My friend Geno reminded me today that some are in the “leave the gun; take the cannoli” stage of the real estate market. It also reminded me of the stark differences between 2008 and the last time I participated in this same kind of market, which was in 1990 and 1991.
I remember leaving the gun and taking the cannoli in Yardley, PA. when I was working for one of my two favorite brokers, Frank Mancuso, also one of my two favorite Franks. I was working with a nice young family, relocating to Yardley from somewhere else, trying to find a good value in a turning market like this one. We “targeted” a house where the owner had been relocated by his company too. We truly held a gun to the head of the “relocation company” during initial negotiations, and then picked the carcass clean at time of inspection in a second round of negotiations.
The similarities? Only those who really wanted to sell, or HAD TO sell, were selling. The deepest discounts being the vacant houses where the owner had already moved on, and there was no chance the owner would be coming back.
The differences? The reasons why people “had to” sell. Tim’s story yesterday reminded me of when Buddy Ryan was canned by the Eagles in 1991 and everyone in the office was wondering who would be selling his house. Needing to sell your house in a bad market, especially when the vultures perceive that you NEED to sell it, can be an awful place to be. Still when the sellers are highly paid people or relocation companies, no one’s wasting any tears. It’s when the carcass to be picked looks like the family depicted below, that you take pause.
Truth is, people trust professionals to NOT let them, or encourage them to do, what will hurt them. So when you take out the gun and put it to someone’s head so that you can leave with the cannoli…at least look them in the eye when you’re doing it. Maybe talking someone into doing a short sale is like pulling the plug on someone that was just about to be saved. Think about that before telling people a short sale is their only or best choice.
The only difference between buying a short sale and buying a foreclosure is whose head is at the end of the gun, and whose cannoli will taste better in your mouth after all’s said and done.
I don’t understand why those nice people in the graphic are losing their home. If they own it, why would someone take it away from them?
Oh, they don’t really own it, do they? All they have is leveraged debt. The debt owns them.
Do REALTOR®s keep track of REOs and short-sales for the houses you have closed? Would you ever identify possible short-sales of former clients’ homes based on your knowledge of their leverage and how truly doomed they are?
Ardell, I’ve read this a few times now, and I really don’t understand the point you were trying to make. Could you please clarify?
“Do REALTOR®s keep track of REOs and short-sales for the houses you have closed? Would you ever identify possible short-sales of former clients’ homes based on your knowledge of their leverage and how truly doomed they are?”
CG,
I have not seen anyone doing that, but we do get concerned about our clients who work at certain banks and companies in the area. You raise a good point though. When a builder buys a piece of land he almost always uses the same agent who found the land to sell the new home built on it. But I have not to date seen the person who sold people the house, be the ones who handle the short sale. Doesn’t mean it never happens, but I haven’t seen it.
There are Companies who will not let their agents do short sales as a matter of policy. I wonder how ethical it is to tell agents they can’t help someone do a short sale, if they were the ones who sold the house to them.
I’m meeting a client at a short sale this evening. I’ll ask the listing agent if he was the one who sold them the house when they bought it. Looks like it was a flip project prior to being purchased by the now defaulted owners.
For the record, the people in the photo that I got off the internet were losing their home via eminent domain. I used it to make my point, which I will shortly explain to Kary.
Kary,
Kim just walked into my office and asked “what part doesn’t he understand?” But then Kim knows me better than you do 🙂
I guess the overall theme is to stay in touch with your humanity, even though it’s “business”.
From the listing side, all too often short sales are pursued by big teams who specialize in getting owners to sign listing contracts. There has been much talk about agents being exempted from the Distressed Property Laws (in fact I think I heard you say it). Truth is they should NOT be exempted. There are many teams of foreclosure and short sale specialists who conduct business the same as the “middlemen” groups the law was targeting. Merely having a license should not be the basis for exemption, as we all know how easy it is to get one.
Back to Christiangustafson for a second. Teams of foreclosure and pre-foreclosure specialists have expensive programs that flag homes when they get behind in their payments. Potential short sales ARE targeted, but not usually by the agents who sold them the homes. They are more often targeted by agents who specialize in short sales and foreclosures.
Now back to Kary. I’m remembering another family back in late 1990 who called me because the husband lost his job. At the intitial appointment (one of my first ever listing appointments) I prepared the paperwork for the owners to put the house on the market. Looked a lot like the family in that photo, except everyone was a little younger.
After I had the listing contract signed and I knew the people a few hours better, I asked them if their parents knew what was happening. They said no, we were going to tell them after the house was on market. “We’ll have to because they will see the sign”. I urged them to talk to their family first. Their family helped them make it through until the Dad got a new job, and the situation that was forcing them to sell was resolved. Oddly the agents in my office all gave me their “condolences” saying “That’s a shame; better luck next time.” I was as confused then, Kary, as you are now.
I guess the agents saw “the point” as this is business and I lost a listing. Personally, I thought it was a fabulous outcome. Proof that I never was “on the same page” with most agents. Not bragging about that as it does not make my life any easier, in fact it makes it much harder.
Before I go to the buying side, I will point out that “the cannoli” is in some cases the commission where the agent is concerned, and the great deal as far as the buyer is concerned. Cannoli comes in various flavors. Sometimes the gun to the head is getting them to sign a listing contract, sometimes it’s getting them to take a lowball offer. Often people in these situations are making decisions “under the gun”.
Before I leave the listing side, I seriously URGE the Powers That Be and anyone taking a short sale listing, to have added wording regarding the sellers understanding of the lenders ability to pursue the shortfall. In fact, the seller should have an out IN THE CONTRACT in the event the short payoff approval does not carry a forgiveness clause. Huge oversight in the P & S addendums IMNSHO.
I’ll do the buy side in a separate comment, as this one is long enough.
Before I leave the listing side, I still find it very troubling that all the “rules” force the owner to “show their hand”. Clearly the seller loses ALL leverage once it is disclosed that it is a “short sale”. This to me is INSANE!
