Over at the Estately Blog (formerly the ShackBlog) we did a little digging into how easy it is to find publicly advertised Short sales and foreclosures in the MLS and we found a few.
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Over at the Estately Blog (formerly the ShackBlog) we did a little digging into how easy it is to find publicly advertised Short sales and foreclosures in the MLS and we found a few.
I don’t see why you’d go looking for short sale situations. Short sale does not mean bargain. It just means that there’s a third party involved (the bank) that will have a say over the price because more is owing on the property than what it’s worth.
If you find a house that you like, and it happens to be a short sale situation, I wouldn’t necessarily back away. Just be aware that it’s going to be a more difficult purchase than what would otherwise be the case.
I assume the foreclosures are pre-foreclosure, and there you could find a very motivated seller. But unless they have significant equity, that might not matter much.
Hi Galen,
Try some of these keywords or phrases
preforeclosure
pre-foreclosure
subject to lender approval
short payoff
forced sale
Galen,
In the Northwest MLS, agents are required to disclose to other members of the NWMLS if there are short sale requirements. (NWMLS Rule number 10(f). Members can read more by locating legal bulletin number 169 dated July 13, 2004).
However, this requirement does not extend into the public comments section.
In the short sale class I teach, I give real estate agents the following case study to ponder: “What ethical duties do real estate agents and Realtors have, to disclose the short sale terms to everybody, including the general public?”
Students answer that they would not want to tell the world about the short sale because it might bring lowball offers, doing so might compromise the seller’s right to privacy during a difficult financial crisis (what would the neighbors think, dear), and disclosing short sale terms might frighten away possible homebuyers.
The counter argument is that if a homebuyer falls in love with the place, and THEN finds out about the short sale terms, the homebuyer might decide that he or she does not want to wait that long for the bank to approve the short sale, and could decide to walk, thereby wasting everyone’s time.
Some agents tell me that IF a home sold for a particular price, there might not be a short sale, so they don’t like to disclose the worst case scenario unless forced to.
Agents rarely consider the idea that telling the truth to the public (example: this home sale is subject to lender approval of a short sale) would actually be in everyone’s best interest because doing so would attract the kind of homebuyers who WANT to purchase these homes. The supporting logic is that by disclosing the short sale terms to everyone, the agent might not be looking out for the client (seller’s) best interests under state agency law.
It’s always fun to assign a case study about when law and ethics collide.
I would love to hear from some investors out there, who want to be able to do a public MLS search for short sale homes to purchase.
Great points Jillayne. I am sure there are more “foreclosure” and “short sale” homes in the private comments that are reserved for real estate agents only.
We primarily did this as an experiment to see if people were advertising short sales and foreclosures (some are). Certainly if you’re advertising a property as a short sale (or more so pre-foreclosure), you’re feeling a little desperate and it could indicate to buyers that you’re willing to at least consider low offers.
My take: if you’re a patient buyer and you’re willing to tread where others won’t go, you can find good deals.
Jillayne,
Are agents obligated to answer questions from a consumer in writing such as “Is this a short sale”? OR is the burden of discovery completely on the buyer?
Hi SS,
I’m not 100% sure. We would have to ask one of our Realtors to answer that question.
“I don’t see why you’d go looking for short sale situations.”
A short sale is one in which the lender is accepting less than what is due on the loan. Since this will usually be less than the current homeowner bought you certainly getting a better deal than the owner got. You’re a real estate agent and you don’t know this?
Hi Galen, very cool search feature on your website!
One thing to point out…”motivated seller” does not neccessarily mean the seller is any where near foreclosure, could be, but it could also mean that the seller is tired of having their house on the market or has a contingent offer on another home or ?
Is “short sale” about the house…a disclosure about the property? Or the private financial distress of the seller?
Clearly other financial or health distresses of the owner are not the world’s business. The only reason it is required in the agent’s remarks is because the “promised” commission amount might be reduced in the final settlements. It is an “agent-centric” rule.
Should divorce be disclosed? Is that everyone’s business? Equal distress in many cases and sometimes can cause delays in closing. Some short sales DO close on time, so what are you disclosing if not the hardship of the person and not the property? Why WOULD you disclose it? If the seller has to pay the difference later, aren’t you working against your client’s best interests?
And to disclose it to the buyer agent, it then becomes imperative that the buyer agent disclose it to their client, the buyer.
