Hi Folks. Brian Brady wrote a featured post yesterday and my comments started going off on a rant about short sales so I decided I best write a post to voice my opinion.
Let me say that whether you like short sales, want to do short sales or want to avoid short sales, they are here to stay. Short sales are a major part of the market and in my opinion will become even more so. Lenders WANT to do short sales. A successful short sale cuts losses and keeps the lender from owning a declining asset.
This post is about taking control of the short sale situation from the get go, knowing what we are doing, preparing the Seller in advance of what to expect and being strong enough in our negotiation skills so we do not have to accept whatever bone the banks want to throw us.
Here are a few of my thoughts:
- With a short sale we are submitting CONTRACTS, not offers, to the lenders. We are not asking them to accept an offer we are asking them to accept a "short" payoff so a contingency can be removed from the CONTRACT and the deal can close. Anyone who submits an offer to the lender to see if they will accept it does not know how to handle short sales and is wasting time and clogging up the system.
- The lender is NOT a party to the contract(s)(listing or purchase). They do not control the purchase price and the commission. They do have control over how much they are willing, or able, to accept as a payoff. If this payoff figure is too high then a solution needs to be found. The solution may be to have the seller sign a promissory note, raise the purchase price or lower the expenses of the deal(commission etc...). However, lowering the commission in the deal does not mean the seller is off the hook for paying the FULL commission as agreed in the listing agreement. They can bring cash to closing to pay the difference and/or they can sign a note to the Broker.
- If the lender, investor or PMI company ask the Seller to sign a promissory note, a good short sale negotiator, will be able to negotiate the amount of this note downward or may even be able to make it go away. The PMI companies almost always ask for a promissory note to be signed when the seller can afford to make payments. Be prepared for it. If the Seller has funds in the bank, IRA, mutual fund and/or decent income chances are they will be asked to pay a promissory note. This should be ascertained at time of listing. Get a complete financial package from the Seller prior to listing the property.
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Our job is to do the best job we can to help qualified short sale sellers salvage their credit. It is the Sellers sole decision on whether or not to sign a promissory note. Their willingness to sign a note needs to be established at time of listing so we don't waste our time trying to help Sellers who are not willing to help us.
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When a PMI company comes back requesting the seller sign a note I take it as an acceptance of my short sale request. Now all I have to do is negotiate the note. I have had a note request of $135,000 negotiated down to ZERO and one for $50,000 settled for $1,500 at closing. BUT the reason I was able to negotiate is because the Sellers truly could not afford to pay. Remember we are helping folks with a legitimate hardship not people that just want to avoid paying a debt.
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Commission should not be an issue in a short sale. A Broker/agent should know before listing the property what lender is being negotiated with and how much commission they will "allow" almost all are 5% to 6% if there are two Brokers...and 4% if there is only one Broker. Fannie Mae will allow 5%. Countrywide will allow 6% as will Wells Fargo and Washington Mutual. I just closed a on Countrywide short sale and in addition to the commission I was paid 1% as reimbursement of costs to maintain the property for a total of 7%. We need to know these things.
Folks, agents are getting screwed on short sales because they don't know what they are doing. Sellers are getting screwed because they are hiring these agents.
Short sales are serious business and need to be treated as such. Sellers need to seek legal and tax advice and then hire a Broker/agent that understands the process.
My biggest frustration is the lack of education of folks trying to handle these transactions. The public is being harmed and that goes against every thing being a REALTOR(R) stands for. Let's take the time, to learn what we need to know, so we can help folks get on with their lives. Let's all step up to the plate. Not only can we help people but we can get paid for doing so!!! Are you ready to get serious?
FAQ #1 What is a Short Sale?
FAQ #2 What is a Hardship and why do I need one?
FAQ #3 What goes in the Hardship Letter?
DISCLAIMER: I am a Florida Licensed Real Estate Broker. This article is my opinion based on years of experience and the laws of my State. All Sellers are urged to seek competent legal and tax advice. I am NOT qualified to give advice in those areas.