I’m remembering another sale back in 1992. Owners had filed bankruptcy and we were able to sell the house for over market value by NOT disclosing the seller’s weak position. Today I couldn’t do that under MLS rules. Yes there was “hell to pay” at closing when the agent for the buyer was shorted on his commission. One of the two longest closings in my history, both being distressed seller situations.
How the heck can we say we “represent the seller” and then blast their dirty laundry all over the internet “possible short sale!”, especially when we then do not give the seller the bad news that they may be responsible for the shortfall? Well maybe we do say “may”, but when does “may” turn into “will” and why don’t we have an out for the seller for that at the time the news is delivered?
Why do we not give the seller the opportunity to “play their cards close to their vest” and how can we say we represent the seller when we do not?
OK…I’ll try the buy side again.
Kary – When people are making decisions “under the gun” and the person advising them or negotiating with them has something to gain at the end of the discussion…the person who exits with money in hand “leaves the gun and takes the cannoli”. Short answer.
Ardell, I’m not in favor of agents (or attorneys) being exempt from the distressed property law. There are some “Realtors” out there associated with major companies that have done some horrendous things. They shouldn’t be exempt because they took a 30 hour course and obtained a license. What I’m in favor of is a law that makes some sense, and the distressed property law as passed doesn’t do that for the reasons I’ve addressed elsewhere. The added portions of the distressed property law are merely designed by a small group of attorneys to allow them to sue a wide variety of people on extremely frivolous claims and be protected from Civil Rule 11 (frivolous lawsuit) claims back against them. Rather than protecting homeowners in trouble, it harms them, because it forces the legitimate and honest players out of the market.
As to the disclosure issues, that protects the buyer too. Absent those disclosures the buyer would be liable for breach of contract claims if they couldn’t close. And as to the situation being a short sale, that possibility should be obvious to any buyer’s agent worth hiring, except perhaps in a co-op situation. The agent finding a bankruptcy or divorce would be a bit tougher. So I guess I wouldn’t have an issue changing the rules on disclosing short sales (especially given the terms of the new 22-SS form), but the problem is the property being a short sale does affect time limits, so the buyer’s agent needs to know about the short sale for that reason. Also, given the fact that there are timing reasons for a buyer to avoid short sales, I’m not really sure what would be accomplished getting offers from people that don’t want those timing issues.
In a market where there are bus loads of people going to foreclosures, it’s almost like walking through a field of dead bodies looking for salvageable items and leaving with a load of watches and rings. But the seller in a foreclosure is a bank, so that is part of my “point” here.
Hard for me to leave the seller side…how about Tim’s Story. The owner in that scenario is “undisclosed” in the mls but now blasted all over the internet due to “public record”. Talk about no privacy in this Country.
IF the taxpayers just bent over to a MASSIVE BAILOUT, why is no agent seeing a light at the end of the tunnel for a seller? For any seller. Everyday I hear politicians talking about how they are going to FIX things for sellers and “main street”, while agents are running around with listing contracts pushing sellers into unforgiven shortfalls. Hence this line in my post above “Maybe talking someone into doing a short sale is like pulling the plug on someone that was just about to be saved. Think about that before telling people a short sale is their only or best choice.”
Also, from the post above, “The deepest discounts being the vacant houses where the owner had already moved on, and there was no chance the owner would be coming back.”
Whether it be a short sale or a foreclosure or a relo property, the property being vacant is generally the “pass” to bring the gun and take the cannoli. Why it is vacant should not be disclosed by “the agent for the seller”.
Ardell, if that’s your point, I guess maybe I can put it in context in a different way. Back when I was doing bankruptcy work I’d probably talk to at least four people on the phone for every one I saw in the office. The reason? It was because the other four I’d tell them that they needed something other than a bankruptcy, and all I did was bankruptcy. There were other places that were bankruptcy mills that would presumably take such people in as clients and file them into bankruptcy, even though it wasn’t their best solution. So yes, there have to be limits on what you try to do while you try to earn a living. If that was your point, I agree.
The problem is, most the people you’re describing have some idea they’re in a bad situation. You aren’t the messenger of that news, although you might be able to fill in some details.
Even before the distressed property law, I didn’t do short sales due to my distaste for dealing with banks. But for the honest and capable agent doing short sales all I have to say is they really earn their commission. Unfortunately it’s probably difficult for sellers to determine who is honest and capable, and so they probably do fall prey to a lot of scammers.
Ardell wrote: “IF the taxpayers just bent over to a MASSIVE BAILOUT, why is no agent seeing a light at the end of the tunnel for a seller? For any seller.”
Part of it is the politicians scared people and the news gave people the impression that mortgage loans were impossible to get, when really they weren’t being affected much at all by the recent credit crunch that brought about the bailout. Ken Harney wrote about that in last Sunday’s Seattle Times: http://seattletimes.nwsource.com/html/realestate/2008280221_harney19.html
Kary #7,
“And as to the situation being a short sale, that possibility should be obvious to any buyer’s agent worth hiring”. I agree, but FORCING the “agent for the seller” to hand over that info is like condoning negligence in massive proportions. We all know many, many “buyer’s agents” who would not see the obvious.
” but the problem is the property being a short sale does affect time limits” and this issue was addressed for many years via longer closings at time of counter and seller’s reserving the right to extend for x days. Distressed sellers is nothing new in the history of the world. Requiring people who represent distressed sellers to act in conflict with their client’s best interest IS new.
First there was a requirement for “agent only” remarks to disclose only the commission vagueness and potential to be decreased…but that rule came out Kary…in most of the Country…when all agents represented sellers. Now we hand that info to the Agent for the Buyer.
‘But for the honest and capable agent doing short sales all I have to say is they really earn their commission.”
That is why it is VERY important for Brokers to STOP treating agents like “salespeople” and feeding them “scripts” to GET people to do things.
Our profession has NOTHING to do with getting paid to WORK HARD, it has to do with representing people WELL. Any agent can rack up 3X the normal number of hours spent on a transaction…and still not be doing what is in their client’s best interest. So it depends on how you define “they really earn their commission”.
That message of course is more important since Buyer Agency complicated an agent’s role, but in many cases, as in short sales, it is often the agent for the seller who needs to be reminded who they represent and where their duties lie.