A mess, anyway you slice it. I’d have to do what is best for my client. Many sales need an extension. At that point, as soon as it is known IF it can’t close on time, then that must be disclosed and resolved. To alert the public, only works to the interests of the agent, and so is not likely the best way to proceed.
Clearly a seller should consult with an attorney before giving their agent permission to announce “short sale” and go over the potential damage that may cause them.
Ardell,
I’m with you on this. When representing a Seller, it’s unethical to divulge personal information that could be detrimental to the Seller’s interests . As you point out, if it’s a material defect, of course we need to disclose. If it’s a financial concern, or personal matters, it’s only the Seller’s business and the agent’s business as far as the Buyer is concerned. Also, unless we have specific instructions from a Seller, ethically we can’t even suggest that a Seller is willing to take any less than the listed price (such as “motivated Seller”).
Now on the other hand, by MLS rules, we have to disclose to other agents the short sale issue. We do this because of our cooperative agreement with the other brokers, and we’re telling them that their compensation may change and extensions, etc may be required becuase of the short sale.
If you don’t disclose a short sale to the buying party, how do you explain why it will take 3, 4, 6 weeks or more to respond to their offer???
“Thanks for the offer! We’ll let you know in a few weeks if it’s acceptable” just isn’t going to cut it.
The Arizona Association of Realtors just released new addendums with short sale language and recommends their use on both listing agreements and purchase contracts.
Greg,
Here’s what I have done. (years ago; haven’t done one recently). I up the total commission, but not the buyer agent fee, to start with. This way when the commission gets cut, no one knows except me and my client.
You only have to disclose it per mls rules, if you are not going to pay the amount stated in the mls at the end. Way around that to protect your client, is to take the hit on your side, and no one’s the wiser.
Fiduciary equals to protect the client’s interest over your own. Where there’s a will; there’s a way. Worked out for me. I’d rather have a ticked off agent than a screwed over client, but you don’t need to have either. Just up the fee from the get go, and be willing to make the other agent whole, if it becomes necessary.
Jay,
I have closed short sales on time. Just make it a longer close in the first place.
The reason mls may become extinct, is they keep making rules and forms that work best for agents and all too often contrary to the public’s best interest. They really have to stop doing that.
I had an office meeting yesterday and explained that everything we do will be tested from how it impacts the consumer first, the agent second and the company last. The industry has to get its priorities in order.
Just because the “norm” is 30 days, doesn’t mean you can’t put 60 days for a closing. No reason the seller can’t accept with a long close in the first place.
I remember one where the seller’s attorney refused to come to the closing because he said it would never close on that date. It did close on that date. I busted my butt and we had judgments, 2 loans and no condo fees paid for five years. It was a ton of work to get it to close on time, but it did close on time. Just set a realistic time to close in the first place.
The main problem I had on that one wasn’t the short sale at all. It was the seller trying to pass off his new girlfriend for his old girlfriend that was on title 🙂 I surprised everyone by finding his old girlfriend and bringing her with me to closing to sign. That one was a wild ride even after closing. Almost had a riot on my hands. I’m not running around looking for short sales to list, that’s for sure. But if they come my way, I figure God sent them and treat them accordingly. Just how I see it.
Sometimes I think I’ll have a class on dancing. Would probably teach agents more about what they need to know than forms review. Of course they will still have to remember who they are dancing with, and not switch partners midstream.
An agent dances with their partner, without stepping on the toes of the other people on the dance floor. Trying to dance with two partners at once rarely works out as well. Worrying about the other agent and the other agent’s client is good, but not when you do so at the disadvantage of the one you are dancing with in the first place.
Why not disclose to the buyer right up front when divorce (law suit) and notice of default is of public record?
These items do affect the marketability of title and the ability of a seller to convey.
What else do you think your sellers should hide? AIDS, suicide, drug labs….. As I see it your all about commissions
ARDELL –
I’m not talking about closing on time. I’m talking about APPROVAL of the offer.
Say I put 60 days in for closing. Buyer says fine, no problem. The buyer’s inspection period starts with contract acceptance. So we’re supposed to keep the short sale a secret, and let the buyer assume their inspection period is underway? Meanwhile, we’re still taking offers because in reality we don’t have an accepted offer until the bank says so.
I guess we just lie to the buyers agent when he calls after 4 or 5 days and says, “Why isn’t the home showing pending in the MLS?”
