Short Sales and REOs to Finally Become a Search Field in the NWMLS
Jillayne Schlicke on 04 13, 2009
Courtney Cooper broke the news on Easter. The Northwest MLS has voted to add a required field: ”Third Party Approval Required” and “Bank/REO Owned.” From the NWMLS (no link):
“NWMLS is excited to announce two new required fields; “3rd Party Approval Required” and “Bank/REO Owned.” NWMLS will add these fields on April 29th. These new fields will allow users to easily include or exclude short sales and/or bank owned properties in Locator search results. The “3rd Party Approval Required” field will require a choice of “None”, “Short Sale”, or “Other- See Remarks.” The “Bank/REO Owned” field will include a simple “Yes” or “No” option. NWMLS will provide more information about these new fields in the coming weeks.”
I’ve been teaching the Short Sale class for 8 years and the class curriculum has changed over the course of time. Most continuing ed topics have a two year shelf life meaning, agents tend to lean towards classes that are new, relevant and interesting. But this class was always popular, even during the bubble run-up years. One of the assignments I use to give out during those years was the following ethical dilemma: “Should the “short sale” terms of the transaction be disclosed to everyone?” At that time and until this new NWMLS change goes through, the only way to know if a listing has short sale terms is to read the agent comments, which are not part of the public comments. In the past, the class always came up divided: Half the students believed that the short sale situation should never be disclosed to potential buyers until it was absolutely necessary, the other half believed that it should always be disclosed to everyone, including the general public. Their logic went like this:
Against disclosing short sale terms to the public: It is not in the seller’s best interest to disclose something that could attract low-ball offers and vultures, looking to take advantage of as seller in financial distress. At least the Distressed Property Law helped us bring short sales and all their complexities to the attention of buyers AND sellers.
For disclosing short sale terms to the pubic: Selling agents said “If my buyer doesn’t know the listing is a short sale and falls in love with the subject property, only to find out later that the seller cannot perform without bank approval, the buyer could decide to walk away and find a new home to buy and we would have wasted everyone’s time.” For example, maybe the buyer MUST be moved in by a certain date. In that case, since short sales generally take a long time to close, this might not be the right home for that buyer. Disclosing short sale terms to the public (beyond just the agent remarks) means that listing agents and sellers can attract the right kind of buyer.
The market has shifted. Now we’re seeing pockets of investor groups who want to seek and find short sales or bank-owned REOs to buy. Slowly it is starting to become the seller’s best interest to disclose short sale terms. Some agents knew that it always was.
In addition, we will all be able to track distressed inventory, namely short sales and REOs, as a percentage of overall inventory in any given NWMLS market area. This is a huge step forward for those of us who are looking for ways to track where the market is heading. Looking back in time, we will be able to see trends in rising short sales and REOs. We will be able to see how these sales effect comparable sales that appraisers must use to determine fair market value. In the bubble market, appraisers could ignore those sales. In today’s more conservative lending climate, appraisers cannot ignore the sales prices of short sales and REOs and neither should home sellers, when selecting a listing price and home buyers when making an offer. With short sales starting to creep into the mid and upper price ranges, these new stats should be very interesting to track. Thanks, NWMLS.
About the Author: Jillayne Schlicke
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15 Responses to “Short Sales and REOs to Finally Become a Search Field in the NWMLS”
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“Slowly it is starting to become the seller’s best interest to disclose short sale terms. Some agents knew that it always was.”
Jillayne,
I think it depends on whether or not the seller is to be absolved of the shortfall post-sale. One of the biggest errors on the part of persons “representing the seller” is to assume that the sold price is of no consequence to the seller “because he’s not getting any money from the sale”.
It would seem the “new rule” focuses more on ease of agents and buyers “looking for”, without regard to potential negative impact on those sellers. If a seller has no say in whether or not the negative advertising is to be used to “procure buyers” via the mls, we may be leaving their options to list in the mls dramatically curtailed.
There should at minimum be a bold print warning that publicly revealing their weaknesses could, and likely will, result in a lower sale price. It should also advise the seller to consult an attorney regarding his future obligation to make up that potentially expanded shortfall.
Hi Jillayne – thanks for the mention. I am so glad for this change as you might imagine based on some of my previous posts. Full disclosure to the public should be easier now!
Hi Ardell,
I need some help: “If a seller has no say in whether or not the negative advertising is to be used to “procure buyers” via the mls, we may be leaving their options to list in the mls dramatically curtailed.”
Well, I don’t see it as negative advertising, I see it more like truth-in-advertising. But that’s beside the point.
My real question is, do you think that short-selling homeowners may decide to go For Sale By Owner instead of choosing to list it inside the MLS due to this new rule?
Thanks.
I too look at it as more targeted advertising to people who are actually out there looking for a short sale or a foreclosure – therefore helping the sellers sell their homes. I think the sheer intricacy of a short sale or even a foreclosure transaction would do a lot to eliminate most desires for going FSBO just to avoid pitfalls – never mind the liability.