In fact, I find it hard to come up with a solution besides defying the rules in play about showing the seller’s hand to all potential buyers.
The Distressed Property Law reminds everyone…buyers, agents for buyers and agents for sellers, that they are brandishing a gun, and are responsible in part for the consequence beyond taking the cannoli.
Ardell, I don’t seem to recall anything in the NWMLS forms that would contemplate taking 4 months to get an answer to an offer. The 45 day close that someone (you?) talked about elsewhere doesn’t even come close to dealing with the short sale problem (caused by banks).
I think the reason the information is handed to the buyer is really it’s being handed to the buyer’s agent. The listing broker is offering a commission to the buyer’s agent, and the terms of that need to be disclosed. But again, a good agent should have a clue that it’s a short sale prior to making an offer, so it’s somewhat of a moot point. Arguably the disclosure only protects marginal agents.
Ardell wrote: “That is why it is VERY important for Brokers to STOP treating agents like “salespeople
Kary,
Not bringing my laptop to my Broker’s Open so I’ll be “out of pocket” for awhile.
Just pretend you are the seller and then tell me it really doesn’t matter if the buyers are given the cue to lowball and then the seller is told AFTER closing that they are coming after him for the shortfall he wasn’t warned to give a RA about.
Clearly Kary…there is NO real rationale justifying the agent for the seller standing on a mountaintop and screaming “distressed property seller over here!” I think you know that, deep down. There are grave consequences to the seller…and if agents were so darned smart we would never have moved to “cumulative days on market”.
Some buyers are actually attracted to short sales and properties with long DOM. Other than perhaps having been a meth lab, I’m not sure there’s any information that is purely negative.
And which is worse for the buyer? Not getting an offer or getting excited about an offer only to have the buyer back out when they discover it’s a short sale?
Based on what I have read, I would only be interested in buying a short sale if I thought there was a significant discount, due to the difficulty closing. It seems to me that not telling the buyer that it is a short sale is a lot like not telling the buyer that there is a substantial mold problem due to a leaky roof. You are not dealing in good faith if you try to hide that problem. If I am blowing the difficulty of a short sale way out of proportion, let me know.
I would at least expect to be able to get any earnest money back if I decided to walk away after learning it was a short sale.
Ardell, unlike Kary I think I understood the point of your post. I’m not sure the Godfather reference is spot on though. The whole point of Clemenza’s quote was that after you do a ‘hit’ you leave the gun behind because you don’t want to get caught with it later. You have blood on your hands so you’ve got to be careful.
As a buyer, I don’t think I need to worry about the morality of making an offer on a house that is openly listed, regardless of whether the owner is short or highly motivated. I don’t have a gun and I don’t even really like cannolis. If the seller can find another buyer with a better offer, more power to him/her. That’s the beauty of having a single, easily accessible MLS system; even if I’ve got to sell quickly it’s easy to get a property in front of a large group of buyers immediately.
Now those distressed home consultants might be a different story…some of those folks operate like they are packing heat and looking for some free pastries.
“We all know many, many “buyer’s agents
cautious buyer wrote: ” If I am blowing the difficulty of a short sale way out of proportion, let me know.
I would at least expect to be able to get any earnest money back if I decided to walk away after learning it was a short sale.”
I guess in an extreme example the seller wouldn’t disclose the short sale at all, wouldn’t change any dates in the offer and them simply wouldn’t be likely to be able to close. At that time they’d be in default and you’d get your money back.
Technically though, you’d learn of the short sale status possibility when the title report came in. So you’d know well prior to closing. If you didn’t have any contingencies (e.g. inspection), you might be along for the ride until the seller does default. That’s an interesting question.
Cautious Buyer,
Identifying a short sale would really require one to know whether or not someone is making their mortgage payments, and often that is not public knowledge. Buyers have always asked “why is the seller selling”, whether or not it is their right to know that answer is another story.
Answers vary from divorce, health related issues and many others. When the answer reveals a weak position for negotiating purposes, I would think the representative of the seller should do everything in their power to not reveal that prior to contract.
Can’t someone be in a short sale because they have to move and are underwater, even if they are making their mortgage payments? On the flip side can’t someone be behind on the mortgage and not be short selling because they still have positive equity?
I can understand not revealing a weak negotiating position because of a personal problem like divorce or loss of a job. If it is a “weak negotiating position” because there is a problem with the house, that will negatively affect the buyer, that is a different story. In that respect I don’t see how the fact that it is a short sale is different than if the roof is leaking. Both should be disclosed.
CB,
Generally an agent can “suspect” that it’s a short sale because the sale price is less than the face amount of the loans. But what the owner has or hasn’t paid against the loans is not readily apparent at time of offer.
For instance, before this “rule” a few years back during a hot market, the escrow person revealed to me during escrow that the seller was behind in his payments. That info was not available during negotiations and could have resulted in the seller getting a lower offer if the buyer had known that. The escrow person should not ever have revealed that to the buyer or the agent for the buyer.
That is why it is so very important that everyone remember who they do and who they do not work “for”. Most times the buyer only sees the buyer’s side and does not see the seller’s payoff.
A short sale is not a defect of the property like a leaky roof. This issue comes up time and time again. At one point buyers felt that owners with aids should disclose that as a “defect” of the house. That is why the decision of what to disclose must by made from the seller’s position and not the buyer’s, if it is not about the house itself. Buyers would like to know everything, and often feel entitled to know everything, but that is not always the case.
“seller needs a long close” can mean a lot of things, and often does. There are no easy answers on this one. All I’m saying is that the seller and the agent for the seller should decide, without a mandatory rule, when the issue at hand has nothing to do with the future value of the property.
If you buy a house with a leaky roof, you will have to pay for a roof after closing. If you buy a short sale and there are no delays as a result, there is nothing about the house that you needed to know as a result of the seller being “short”. I hope you can see the difference. What you didn’t know was that you could have paid less, and if the seller has to pay the bank the amount that you paid less for it, I find it hard to reason why “the rules” force the seller to reveal that.
Kary #16, that should be the seller’s choice, not a “rule”. Your question is “which is better for THE seller?” Answer should include the seller’s feeling on the matter, and not imposed upon the seller by an mls rule.