Now it’s day 45, and you still don’t have bank approval. I guess we lie when we ask for a closing extension.
Or worse, it’s day 45 and you get a call from the bank — telling you “offer denied”.
Now what do you tell YOUR client when they get sued non-performance?
Jay,
You do have a point. Real world is that the Buyer does find out about the short sale from their Buyer’s agent (the listing agent is required to disclose in agent comments to the Buyer’s agent). The offer is written subject to the underlying lien holder’s approval and language should be inserted in the offer saying as much. As you point out, short sale problems are much, much more than just the commission aspect. I always expect to work harder and get paid less, but I don’t shy away from them. Even in good times, the short sale deparment at the lending institutions are difficult to communicate with. Now it’s insane.
I think the question is ethically should we post the short sale information in the public comments? or just in our agent comments?
I think disclosing a Sellers personal infromaton in the public comments goes over the line. A legitimate Buyer interested in the property will know it’s a short sale before making the offer.
BTW, the fines are stiff in the NWMLS for not disclosing a short sale in the agent comment field. Any agent here that has prior knowledge of a possible short sale and does not disclose it in agent comments could find themselves up to $5,000 poorer.
Morality is driven by economics.
Who said that? It sounds like a quote from someone famous. I bet I read that someplace during the last 3 years so I can’t take credit for it.
Anyways, I believe once it becomes profitable to do so, then the “short sale” terms will appear in the public comments.
The MLS is controlled by agent members. By profitable, I mean to say profitable for real estate agents.
Jillayne,
I think we’re talking Agency License Law here.
It is possible to put “short sale” in MLS public remarks, but only with explicit written instructions from the Seller that it was their desire.
And by the way, if “short sale” is used in “agent comments”, it is treated by the MLS as a restriction and a letter MUST be on file, written by the Seller, notifying the MLS of the restriction.
Bob R,
You think it’s your business if someone has aids? How about cancer? How about a pimple? Clearly I am only about my clients best interest and you sir, are a fool. Disclosure as to a property is property specific and value specific. The value didn’t go down if it is subject to short sale, but the price can if the agent isn’t looking out for the seller’s best interests.
Jillayne,
If that is so, do you expect the dentist to pull all your teeth because he makes more money selling you a mouthful of crowns? Get real! It can’t be all about the money. Talk about going to hell in a hand basket. You can’t really believe that agents representing consumers are all about the money. It really can never get that bad. Sure some do, but they need to be weeded out, not told they are correct by you! Puleez!
Jay,
There’s a BIG difference between saying short sale in an advertisement and the mls and discussing it with THE actual buyer when an offer is presented. HUGE difference. Maybe you disclose it at time of acceptance giving the buyer 72 hours to back out as a result.
Timing is everything and NO mls rule can dictate how we best represent our clients, because frankly…they don’t “get it”.
If “the rule” negatively impacts your client you have to look in the mirror and make a choice. You take the listing and break the rule OR you tell them how to sell it themselves and call Craig.
Once you have determined that what you are going to do will negatively impact your client because of some mls rule, you back away and find a better way for the person to accomplish their objective. Best advices and damn the rules at the point where they may harm the consumer you are supposed to be representing. Bad rule.
Greg,
If it can be in the agent comments then it can be in the public remarks because if the buyer agent knows it, he better damn well tell the buyer, his client. Someone needs to tell the mls we aren’t working under sub-agency anymore when you could “hide” things in the agent remarks. Do they ride horses to work?
Agent remarks are not a secret between the buyer agent and the seller agent, except as to access issues like alarm codes and owner home or not stuff.
If there’s something in the agent remarks that might suggest the buyer should offer a lower price, and the buyer agent isn’t revealing that to the buyer, shame on em.
Ardell, my former dentist was trying to do just that. About 5 years ago he said I needed to have my fillings re-done and I should do bone colored which my insurance considered cosmetic. I got a second opinion and I still have those same fillings–no problems.
That dentist was going thru a divorce…must have been an expensive one.
There’s greedy people in every industry. They’re not just limited to mortgage or real estate!
I for one do not want to live in a house where the previous owner had AIDS or committed suicide. There fore the property has no value to me and I would sue you and your seller for not disclosing material fact specific to that property. How would like your child coming home form grade school having been taunted by the other kids over the homes stigma? You live in the aids house or…. What if my child were to find a needle in carpet with her bare foot? No that house has no value to me.