CENTRAL FLORIDA REAL ESTATE SHORT SALE INFORMATION
MORE INFO FROM BROKER BRYANT... THE SOURCE FOR POINCIANA REAL ESTATE
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Tutas Towne Realty has already successfully negotiated Short Sales with the following Lenders and Investors.
Chase Short Sale,Sun Trust Short Sale, GMAC Short Sale, Wells Fargo Short Sale,Bank of America Short Sale,USA Bank Short Sale,PNC Bank Short Sale,Citi Short Sale,HomeEq Short Sale,Fifth Third Bank Short Sale,ING Direct Short Sale,GreenTree Short Sale,Capital One Short Sale,ASC Short Sale,First Horizon Short Sale,E-Trade Short Sale,Transland Financial Short Sale,US Bank Short Sale,IBM LBPS Short Sale,
Nationstar Short Sale,BAC Florida Short Sale,Real Time Solutions Short Sale,Fannie Mae Short Sale
FHA Short Sale,Selene Finance Short Sale,DTA Solutions LLC Short sale,Flagstar Short Sale,IndyMac Short Sale
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Tutas Towne Realty, Inc handles Florida real estate sales, Florida short sales, Florida strategic short sales, Florida pre-foreclosure sales, Florida foreclosures in Kissimmee Florida Short Sales, Davenport Florida Short Sales, Haines City Florida Short Sales, Poinciana Florida Short Sales, Solivita Florida Short Sales, Orlando Florida Short Sales, Celebration Florida Short Sales, Winderemere Florida Short Sales. Serving all of Polk, Osceola and Orange Counties Florida. Florida Short Sale Broker. Short Sale Florida.
Thank you! I am so tired of people who have no business doing so trying to mess with my money. Do they want to take a little loss now or a bigger one down the road. I've got a contract... you take or leave what is in it, you don't get to change it.
Hi Bryant, So many agents don't have a clue as to how to handle these transactions. I'm tired of them messing up a transaction. Thanks for the comm. info on those various lenders.
Great post Bryant. short sales are here to stay for a while and we should all be on the same page.
Bryant - Rock on ! Great post - very informative and educational. We had 2 short sale closings last week - was a lot of work but well worth it. You are right, it is the inexperienced agent that can really trip up a short sale deal. We have done them both efficiently and effectively. I really appreciate your insight about the promissary note as one we are in the middle of right now just came back with that option. Is the first one in awhile that we have done that they came back with that. ~ Chris
Bryant,
I would argue that the first point you make is a matte of semantics or perception but valid none the less. I was also going to ask what if any educational materials you would recommend? There are a million short sale gurus out there right now and all have some different angle to work.
Thanks for setting us all straight oh and if you'd like to send me the scoop on how you netiated the extra 1% for property maintenance I'd appreciate it. I've been hesitant to invest anything in cleaining up and mantaining properties.
Hi Brant -- I cannot believe how many agents purport to know what they are doing with short sales and they don't. As you have pointed out they do a disservice to the seller and to the profession.
Like anything in our business if you don't have the expertise get help.
I believe not everyone should do shortsales..definitely requires patience and an understanding of the process!
BB: Right on about SHORT SALES! I am in escrow (representing buyers on both) on two of these "headaches!" BOTH deals, the listing agents do NOT really know what the heck they're doing. Sorry to hear you say that they're here to stay. Sigh!!!
I've taken over "short sales" that were never handled as short sales to begin with. The only property that I ever lost was one that was another agent listed and wasted three months of my short sale time trying to figure out what he was doing.
I've said it before, it's ok to learn, but you NEED HELP. These seller's very future home ownership lies in the balance and you can not (and they can not ) afford your ON THE JOB TRAINING if you don't know what you are doing unless you bring in an experienced short sale agent to help you along the way...really to DO it for you while you watch and ask questions!