Laxtosnoco #18,
“Now those distressed home consultants might be a different story…some of those folks operate like they are packing heat and looking for some free pastries.”
A lot of those former “distressed home consultants” are now “buyers”. So if you agree with me as far as “they” are concerned, then you agree with me. Who the buyer is, is different in every scenario and many “middlemen” are now wolves in sheeps’ clothing. They hire an agent and buy bunches of short sales the same way they used to, except they have an agent. In fact many had an agent on board under the old method.
The “blood on their hands” is the after result of the distressed seller being surprised by owing the difference after closing, as Tim points out in his comment on another post. The seller is coming back to sue everyone for not making that point clear when he signed the listing contract, the P & S and the closing documents.
Everyone is telling the buyer what to expect as in it could take a long time and it could fail to close, but very little is being done to warn the seller about the after consequences. Many times the sale closes without the subject even being raised in the Purchse and Sale Agreement or escrow papers.
You may not care, but I believe the Distressed Property Law requires you to care.
The seller’s divorce, job loss, and health problems don’t negatively impact the buyer.
Are you saying that the fact that it is a short sale doesn’t negatively impact the buyer? I was under the impression that it does, but I could be wrong.
Disclosure, Cautious Buyer, is about defects of the property. A short sale is not a defect of the property.
Let me ask you this. If as we get further into short sales and everyone handles them better, if they operated exactly like any other closing, would you feel entitled to know that the seller was in a weak financial and hcnce negotiating position?
Often sellers are let do believe that since they are leaving with no money, the sale price shouldn’t matter to them. Once they are not making a dime, they are pretty much told to stand aside and not worry about “the process” or sale price, since they are not going to see any of it anyway. Then they find out after closing that the sale price DID matter to them, as they now have to pay the difference.
If the bank told the seller in advance what their bottom line was, and the sale could be done in the normal timeframe, would you feel entitled to know the seller’s business?
Here’s another one. If the seller is prepared to pay the difference at closing, should the seller be forced to tell anyone anything?
Let’ say the seller needs $350,000 and sells it for $345,000 and pays the difference at closing. IF the seller is forced to say “short sale”, maybe that $345,000 offer would be $280,000. That is what is happening. Once a buyer and their agent see “short sale”, they are going to pay less. Then the seller has to pay tens of thousands of dollars instead of $5,000.
Does that seem fair to you?
If the short sale didn’t impact the buyer, then it would be something for the seller to keep to themselves.
If it did impact the buyer, then I would feel entitled to know that my life and earnest money could be on hold for several months waiting for a bank to approve or disapprove of the sale.
I certainly agree that the seller should go into it with their eyes wide open to the fact that the bank may come after them for the difference.
In the second scenario, couldn’t the seller just pay down the mortgage by $5000 and not do a short sale? If not, that does seem like an unfair problem with the system.
Ardell wrote: “A short sale is not a defect of the property like a leaky roof. This issue comes up time and time again. At one point buyers felt that owners with aids should disclose that as a “defect
Ardell wrote: “Here’s another one. If the seller is prepared to pay the difference at closing, should the seller be forced to tell anyone anything?”
Short sale is a term of art meaning lender approval required. If the seller has other resources available to pay the difference, then it’s not a short sale, IMHO.
Somewhat related, not all short sales are distressed properties, because the seller may be able to continue to make the payments indefinitely. They could just be in the situation where they couldn’t sell without lender approval.
The bigger question in my mind is how does the seller’s agent verify that, and continue to verify that? Do they have to see bank account statements on a monthly basis? That situation really puts the agent in a tough position.
Cautious Buyer says “If the short sale didn’t impact the buyer, then it would be something for the seller to keep to themselves.”
Kary says “Short sale is a term of art meaning lender approval required.”
OK..let’s put this together. First, let’s all agree that the minute someone HAS TO say “short sale”, any buyer in his right mind would offer less than they would if it weren’t disclosed.
Now let’s agree that the reason it has to be disclosed is because the bank won’t clue the seller in as to what they will do until the seller has an offer. That puts the buyer at risk as to timing and other indignities.
So because the bank won’t work with the seller until they have an offer, the seller then gets less, and the bank gets to go after the seller for that amount that is less.
I think that’s called “kicking a man when he’s down”.
If the long processing by the bank and the fact that they won’t tell the seller what the bottom line is prior to the house going on market, causes the shortfall to be greater, then why shouldn’t the bank “eat” some of that shortfall?
Cautious Buyer…a defect does not have to be disclosed before you make an offer. Often defects are found or disclosed AFTER you negotiate price during the inspection. So why can’t the short sale be disclosed within a couple of days the same as other defects?
If you list the defects in advance, a buyer may deduct $20,000 for $2,000 worth of problems in their offer. Every agent knows a long list of defects puts a damper on the offer price. Timing is everything and the current process primarily finds defects during escrow, not before the home is listed.
Gotta run and show a short sale property 🙂 Be back.
I looked and in September Annie Fitzsimmons answered the question as it applies to both state law and MLS rules. Here’s what she said about the state law portion:
“A material fact is defined as “information that substantially adversely affects the value of the property or a party’s ability to perform its obligations in a real estate transaction or operates to materially impair or defeat the purpose of the transaction”. In a short sale, seller cannot close the transaction for the sale of the property without first obtaining seller’s lender’s permission to reduce the seller’s financial obligation encumbering the property. Said differently, without the consent of seller’s lender, seller cannot perform seller’s obligations in the transaction. Since seller’s lender is under no obligation to grant permission for any particular short sale, the fact that seller must gain lender’s permission is a fact that substantially, adversely affects seller’s ability to perform. Accordingly, the fact that the sale is a short sale is a material fact that must be disclosed by listing agent. “
It seems like the root cause here is the short sale process itself is taking value from the house by making it so difficult to close. By doing a poor job handling them, banks are shooting themselves in the foot as well as hurting both buyers and sellers (except the short sale vultures Ardell talked about).