Ardell,
It may well be a bad rule, but we have to play by it. The way I undertand agency law is that we can’t disclose publicly adverse information about a Seller’s situation. (Unless as I said the Seller gives us specific instruction in writing). I really do not see any way around this one. Maybe my understanding of agency law is incorrect. If my understanding is incorrect, there should be nothing stopping any agent from dislcosing a short sale in the public comments section. For now, I’ll err (if I am in error) on the conservative side
Meanwhile the MLS requires us by rule to disclose short sales in the agent comments, which I will. #1 it is the rule (although you think may be a bad one), and #2 the fines by the MLS are heavy handed. An agent got fined (MLS disciplinary action) within the last couple of months for this very issue).
No dispute from that the Buyer’s agent will tell the Buyer that they are working with a short sale. As I said before, short sale language will need to be a part of the offer.
I’d acutally like to see the attorneys chime on the agency law aspect of disclosing potentially adverse positions to the Seller (without specific written instructions) in the PUBLIC remarks vs. AGENT remarks.
“I for one do not want to live in a house where the previous owner had AIDS… blah blah blah”
Wow, how incredibly ignorant.
“…and I would sue you and your seller for not disclosing material fact specific to that property.”
Might as well light your money on fire, assuming you could ever find an attorney to take your case. At least where I’m at, such a case wouldn’t stand a chance.
Ignorant I am. Yet I do not want to live in a house where the previous owner had AIDS or committed suicide. That is my choice to make not a real estate agents.
More keywords
Use less words instead subject to lender approval
Just use Subject
Hte otehr way it is announced is Subject to third party.
I use just the word Party. Remember there is no standard, you have to guess what the listing agent marked.
Bob R,
The person who puts the property “in the mls” represents the seller, not the buyer. The person you choose to represent you has to try to determine how to meet your needs. If you have special needs, you need a special agent to represent you. But facts about a person are not part of the disclosure laws here. In fact HUD guidelines state you should not talk about people when selling homes. “executive neighborhood”, “good family neighborhood” refer to people who live in houses, not the houses.
The agent for the seller really can’t help you. You need your own agent who has limited abilities to discover if anyone ever committed suicide in a house or had aids. In Seattle, homes are built a very long time ago…before aids had a name even. Good luck with that. Maybe you should just always buy new construction.
Greg,
If the agent you are disclosing to in the agent remarks is the agent for the buyer…that IS making it public. If the buyer with an agent is allowed to know, than what reason would you have for withholding that same information from a buyer without an agent?
Are you suggesting the agent reading the agent remarks would not be disclosing that to their buyer client? Yes, I’d love to hear from the lawyers on that one too. I can see no justification for only disclosing to some of the buyers, the ones with agents.
Question:
If we had a certain percentage of homebuyers who were actually trying to search specifically for homes where the homeowner was in a short sale scenario, do you think it might be in the seller’s best interest to put this in the searchable public comments section?
The seller has to weigh the pros and cons and make their decision accordingly. It depends on the property and how salable it is without using “short sale” as a feature to sell the home.
Does the owner have to make up the shortfall later? Does it become a continuing debt? If so, getting a lower price will accomplish the immediate objective, but leave him paying more in the long run. I think the seller needs to be advised of the potential consequences, and the decision is his, and not an mls decision.
I wonder if sellers know what happens after it is sold without their debt being paid in full? If they find out later that showing their distress caused them to pay thousands of dollars more out of pocket, does it seem fair that they were told they “had to” do it that way? I don’t think so.
Jillayne,
IF there were a significant percentage of homebuyers who actually searched for short sales, then yes, it could be a Seller advantage. Again, I really don’t have a problem disclosing short sales (or any other approprate issue) in the public comment area IF the Seller has the desire to publish that it’s short AND gives me written permission to do so.
However, the Seller may not want this information disclosed publicly. There could be many reasons that a Seller is forced to attempt a short sale. Divorce, Illness, lost job, failed business, or bad consumer habits. All these could lead to the embarassment of the Seller who would not want friends or collegues to know they are in financial difficulty.
The specific Buyer must know and that is disclosed through the Agent comment box (which is the MLS rule)
Again, my take, and perhaps I’m wrong, is that we have an Agency Law issue here regarding public disclosure of a Sellers interests. The Seller (principal) should be calling the shots here, not the agent. We can advise, but when it comes down to it, we’re working for the principal’s interest.