I still stick to my conviction of getting an attorney to handle all negotiations... that is their expertise. Realtor's sell and market...
You are right, I believe Short Sales are here for a long long time. Great informational post.
So true, thanks!
BB - I agree there is a lack of education. Brokers need to provide training to their agents. As I just re-affiliated myself with a new company, I have also found that different brokers offer different levels of training.
Great post Bryant. short sales are not going away anytime soon and purchasing them is a good way for buyers to build some immediate equity.
There are so many agents that don't have a clue about how to handle short sale listings and it is bad for everyone. Just the other day one agent say that they had no idea what was going on and tell the buyers to keep looking! ~Rita
BB - this was most helpful, and clarified a lot of points that are confusing to many, including the bank's role. I know I certainly can use more education regarding the way to handle short sales on the listing side more effectively. Thanks.
Jeff
Hi BB! Until I have time to take the necessary classes and learn everything from those with the expertise, I'm not TOUCHING them--I'll just keep referring them out like hot potatoes!! Great advice.
Bryant, thank you for the plain language and the ease of which you explain these things. Our area has not been hit as hard as most of the country, but we are seeing some short sales and it's nice to gain some knowledge of them. I'm thinking of you and TLW. xxoo
Hi BB. I usually agree with you, but this statement "The lender is NOT a party to the contract" seems untrue; it reminds me of the old saying: "if it acts like a duck, quacks like a duck, then it is a duck". Let me give an example of someone who is NOT a party to the contract: Brad Pitt. How do i know Mr. Pitt is not a party to the contract? Because the contract does not need to be sent to him and the contract does not require his approval in any way. There's someone who we can agree is definitely not a party to the contract. Now let's look at the lender. Does the contract need to be sent to the lender? Yes. Does the contract require the lender to approve (at least a portion of) the contract? Yes. My point here is that the lender is indeed quacking like a duck in regard to this contract.
BTW, I just saw your post about TLW, and I hope she is doing better.
Bryant,
"My biggest frustration is the lack of education of folks trying to handle these transactions." This is where a good Title Company comes in...one familiar with most lenders and their practices in the area...!!! Thanks, Fran
I am very surprised to discover that advisors in short sales do not have to be either lawyers or real estate agents. That opens up the risk to the consumer significantly.
Brian Madigan
Bryant -
Thanks for the summary!
Indeed, many agents have NO CLUE what they are doing here, and often blow the deal for their clients. Here in IL, we use attorneys on both sides of the Real Estate Transaction - often, the attorneys have no clue, and no "bedside manner" to effectively negotiate with the lender either. For this reason, I turn the deal over to the attorney only we have a deal with the lender.
How is your wife, Bryant? Hope she is on the mend!
Happy New Year!
DEAN & DEAN'S TEAM CHICAGO
I have back-peddled on short sales for a long while hoping that they will fall into oblivion, obviously they are not going to! Thanks for this post, it helped me see a comfortable and workable way of approaching them.
Short sales in the numbers we are all seeing is an eye opener for all. Agents, sellers and mostly buyers. I find many buyers walk away because they can take so long to complete.
Excellent points, Bryant.
BTW, how is your wife doing? I'm keeping her in my thoughts and prayers.
Well done. Not only do many not know what they need to about short sales....but they pretend and put new language into the market that doesn't exist. Seller are out at Sea when it comes to this.
Good information. I am coming across more of these in the last few months. Thanks for sharing your experience.
Very well stated Broker B. A contract is a contract and the lender has no right to change the terms. The agents who don't know the "ropes" usually get concerned with a "commission reduction" forgetting the other legal aspects of the transaction. If one is not familiar with "short sales" get a mentor. The way to get a mentor for free: take an experienced short sale agent a few deals and share the commission so they have a vested interest in teaching you.
I had this very thing happen to me this week and the referring agent will not only get paid they will learn. What a concept!!!!