Cautious buyer, that’s what I’ve been complaining about for months. The departments are short staffed, have high turnover, etc. I’ve gone as far as saying the banks would make more money paying attorneys $300 an hour to deal with these properties.
It really is nuts. They could save enough on one or two transactions to pay the salary of one of a short sales employee for an entire year. They should staff up these departments and pay them well.
We’ve been over this before.
Banks can’t just “approve” short sales. There is a process involved. If the bank made a bad decision at the retail level, making another fast, bad decision doesn’t happen on the servicing side.
Banks are traditionally UNDER staffed in loan servicing departments. Taking the time to recruit, hire, and train people for a low paying job with high stress where all day long, every day, workers pick up the phone only to be yelled at by Realtors is a high turnover job.
We’re bleeding out.
I predict mass government intervetion right after the election.
Something big where all foreclosures are stopped and all are given a loan mod who want to stay and who can qualify to repay at the modified terms.
This will require our banks to be somewhat more nationalized, or the feds will take on all these loans.
All of this will then require….more………….t……i….m…..e….. to get that magical “yes” answer.
I’ve found that the banks are getting *much* better at short sales.
I’m a first time buyer who started looking about a month ago. I found the perfect property, but *two* banks needed to approve the short sale. Here I am less than a month later, and we have written approval from both banks!
The banks realize that the “short sale discount” is costing them a ton of money. So they’ve gotten better at short sales.
Soon short sales will only impose a delay of 1-2 weeks, and buyers will pay about the same as a normal sale. This will help stanch the precipitious decline in home prices, and will be good for just about everyone.
I’m glad I got in on a short sale before that happens 😉
Thanks Sampai,
After it closes can you give us a few more details. Are you local? Which banks were involved? LOVE your comment.
Jillayne,
I got an email today that named and rated/ranked all the banks regarding response time on short sales. I’ll shoot it over to you.
Kary,
Thanks for comment #33. Question. Do you think For Sale by Owners are bound to the same criteria?
Yes, I’m local. There are two big banks involved, and an “investor” who owns a “note.”
They’ve been very communicative with the listing agent. The written approvals were not a surprise.
It’s not like my offer was generous. By any metric I can dream up, it’s a screaming good deal for me. I didn’t just take the canoli; I took the extra-large pizza. In fact, I had to laugh when I read your post about prices and assessed values the other day.
Throughout this process, the only person who didn’t seem surprised was me, the first-time buyer who barely knew drywall from escrow. Then again, I went into it with very low expectations, fully prepared to walk away.
I really think the days of the “short sale discount” are numbered. It’s quite clear that there are now employees at the big banks who are rated in part on the number of foreclosures they prevent.
When does it close? I don’t want you to say too much before closing…I’m superstitious that way. But when all’s said and done please come back and tell us all!
I am very, very happy for you! Please tell me you are going to live in it and it’s not “just” an investment property.
Hi Ardell, I looked at the email. I’d call that spam. The person was trying to appear to be giving the reader something in order to sell the reader a “short sale video.
Hi sampai, So glad to hear that your short sale is going well! That is not the case for so many buyers and sellers out there.
Ardell,
I can tell you are indeed very passionate about this subject. The reason the short sale status is disclosed is that the Seller alone does not have the authority to sell the property. Bank approval is required and the buyer is entitled to know that the terms of their contract may be subject to change or renegotiation by the lender. Listing agents are also required to notify the selling agents if the co-broker commission offered in the listing is subject to change as well.
The initial premise that Sellers are being sold into short sales presumes that they have other alternatives that would better suit them and that those alternatives are being withheld. Under the Distressed Property Laws that would likely be a violation of the fiduciary requirements and would be against the law. Agents operating in that manner are subject to stiff fines and legal liabilities. The truth is, home owners facing a short sale situation don’t have the options available to them. Only a small percentage are on the verge of the short sale or straight sale decision. What agent in their right minds would list a property as a short sale when a regular listing and sale opportunity exists? Short sales are a nightmare to complete, have very high fall out rates, low closing probability, and pay far less than a regular listing and sale.
In my experience these sellers are really looking for the way out of a very difficult situation. Foreclosure is looming and they have exhausted all of their other alternatives. A short sale offers little to them in benefit other than a slightly less damaged credit score and a few months to save up for moving expenses. At least they are not just giving up and letting the property go to foreclosure. The liability associated with a short sale is no different than that of a foreclosure. Either the lender will pursue a deficiency judgment or they will write off the debt and send a 1099 to the IRS. If they defaulted on loans used to purchase or substantially enhance the property or the refinance of those they may qualify for a tax exemption under the Mortgage Debt Forgiveness Act of 2007.
To Cautious Buyer, your comment about the lenders inefficient handling of the short sales being the source of property devaluation is right on the money. Lenders are generally acting very poorly in handling these properties and it is reflected in lower sale prices and greater losses for them. Go figure! The people who lacked the foresight to see that loose lending standards would cost them in the end are continuing to demonstrate their brilliance by further increasing their losses by not understanding the repercussions of their behavior. Understaffing is no excuse, by the way. They have had over a year to hire and train staff, and they are very aware of how many loan are late and likely to be late based upon internal statistics.
Ardell,
I sense the tone in some of your comments that the seller feels much more pain from the short sale problems than anyone else, particularly if the lender goes after them for the balance. I agree with that. It is wonderful how strongly you feel for your clients.
Jillayne, Thanks for the perspective. I hope it doesn’t require too much more time. 2009 will certainly be “interesting”.
Ken,
Thanks for stopping by and for taking the time to construct your wonderful comment. The short sale I visited tonight was vacant, though I still couldn’t help but think of the person who bought the flip at $100,000 more than it was worth. The price is now $150,000 less than what they paid for it and it still isn’t selling.
We blog to shed some light on all of the complex issues involved in everything that led us and the banks to where things are today.
There are more blog posts written about buying short sales, and I am very happy for those who are “priced in” as a result of short sales. I just thought the flip side of the coin deserved a few moments of compassion and thoughtful consideration as well.
Cautious Buyer,
This morning I was thinking about all the agents who take Feng Shui classes about positive chi of homes. I wondered how those same agents applied those practices to selling properties with sadness so thick you can cut it with a knife.