The specific Buyer is notified of the sale restriction through his agent ( the agent comments section).
Ardell,
Perhaps the MLS should not require any disclosure regarding short sales, but right now they do. As a new designatied broker you’re in a position to “go to war” with the MLS so to speak. But until the rule changes, member agents will be facing fines if they don’t disclose the sale restriction.
Greg,
I am of the belief that no rule or law presumes to direct representatives of consumers to act in a manner contrary to the consumer’s best interest, nor do they have the authority to do so.
When and if they do make a rule that tells you to act in a manner that is contrary to your client’s best interests, they lacked the authority to do so.
There is a reason for every rule. As long as you know that reason and preserve that reason in a different manner, you will never be fined for acting in your client’s best interest.
Case by case, my client and I will talk about these things and decide if, and if so how, to disclose that the closing may be delayed and how to pay the selling office what we promised in the mls to pay them. That simple.
Agent’s whining is the reason for so many rules. Agents afraid they may have to reach in their pocket to make the promise to pay a given % to the selling office is the reason for this rule. Now what would you do if you were not afraid? You’d find a way to guarantee your promise to pay in the mls, without it negatively impacting your client. Find that way, and the rule goes away.
I didn’t say “ignore” the rule. I said have a meaningful conversation with your seller client, and decide together what to do to accomplish the seller’s objective without negatively impacting the buyer or their agent. Who could find fault in that?
Ardell,
I can think of a rule that advises real estate agents to act against the seller’s best interest.
For example, sellers must complete the NWMLS Form 17 Disclosure statement, answering honestly about items that might affect a homebuyer’s decision such as marketability of title, easements, and so forth. This turns caveat emptor into caveat vendor. It might not be in the seller’s best interest to be honest, but now he or she is required to be honest on this form.
With a short sale, a seller cannot perform without the permission of a third party. Most would consider this fact a material fact, worthy of disclosure.
What we’re debating, is WHEN the “short sale” terms are disclosed.
If the home is in foreclosure, it is now a matter of public record and is no longer private, for anyone could uncover these facts. Not all short sale transactions are in a state of foreclosure.
I still hold to my idea that when it becomes a selling point, then agents will, as Greg pointed out, talk with their sellers about the advantages of putting “short sale” in the public comments.
Rob (at aubrey.net), good call. I searched for “subject” and “party” (“subject to third party”) and didn’t get any hits. Subject is too broad – then you’re hitting the Subject to Inspections.
Hi Everyone,
Scroll down to comment number 64 on my Short Sale article, from a woman in Illinois who visited RCG this morning.
This is a VERY GOOD example of why short sales should be disclosed up front, to everyone, in advance. By everyone I mean disclosed to the public in a very clear way.
Doing so maximizes good consequences for the most number of people and minimizes negative consequences for the most number of people.
Doing so holds both agents accountable to their clients.
Hiding the fact until a more convenient time seems disrespectful to homebuyers who might have otherwise been fine with waiting it all out. Don’t home buyers deserve to know, just as much as home sellers deserve to have their private little financial mess kept quiet?
http://www.raincityguide.com/2007/03/05/short-sales
just read comment numer 64.
Disclosing Short Sales to the public maximizes the seller’s ability to attract the right kind of buyer.
Joel wrote: “A short sale is one in which the lender is accepting less than what is due on the loan. Since this will usually be less than the current homeowner bought you certainly getting a better deal than the owner got. You’re a real estate agent and you don’t know this?”
This is simply wrong. Apparently you’ve not heard of either refinances, pre-payment penalties, or costs of sale.
Often people can refinance at a value higher than what they owe–refinance appraisals tend to be high.
Often loans come with 3% pre-payment penalties. Add that onto the 9% costs of sale that can be involved, and you quickly end up with a deal that’s not a deal.
Short sales are not necessarily bargains. I’d even say most of them are not, and there’s no reason they should be.
I have to disagree with a lot that’s been written as to the reason for requiring a short sale. IMHO, it’s primarily so that the selling agent can protect their own client’s interests, and let them know up front that it’s possibly going to be a problematic transaction. Writing an offer can be an emotional and demanding experience for a client, and they should know what they’re getting into before they write the offer.
Also, if something comes back asking for a reduction in commission, I’d say the listing agent had not done their job.
The first sentence of the post above should have said “requiring disclosure of a short sale.”
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