Bryant - Excellent post. Thank you. Our MLS here in Brevard is loaded with short sales and "experts" who became that way by handling one transaction. Info like yours and Brian Bardy's is extremely helpful. Laraine
Bryant, thanks for the timely post, I have taken classes at the board, the instructor was also a broker well versed in short sales, will avoid them if posible, ha!ha! Give your lovely wife my wishes for a speedy recovery. Ann
Excellent information. I think people believe they can do a short sale just because they want to sell and can't get enough for their home, they don't realize they have to prove hardship.
Bryant - One more thing...I've gone round and round with agents on the lender not being a party to the contract. Bottom line is, as you said, they are NOT. They never sign anywhere as "Seller" and/or as an interested party. The seller does, however, need to protect himself with a "subject to short sale approval" clause when he signs the contract. Laraine
BB: One more point: Having an experienced escrow officer handling these is also a MUST. We use escrow officers here, that's why I am adding this point.
Hi folks, I worte this article while at the hospital with TLW. I probably will not be able to answer questions but will try.
If there are others on here that can help someone understand short sales better or answer their questions please feel free to do so.
Thanks
Hi Bryant. I am learning as fast as I can.
But think back to your first short sale. You probably were not an expert.
We learn by doing.
We should not be scared from trying.
Ken
Thanks for the post. It is frustrating both for those of us who understand the process, as well as the agents who don't. Good information.
BB,
Whatever the best method is to complete a short sale transaction is to take it to the end. It's a very stressful thing for many agents and many of them just can't stomach it. I remember the first short sale I did...I think it was back in 2002 when short sales were pretty much nonexistent or at least most agents didn't even know what one was. It was interesting and we were successful.....we closed it in 60 days and we just negotiated...but now it's a lot different when I look back on it.
I am working on my last short sale because I hate failure. I have been referring them out to another agent that can get them closed. I would rather work with buyers at this point :) It's best not to dabble. It's best to go 50/50 with your first, second and heck, third short sale with an experienced agent.
Seriously, it sucks to screw people when you don't know which way is up. I refer it out to someone who is VERY successful (and has mentored me on mine.) I win cuz I get a referral fee without doing much work, She wins because she gets commission, the seller wins because they GET IT SOLD!
Thanks Bryant for the great post! We are seeing so many short sales here in Brevard County - your information will be very useful. Take care!
Bryant, thanks for posting this. If you get a chance I think it would be helpful to address John S. on his 'if it quacks like duck it is a duck' with reference to signatures required on a contract and the requirement that the lender sign off on the transaction to proceed to closing. This continues to be a source of real confusion and frusteration amongst many brokers.
Ideally, the negotiation with a lender should occur as soon as a listing contract is signed which nets less than what is owed, but many banks refuse to respond to this time saving devise until they have an offer. A real catch 21.
Anyone in Poinciana, or your area of the Orlando real estate market should call you if they're interested in buying or selling short sales, bank-owned, or just re-sale properties. You always do thorough research. Your knowledge is what they need.
Hi Bryant,
I agree with you on the Short Sales (Pre-Foreclosure Sales). I have successfully completed 4 recently. I have also taken 2 extensive classes on how to successfully complete Short Sales. I also recommend that all REALTORS attend classes on Short Sales before attempting to do these transactions. They are serious business and if we take the time to educate ourselves on the process before we attempt to represent our clients, we will do our clients and customers a lot more justice.
Thanks and great blog!
@ Lola..you wrote.."Ideally, the negotiation with a lender should occur as soon as a listing contract is signed which nets less than what is owed".
NEVER speak to a bank until YOPU have a full package prepared other than to submit the LOA. It's a big problem with realtors and the banks smell rookie when this occurs.
I have an issue with what Ken said above. He said that you "learn by doing". That's crazy!!!!! This is someone's livelihood! You learn short sales by LEARNING how to do them. You need to make a personal investment in your training and NOT use the client as a guinea pig and this is one aspect you don't want someone learning by doing. I want you to be an expert when you show up at the door.