I recently visited a home where a family left under the gun. There were toys and a bags of clothes and many other personal items left behind. Seeing such things does influence how I write from time to time.
We often talk about the rules and the laws and the asset and the deal…once in a while we have take a few moments to talk about the sadness of it all. I do believe that someday soon we will return to real estate porn and posts about staging and which paint colors to use to sell. Maybe it’s the upcoming elections that make me feel we need to be serious and look very closely at where we are and elect someone who will hopefully help bring the Country through and to better times.
As I was returning home from my showing tonight I thought for a moment about this area and what it might look like if Paul Allen and Bill Gates weren’t from here. Kind of like “It’s a Wonderful Life”. I tried to see everything as if neither of those two men had ever lived here. Quite a legacy when you think about it.
Ardell Said, “I do believe that someday soon we will return to real estate porn and posts about staging and which paint colors to use to sell.”
I just hope it doesn’t come with double digit price inflation, pressure to do without contingencies, pressure to only use the compensation type favored by the seller’s agent, and dangerous financing.
I’ll admit I’m not a believer in chi. I am a believer in curing the underlying sicknesses in the system. I do believe that today’s short sellers were really done in by yesterday’s price inflation, the causes of which are complex and varied.
Hmm interesting discussion going on cautious and Ardell. Indeed I believe it’s just a matter of time until things get worse.
Ardell wrote: “OK..let’s put this together. First, let’s all agree that the minute someone HAS TO say “short sale
Ardell, re #40 (whether FSBOs are required to disclose in advance), I’d asked that question in my own head, and didn’t have an answer. Clearly they are not bound by the statute, but whether there’s any other basis, I don’t know.
It probably doesn’t matter much, because as noted they’d already be on the hook for breach of contract if the deal went far enough.
I can’t imagine showing a FSBO without pulling their tax record from Realist.com first (available to agents on the NWMLS). It shows the mortgage history and with a little elemental math you can determine if a short sale is a possability.
Ken Crofts, re 44 there are other options besides short sales sometimes, at least for short sales that are also distressed properties (in danger of foreclosure). One of those is Chapter 13, another would be a deed in lieu.
But your post gets to the problem I had with Ardell’s original post, and not understanding it. The context of the second to last paragraph is very unclear, and yours sort of hits on that too. Most of Ardell’s original piece, and also the responses, deal with this from the buyer’s and buyer’s agent point of view, while your post and the second to last paragraph seemingly hits on the listing agent side. But if you had an unlisted property and an agent approaching the seller with an offer from a client that would result in a short sale, there I see some real potential issues, and surprisingly it’s not really clear that the distressed property law would cover the situation (unless the sale was to close within 20 days of the foreclosure).
Ardell wrote: “There are more blog posts written about buying short sales, and I am very happy for those who are “priced in
Ken Crofts wrote: “I can’t imagine showing a FSBO without pulling their tax record from Realist.com first (available to agents on the NWMLS). It shows the mortgage history and with a little elemental math you can determine if a short sale is a possability.”
I’d agree, and that pertains also to the discussion of the listing agent disclosing it. IMHO an agent should take that step (and others) prior to writing an offer on any property (but not necessarily prior to showing).
But as has been discussed, not all agents do that.
The reason I bring up the For Sale By Owner is that solutions must consider how a consumer deals with matters outside of having a reliable agent, or any agent for that matter.
Problems in the housing and lending industry are widespread. I’m listening to the hearings as I’m typing this.
Kary says, “But if you had an unlisted property and an agent approaching the seller with an offer from a client that would result in a short sale, there I see some real potential issues, and surprisingly it’s not really clear that the distressed property law would cover the situation (unless the sale was to close within 20 days of the foreclosure).”
I think that until the solutions solve the problem for a buyer without an agent buying a property from an unlisted seller, the problems will not be adequately resolved. It is not sufficient for the problems to be only addressed from the standpoint of an agent being in the room. The solutions also cannot suggest that an agent in the room puts either party in a better position than when an agent is not in the room. Laws should protect consumers regardless of whether there is an agent or not.
Re 56, I was just suggesting that although the distressed property law is generally overbroad, you can come up with scenarios where it doesn’t apply at all, even though arguably the seller deserves just as much, if not more protection, as where it does apply.
Kary and comment #54,
“A few months ago we debated trying to get an additional $10,000 credit for a roof that was obviously in bad shape at the time the offer was made. You didn’t seem to have an issue doing that, while I felt it was negotiating in bad faith.”
Kary, when I look at the issue of the roof, I am not looking at the buyer and the seller as much as I am looking at the lender’s collateral. That is where we differ.
I am listening to Greenspan saying that the early subprime mortgages of 2003 and 2004 are not the problem as much as those issued in later years. He is also saying we don’t know why. From the drastically limited vantage point of the Seattle Area, the collateral in 2006 of a 2003 or 2004 mortgage, was still intact.
The problem with your basic premise, “a roof that was obviously in bad shape at the time the offer was made.” is that you are putting the onus on the buyer to know the condition of a roof prior to having it inspected. Maybe they can and maybe they can’t. The operation of a real estate transaction from time of offer to closing cannot fail the consumer when he or she can’t simply look at a roof and know with any degree of certainty that is is “obviously in bad shape”.
I’ll bet you if you took George Bush on a tour of homes, or even Greenspan, they might not be able to “forecast with any degree of certainty” the condition of the roof without having it inspected.
When a buyer makes an offer that assumes the roof is bad and the seller is not asked to address that issue at any time during the transaction, and a buyer doesn’t have the funds after closing to install a new roof, the lender is the one who potentially ends up with the problem.
If agents and buyers paid a lot more attention to whether or not the lender’s collateral was sufficient in the event of default, the result of default would not be as devastating as it is.
Kary says, “I’ve yet to be convinced that someone will necessarily get a better deal out of a short sale than by other means–such has finding a vacant property where the owner has bought elsewhere, where the owner has a ton of equity.”
