group at Keller Williams Success Realty - Panama City, FL

Panama City Real Estate

Jaime, no problem, we are all in this together

Jan 20, 2009 08:14 AM

Ron Tiller

Star Referral - Grand rapids MI - Grand Rapids, MI

Yes a Buyer's Agent should show short sale homes to their fully informedclients. Yes, a short sale can be done in a couple of months.......... or not. Only if I have explained all of the dangers and risks can I claim to represent my buyer, including the possibility that we could wait 2, 3 or heaven forbid 4 or more months only to find out that they aren't getting the home because someone else is. Perhaps some agents aren't showing these homes because their informed clients have said "no thanks"?

Jan 20, 2009 08:24 AM

Ed McNamara

Bean & Dunn Real Estate - Oklahoma City, OK

MBA

Great post. Don't forget the selling Realtor needs to understand there may be a reduction in the commission posted in the MLS. The listing contract between you and the seller may be a higher rate than the lender will agree to. I always include a statement in the remarks section that the commission may be reduced by the lender and will be 50% of the total commission paid. I've had Realtors include a compensation agreement for the seller to sign (unethical) and chew me out when they get the settlement statement and it is not what they wanted. I don't like offering anyone reduce wages for their hard work but I don't think I need to work for free either.

Jan 20, 2009 08:37 AM

Jeff Payne

The Payne Group at Keller Williams Success Realty - Panama City, FL

Panama City Real Estate

Ron, the buyers do need to be fully informed and then they can make an educated decision whether they want to wait or not.

Jan 20, 2009 08:42 AM

Jeff Payne

The Payne Group at Keller Williams Success Realty - Panama City, FL

Panama City Real Estate

Bean and Dunn, Our MLS has a box to check if it is a short sale and the verbage automatically goes in with a 50/50 split should the lender reduce commission. We as listing agents need to be educated on what the lenders will pay and try to adjust the commission accordingly. As far as realtors including a compensation agreement, they can try but most likely they won't get more money and in the case of a buyer-broker agreement, the buyer would need to pay the agreed to amount on the buyer-broker agreement since that is between the buyer and the buyers agent.

This is a short sale/foreclosure listing. Property is subject to a lien which may require release by the lien holder/3rd Party. Sale price and gross commission are subject to this 3rd Party approval, therefore compensation payable to cooperation brokers may be reduced, please call listing broker/agent for details.

Jan 20, 2009 08:47 AM

Jackie Hawley

Coldwell Banker Professionals - Oxford, MI

Southeast Michigan Real Estate

If the buyer agreement states the buyer's agent will receive X amount, the buyer can always make their offer subject to the buyer's agent receiving X commission. The problem with the 50/50 is the bank could always come back with an approval on the mortgage reduction subject to the agents receiving 1% or 1/2% or 1/4% each. The buyer's agent isn't involved with negotiating with the lender and isn't in a position to protect their commission other than stating it in the purchase agreement.

Jan 20, 2009 09:04 AM

Jeff Payne

The Payne Group at Keller Williams Success Realty - Panama City, FL

Panama City Real Estate

Jackie, most likely the lender is going to agree to a percentage on the commission and the selling agent would co-op 50%. The lowest commission that I have seen is 5% and the highest is 7% in a short sale, most banks will tell you upfront what they pay.

Jan 20, 2009 10:08 AM

Jackie Hawley

Coldwell Banker Professionals - Oxford, MI

Southeast Michigan Real Estate

Jeff-

Not every listing agent is you. I had one come back asking me to take 1%. My buyers didn't have the cash to pay me the difference at closing. I even had one agent tell me she had a listing that might have to think about a short sale. In the next breath she said there was no mortgage. What she meant was they were going to have to sell for less than they paid. But she still called it a short sale. If you were the buyer's agent would you want her negotiating your commission?

Jan 20, 2009 10:19 AM

Jeff Payne

The Payne Group at Keller Williams Success Realty - Panama City, FL

Panama City Real Estate

Sounds like the agent you were dealing with was trying to keep all of the commission. What bank was it? As far as the other agent not knowing what a short sale is, maybe we can get her to read Active Rain!! You are probably seeing a ton of short sales in your area aren't you?

Jan 20, 2009 10:24 AM

Jackie Hawley

Coldwell Banker Professionals - Oxford, MI

Southeast Michigan Real Estate

Hi- A ton of short sales and foreclosures. Our board offers training for short sales, but I don't think many agents are attending. Some listing agents are great to deal with- some don't have a clue and they're the scary ones. I don't remember which bank wanted us to each take 1%- the sale never happened. It was one of those times though that neither the listing agent nor the seller contacted the bank regarding a short sale until they had an offer (mine). I think the house ended up in foreclosure. Without having direct contact with the bank myself (when I have the buyer side) I don't know what the listing agent will give up to get an offer accepted. Not all agents are equal.

Jan 20, 2009 10:51 AM

Christine Donovan

Donovan Blatt Realty - Costa Mesa, CA

Broker/Attorney 714-319-9751 DRE01267479 - Costa M

This is a very well done, easily read post with important information for both the consumer and real estate professionals who are considering diving in to short sales.

Jan 20, 2009 03:01 PM

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