Quick question...have you disclosed to your clients that you were taking a listing for a short sale so that you can "learn by doing"? Of course not! That's why so many are running around calling themselves and representing themselves as "short sale experts" and the legal carnage will be just beginning in 2009.
We've talked to many lawyers who are gearing up to sue agents who have had clients lose their homes to foreclosure and they entrusted the newly dubbed "short sale expert" who indeed was learning by doing.
These will be EASY lawsuits for sellers to win and easy pickings for attorney's representing them. Bottom line, if you don't know what you are doing, don't get involved. Go LEARN BEFORE taking on a client.
That's absurd to even put that in a public forum!
Wow this post has stirred up alot of contraversy! I agree with what you are saying. I am lucky enough that I am in a market that doesnt require much short Sale. I take a listing and sell it. No negotiations with anyone but the buyer agent and seller.
Bryant, very, very good points.
The truth is that an agent who sells them self as a "short sale specialist" because they took a 2 hour seminar at the airport hotel is decieving the public and harming their potential cients.
Every agent can indeed make money from short sales, but 99% of those that do should do so via referring them out. It is better for all involved.
BB,
You are so right sir, we do need to get educated in this segment of the market or flat out stay away from it.
I tried to avoid doing short sales until late 2007 when I finally got it through my thick skull that working these is pretty much a requirement to stay in the real estate business right now. So now we work a huge stack of short sales. When I say we, that means I have my lead Realtor(r) work them all with my job being to generate the listings and her job to get them sold and closed. So far it is working well. There are soooo many agents out there that are clueless on this process. Luckily there are plenty of places to go to get educated. Last year, my lead Realtor(r) and I got our CSP (Certified Short-Sale Professional) designation from a local real estate school. Thanks for sharing your thoughts. Short sales are very serious business.
Great post! I have very little experience with short sales and know I need more education on them. They are few and far between here so it's hard for me to justify the time to get educated on it but I know it's important.
Hi BB and others reading, Since most short sales have many complexities an agent simply Must be educated to have a chance of success. Don't have the stomach to deal with these? Simply refer them out to an experienced short sale agent or to a 3rd party negotiator. As these short sales will be around for awhile it's important to plan your stategy for success so that you don't get left behind.
I agree with you about Short Sales are here to stay. I showed a buyer a list of houses that he wanted to purchase in a specific neighborhood. We had 13 houses to see that day. Once I explained what a short sale entails, he decided that he didn't want a part of it. From 13 houses, we ended up looking at 6 houses. That's an astonishing number, here in the Frisco TX real estate market.
I realize that I better get educated about short sales in order to better serve my clients. It's a different ball game, different negotiation strategy.
There's one thing you mentioned that I am not sure if I agree with you. Commission will almost always be "negotiated" by the short sale lender. I believe it's in their policy and they will try. I dont think that we should just let them take advantage of our situation.
Honestly, to represent a seller with a short sale takes much more work.
"Folks, agents are getting screwed on short sales because they don't know what they are doing. Sellers are getting screwed because they are hiring these agents."
Exactly!!! The agents are also getting screwed by other agents who get hired to do bpos and don't have a clue how to do one or are wishing for an REO listing ( slim chance) so they screw it up on purpose! Not ethical!
I am reading posts here on the rain that say that we are being self righteous saying that sellers should hire experienced short sale agents. HELLO!!!! What about your duty to your clients. If you don't know how to do them, learn how from someone who actually does them, not these people selling their wares to you about how to get rich doing them, most of the crap they are saying is a bunch of crap! Team up with an agent in your office who is doing them successfully.
It is one thing to know how to do one, it is entirely different to CLOSE THEM!
Great post Bryant!
John- Bryant is correct, the lender is NOT a party to the contract. They are not a party to the contract, they do not sign the contract. You are mixing apples and oranges bringing Brad Pitt into this. He signs a power of attorney and gives the authority to agree and sign in his behalf to his manager. Totally different situation in short sales. The seller and the buyer are the only ones who sign the contract. You can not be a party to a contract that you have not signed or agreed to be a party thereof.