I have yet to see you doing the calculations to satisfy your own “convincing”. You do know short sales seem to be more trouble than you would like to tackle. You seem to have calculated that your $ per hour on a short sale is inadequate or lesser. But where are the numbers that suggest whether or not your client is better off?
I’ll save you the trouble and do the calculations for you in a separate post. I mentioned earlier that I was going to see a short sale with a client last night and it turned out that the house was not likely the best choice for my client for reasons that have nothing to do with whether or not it is a short sale.
Any agent who excludes short sales from the list of potential homes for the client because they have an aversion to the short sale process, is no different from an agent who eliminates homes with low(er) commssion offerings.
Whenever the reason to not consider a property for a buyer client has anything to do with the agent, it’s a bad decision.
As an aside, the committee questioning the panel is being overtly political and taking cheap pot shots. Someone just suggested that the financial crisis was caused by the same lack of attention of the speaker not turning on his mike. The speaker then said that perhaps the failure to foresee the crisis lies in the failure to see that homes would not continue to go up and up and up. I’m looking at this room full of Powers That Be and wondering why the American Public would be held to a higher standard than any of them. There are those who say of course home prices can’t go up and up and up. There are those who say we need to shore up home prices and there are those that say home prices MUST come down before we can even think about stabilizing the economy. It seems the correct answer lies in how old you are today.
Your focus before was more on who you represented, and also the discussion involved whether you’d ask for the entire cost of the roof or just a pro-rated portion. You were taking the approach that you were entitled to ask for the entire cost.
Kary,
My focus is ALWAYS on who I represent, but not to the exclusion of the total picture. There’s the forest and there’s the trees. The tree is who I represent, but it doesn’t help my tree if the forest starts to burn, so I never look at any issue totally and exclusively from a compartmentalized standpoint.
No single agent (or even single firm) are going to have enough impact on the market that they’re going to affect the “forest.”
On another issue, those who deal in short sales, does the bank ever have someone go out and actually look at the property? If not, the weeks/months they take making a decision are a complete joke. They can’t determine whether the offer is reasonable no matter how long they take without doing that.
Kary,
There are many ways to look at roof issues, but almost never is it the one you espouse, that being that the buyer should include the roof issue (by excluding the repair or replacement costs) from his offer prior to having it inspected.
The only time that a buyer excludes the roof issue is if it is an investor who is going to tear the house down or put on a second floor. In that case I will agree that the roof is a non-issue.
An agent who excludes the cost of a new roof from the asking price when it “obviously” needs one, is likely not handling the situation correctly unless it is a tear down. We already know that buyers are not cash heavy, so why would you assume that after closing they have the funds to put on a new roof? If the sales by and large through your entire real estate career were largely zero down transactions, then why would you come from the standpoint that the buyer should suck up the bad roof in whole or in part?
The reality is that each buyer has to know whether or not they can afford to put a new roof on. If they can’t, then they can’t buy a house that needs a new roof, can they?
You point back to something I said, I can tell you what I said is the same as what I will say today. The issue at hand is the house and the roof and how is the house going to get a new one if it needs a new one. The answers are many and varied but NEVER is the answer that the person who has to put a new roof on is the person who doesn’t have the money to do it.
Ardell wrote: “I have yet to see you doing the calculations to satisfy your own “convincing
“No single agent (or even single firm) are going to have enough impact on the market that they’re going to affect the “forest.
Ardell wrote: “Any agent who excludes short sales from the list of potential homes for the client because they have an aversion to the short sale process, is no different from an agent who eliminates homes with low(er) commssion offerings.”
Incorrect. First, I do give my client the choice, but second, there are liability concerns to dealing with short sales because you can’t determine when you make the offer whether it will close within 20 days of a foreclosure sale. Also, there is greater risk to the buyer in that another offer might end up being accepted or the offer be rejected outright, resulting in loss of time. During the delay either prices and/or interest rates might increase. Finally, an even better property might be missed unless both the agent and buyer are willing to keep looking for new listings at the same pace (which is possible, but most likely there’d be a drop off).
“All I’m saying is there’s no theoretical reason why a short sale would be a better buy”
Of course there is. “short” equals lower than a previously determined value. Appraisers try to exclude “distressed party sales” from determinations of value of property that is not distressed. Why? Because they reflect prices lower than “market value”.
There is no guarantee that a short sale is lower than current market value, but there’s a fairly good guarantee that it will be lower than a recent past market value which is what is causing it to be “short”. That is not true of all properties on market. Short sales are more and most likely to be better values, but not necessarily better homes for your client.
Most buyers are willing to wait for best home and best value. MOST. The pressure to avoid longer transactions rarely comes from the consumer. There are many more buyers waiting for the right house at the right price, than there are buyers anxious and pressured by time factors. Many are willing to rent short term or long term before buying the wrong house or an overpriced house. There are in fact many, many more people who would be willing to rent in between the sale and purchase of a home, than there are agents recommending that they do so.
Ardell wrote: “There is no guarantee that a short sale is lower than current market value, but there’s a fairly good guarantee that it will be lower than a recent past market value which is what is causing it to be “short
“Finally, an even better property might be missed unless both the agent and buyer are willing to keep looking for new listings at the same pace (which is possible, but most likely there’d be a drop off).”
That’s a good warning to buyers to continue looking, and last I looked the options in the forms covered whether a property is to go pending or stay active and whether or not the buyer has the right to cancel the short sale offer/contract should they find a better property while waitinf for the bank to respond. So all buyers need to pay very close attention to those options in the contract.
There is a huge incentive to both the buyer and the agent to continue looking at the same pace. Let’s say the offer on the property is $430,000 and the eventual answer from the bank is that they will not close unless the sale price is increased to $460,000. The buyer will not be in the best position to respond if he has not been actively looking at property while waiting for the bank’s response. To answer the bank’s “counter-offer”, the buyer needs to know if $460,000 will get him a better house today, and he can’t know that if he has not continued to look at property while waiting for the bank’s response.
The agent, in looking out for his client’s best interest, must also continue to look for property the buyer might buy, if they don’t buy the short sale property. The buyer is not wasting his time if he continues to look and verify that the short sale property continues to be his best choice as new properties come on market. In a down market it would be unconscionable NOT to continue looking, as prices could be going down as the escrow is being pursued, causing the original offer price to be too high in hindsight relative to other available properties. The longer it takes for the bank to respond, the more likely that will be true in a down market.