It would seem to me that relocating sellers who have a relo company handling their buyout will potentially see this new rule as a negative. They would fall into the ‘3rd Party Approval Required’.
Hi Leanne,
I would guess that Relos would be a very small percentage of sales, but maybe I’m wrong.
It might be a good thing to include them in with the “3rd Party Approval Needed” if in fact this is the reality. I’m also guessing that Relo companies are easier to deal with compared with banks but maybe I’m wrong on this too. Please let me know. Thanks!
While I recognize the sellers (human/relo/bank/etc) may perceive this to be a negative, I think it falls well within the paramaters of “disclosure”. After all, the info IS being disclosed via the agent remarks section anyway. This new field will be no more available to the public (I would guess) than the field indicating the type of financing the seller is accepting or whether or not there are CC&Rs associated with the property or how many days it’s “really” been on the market. The only way any of this is ever discovered is via realtor-access. (As it should be!!) But, to the realtor doing the MLS searching for a buyer who has to move in 30 days (due to a relocation; rental lease ending; whatever) this is significant information, as they may want to avoid falling in love with short sales and not being able to follow-through with an offer, due to the inevitable timeframe.
On the other hand, I have buyers who only want to look at short sales & foreclosures, so how wonderful it will be to have these search tools.
Finally, since REO’s & Short Sales impact our marketplace significantly, I believe this data should be easily trackable by the MLS, similiar to price reductions and CDOM.
I’m all for it and think once the “news” of it dies down, sellers won’t know the difference. There will always be people who don’t care about the time frame and want the good deal.
I’m not sure if this search field is necessary. For example, if most buyers are being represented by a buyer’s agent via agency disclosure form, why wouldn’t a buyers agent disclose to the buyer that they were writing an offer on a home that was a short sale candidate, pre-foreclosure/ a home that currently has a Trustee Sale recorded?
Certainly this change may make that type of listing more “public”, but would any buyer’s agent REFRAIN from telling their “client,” with whom they have a fiduciary relationship, that they are writing an offer on a pre-foreclosure, foreclosure or short-sale property?
I can see how this change would benefit those looking specifically for distressed sales, but it’s not clear that it would be “detrimental” to a seller who for all intents is pretty much a “participating principle” in the pre-foreclosure or short-sale transaction, at the most.
Is this going to be a public search field or not?
Tim,
Whether or not it is a public search field is largely dependent on whether or not brokers are willing to take on the extra cost of adding the feature to their websites. I would expect Redfin to add it, as example. It’s like cumulative days on market. I think all brokers “can” show that now, but not all will change their sites to reflect that feature.
Jillayne asks: “…do you think that short-selling homeowners may decide to go For Sale By Owner instead of choosing to list it inside the MLS due to this new rule?”
It’s a Catch-22. Most lienholders require that the property be actively listed for sale in the mls in order to consider the short sale offer. Most lienholders want fairly close to fair market value, which is harder to achieve once the short sale status is disclosed.
Some banks used to have instructions that the “bank-owned” staus not be revealed and owner simply says “owner of record”. Some mls “rules” may be in conflict with listing agent instructions from their principal. Will be interesting to see how it plays out.
Since the information is already disclosed in the agents remarks section, adding “short sale” and “subject to 3rd party approval” fields will streamline the process of including or excluding these listing rather than forcing agents to review the listings manually. It will also shed some light on the actual statistical impact that these sales are having on the market place.
I have mixed feelings about making this a public search field. On one hand, buyers who know what they are looking for can more efficiently find the homes they are after, which is good.
If home buyers are uneducated about short sales, bank owned properties and other properties falling under these categories they may be missing out on properties that are a great deal for their situation. This is where agents play an important role for the home buyer. Now all we need to do is get the agents educated on these property types.
It’s about time! I’m sick of weeding through listings one by one to determine short sale status or bank owned status. In snohomish county, I have eliminated over 50% of some clients searches due to short sales.
Hi Tor, What? No kidding? What part of Snohomish County is at 50% short sales/bank owned inventory? Thanks.
Jillayne,
This is off topic, but I have a question from a short sale buyer on this post I don’t know how to answer. Your help appreciated.
http://www.raincityguide.com/2007/12/13/should-you-buy-a-short-sale-property/comment-page-6/#comment-338908
What happens when the loan is a VA loan? Does the lender have approval to accept a lesser amount? Or do they need government approval since VA loans are guaranteed loans? Seems the lender is not the one to take the hit if the government is responsible for making the lender whole. So who does the short sale approval come from, and does it take longer for the lender to get government approval, if they in fact need that before acceptance?
Would apreciate your jumping into the comments on the linked post, if you have some light to shed on short sales where the underlying loan is a VA loan.