Bryant and John- In fact, whent he short sale lender comes back and says they are reducing the commission to the agents that is actually legally "tort interference to a contract between the listing agent and the seller." You could push the buck and ask the short sale lender to get their legal department on the line. They would confer.
Now for interest- most servicers get paid a commission to complete short sales. You can bet that if they are reducing your fee to 5% that their commission is 1% on the deal. Short sale negotiators have told us this and you will seen on Fannie Mae and Freddie mac's guidelines that they upped their fee to get short sales done to their servicers. SO in turn they want to reduce yours!
Chase on HELOCS is no longer doing promissory notes. They just stopped doing them because the homeowners were agreeing to them, signing them, and then not paying on them either. So again some bad apples spoiled it for the whole bunch!
It is definitely easier working with a short sale buyer than a seller..but there are fewer buyers so...either learn or burn!
I have a contract in for a short sale and it is a hard thing if the sellers agent doesn't know what's going on. Luckily, the one I'm dealing with does.
Brian thank you so much for your post. I just had a conversation about this topic with another agent a week or so ago. They were telling me about a short sale they are handling. Each offer they received they had the seller sign and send to the bank. At the time I talked to this agent, the seller had signed upwards of 5 offers and all had gone to the bank!!! Talk about a legal nightmare...
The best way I can explain it is this: a short sale is just like any other sale. Before closing, the settlement agent (attorney in our area) orders a payoff from the seller's mortgage company. In a short sale, ordering the payoff just takes a lot longer...
It is still the seller's house, NOT the banks.
Thanks again.
Cash is King agreed. Also I agree that there are too many "professionals" who do not have a clue how to properly negotiate one. This is where haviong a good referal network in place really can pay off.
There is no question that Poinciana is in dire straits. With your expertise, all parties benefit.
Bryant, this post is like the energizer bunny...:) With regards to Barry's response on my comment of an ideal situation...
When a situation is as messed up, backed up and chaotic as what currently transpires in many short sale situations, it's always helpful to look at alternatives. We have successfully negotiated a number of short sales & the vast majority of them have not required the seller to sign a note. They have always been presented to the bank w/ a complete packet.
My point was that in the situation that we now find ourselves with enormous backlogs, there may be methods/avenues that all parties could adopt to create a more efficient transaction. Simply continuing to do what has always been done serves to facilitate the mess we're already in...JMHO
BB - The reality is short sales will be here fore the long haul. I have heard so many horror stories and these probably resulted from lack of education. Not fully equipped to handle these could further blacken the eye of an already bruised industry.
Nestor,
That was a fascinating thought about the tortious interfenece; I am doing one right now on one of my listings, where the lender is trying to cut my commision from 6 to 4%. So I decided to call CAR (California Association of Realtor) legal hotline which is staffed with CAR attorneys and posed that question.
The response was No, it is not tortious interference. Lender has the ability to approve or dis-approve any contingency, including the commission agreement. The commission is deemed to be a contingency of the contract.
So don't go out there demading the negotiator call their legal department, because they may come back with the same response and your credibility to the negotiator will greatly diminish.
Bryant... great post and great job! Unfortunately... some agents that are bobbling them up are making it bad for all of us trying to sell short sales.
Can't is a hardship, won't is a deadbeat!!! Love it!
FANTASTIC information. I'm doing a short sale right now and the 1st thing the seller requested in the counter offer, was a commission reduction. While this is a viable option and I am representing a person who is in financial distress, a short sale takes far more effort and is more deserving of a "fair" commission than most other real estate transactions. It will be the "art of negotiation" which will be the deciding factor in this transaction.
Broker B,
What a great post. Currently I have a short sale lissting. This post ws very helpful. My area has a ton of Bank owned houses.
I hope the lovely wife is doing well.
Please share more information about Fannie Mae's 5% commission limit.