It’s like the person who puts a TV on layaway for 12 months, and the price of the TV is 30% off by the time he finishes his layaway agreement. Clearly the buyer of the TV has to stay in touch with the options available relative to the cancellation costs of the layaway agreement. Anytime you set a price today and close a long time later, you have to weigh the benefits of doing something different against the cost of doing something different. You can know the benefits of doing something different, if you don’t continue looking during the process. That is true of any sale, but more true when the escrow time is lenthened.
Ardell wrote: “Most buyers are willing to wait for best home and best value.”
Your buyers must be different than mine. I find most buyers don’t want to wait weeks if not months just to get an answer to their offer. I find most buyers don’t want to be put into a legal never-never land if there is a foreclosure scheduled within 20 days of a closing as a result of the delay. And finally, although they do want the best house at the best price, I find most buyers are rather impatient, and/or have limited time periods to move.
Kary #68,
It takes about 20 seconds to see if the asking price is less than the face amount of the mortgages at time of purchase vs. refinance.
BTW, Form 22-NFW (or preferably a modified version that works better) should be used on any short sale offer to help avoid the 20 day rule issue. Annie Fitzsimmons has advised that they should be used on every offer.
“I find most buyers don’t want to wait weeks if not months just to get an answer to their offer. I find most buyers don’t want to be put into a legal never-never land if there is a foreclosure scheduled within 20 days of a closing as a result of the delay…”
Now ask yourself how you may be influencing that. I’ve been in the business a very long time, Kary, and we wield an enormous amount of power in that regard. If I think a house is a wise choice for my client, often they agree. If I think a house is a terrible choice for my client, often they agree. That is why it is important that people choose an agent based on a common vantage point.
Doesn’t it assume that the owner knows when they are within 20 days of foreclosure? Not all do. You yourself said it could take 6 months after the notice of default.
Ardell, what I’m saying is the refinance amount was probably based on an inflated appraisal. So you’re not looking to see if the list price is less than the mortgage amount–it definitely is. What I’m saying is that mortgage amount, in the case of a refinanced mortgage, is probably higher than what it should have been.
Ardell wrote: “Doesn’t it assume that the owner knows when they are within 20 days of foreclosure? Not all do. You yourself said it could take 6 months after the notice of default.”
From the recorded document to sale is only 90 days, and the recorded document is what sets the sale date. You could have either of two situations: (1) A sale date pending when the offer is made, that results in a sale within 20 days of that date as a result of delays in approval of the short sale; or (2) A new original sale date set, which as a result of delays in approval of the short sale puts the closing within 20 days.
22 SS is about 2 months older than 22 NFW. IMHO they should have amended form 22 SS at the time the other distressed property law forms were created to add language to 22 SS similar to form 22 NFW.
And I’m saying it takes 20 seconds to figure that out. The one I went to last night had no refinances in the mix BUT the specifics of that house and the history of the house (recent history) caused it to sell for more than it was worth at the time of the previous sale. MUCH more.
You look at each house the same as you do any house, and decide based on the merits of the house and its value. You do not exclude or include houses solely based on the short sale criteria. You ignore that factor the same way that you ignore commission issues and for the same reason.
There’s an mls rule here that I have not seen in other areas that touches on this same topic. It surprised me back in 2004 as I had not seen this rule in other areas.
It said that a seller could not list a home for sale conditioned on the seller finding a suitable replacement home. Basically it said if you list in the mls, you must be prepared to leave sooner rather than later. People who are having homes built often request as long a close period as a short sale. In many areas the seller does reserve the right to stay and not close until they know where they are going.
30 day escrows have been “the norm” for some time…but not such a long time that I do not remember days when 120 day escrows were not abnormal. Clearly 90 day escrows were more the norm when I started in the business. Sellers needing to be prepared to be OUT within 30 days is a relatively new criteria, and perhaps partly responsible for the financial crisis we are in. That timeframe does not necessarily give the buyer and the seller the time needed to make informed decisions during discovery and escrow.
You compare the LONG time of a short sale with maybe an erroneous and too short one. Maybe the answer for all transactions will lie in between in the not too distant future.
How many of these short sales had no inspection or a pre-inspection or only 2 or 3 days to do one when the current owner bought it? When I started in the business the norm was 14 days to do discovery and inspections. Let’s not overlook the fact that possibly the entire structure of how we have been doing things in the last 4 to 5 years needs to be revamped, including the timeframe the buyer has to consider the house itself and their financing options.
I will be out of pocket most of the afternoon and can’t continue the tit for tat discussion. Plus the 4 hour hearings I was listening to with Greenspan are over, so I’m away from the computer until early evening. Just to let Kary know I’m not ignoring him…just out of range.
The Dow is still hanging around in the eights…
Ardell, re 77, it was the distressed property law that caused me to change my recommendation to clients on short sales. Before I would only suggest ruling them out if they needed to move quickly. The last thing a buyer needs is some attorney suing them after they buy on some frivolous claim based on the distressed property law. I think my variation of Form 22 NFW is strong enough to protect them if they want to proceed with making an offer on a short sale, but if they decide to proceed to closing when that was within 20 days, then I’d most likely want them to get their own counsel’s advice on that (which I’d reimburse them for whatever their decision).
It really comes down to the distressed property law. We still have yet to hear what is coming as a result of that, and I think part of that is that the attorneys that bring these suits are holding off because the legislature is likely to revisit the issue early next year.
In this week’s Q&A answer, Annie Fitzsimmons is now recommending that offers on any occupied property include both forms 22 NFW and 22 FSBO, even if the property is listed. The latter is to get warranties from the seller, and a statement to the effect that the selling agent is not providing DHC services.
Personally I think that’s a good idea, but it still suffers the same defects as the other forms (assuming the distressed property law only applies to occupied property and the 4 unit thing), so I won’t say it will protect someone. I think I will, however, add modified 22 FSBO language to my 22 NFW alternative form.