The Short Sale Effect vs. The Short Sale Dilemma

Selling short sale properties is a reality most Realtors have come to accept.  This past week I received an offer on a short sale listing, where my seller had already tried to modify their loan but had been declined.  In pricing this home in December, I looked at the comps and the active listing inventory to come up with a price that was “in the market”.  The idea being that to successfully and quickly not only sell a short sale but close a short sale, I had to offer the bank a reasonable price.  After a month of no offers, we reduced 5% and got a low, all cash investor offer.  At the time, we discussed it and I told my client that I felt the offer was too low and that I didn’t think the bank would accept it, so we trudged on.  Two weeks later and still no new offers, we reduced another 5%.  At last we received another offer, only this one was lower than the all cash investor’s offer.  When I explained to the other agent that this was the case, her response was, “Why not take it and let the bank decide what they are willing to sell the home for, they’re going to decide anyway…”  To this I said, “Uh, sorry, no” and we countered a little below our asking price.  The buyer came back with another counter not far from ours and we took it.   When I take this offer to the bank I will explain what transpired and I believe, this will help us to get any foreclosure sale date postponed and accelerate the often long process of getting short sale approval.

Contrast my story with this:  A home that last sold for $1.4M in 2005 comes on the market yesterday at $599,000, even though its Fair Market Value (FMV) is probably $800-900,000.  Why?  In this example, the seller at the listing agent’s suggestion, prices “the home to sell” right away.  Many times a home like this even comes on the market as “sold before processing” where the listing agent  also acts as the selling agent, though they’ll use someone from their office to “write” the offer since lenders won’t allow a two sided sale commission in most short sales.  This kind of scenario can easily cross the line of lender fraud, especially at the ridiculous listing price.  Fraud aside, with this kind of pricing approach, there will be no haggling and perhaps even multiple offers.  Unfortunately one of three things is going to happen.  First is that the process gets dragged out forever because of the absurdity of the asking price and the seller actually gets foreclosed on.  Second, the bank comes back with a counter offer much higher than the asking/selling price after having done an appraisal, where they learned what the true value of the real estate is, and that causes the buyer to quit because they either feel duped or can’t go to the new, higher price.  Third, the bank, who must depend on third-parties like the appraiser and listing agent, having no idea what the home is really worth, ultimately accepts the stupid-low price offer.  In this last scenario, the Realtor gets paid; the seller, who’s lost everything, walks away and the buyer gets a steal.  You can see the appeal to many people of this approach.  Bully for the buyer who got the steal of a lifetime I suppose, but here’s the thing, someone has to pay for this “deal”, but whom?

The obvious is the bank, their investors and their share holders who bear the burden of greater losses; write downs etc.; and then there is the amorphous “tax payer” who’s been footing a lot of the bill of the housing crisis.  But there’s another victim here that’s real, one that we should care about and that’s the neighbors.  Because this last scenario is so common, neighborhood values across America are still crumbling, and it’s neither right nor necessary.  I call this the “Short Sale Effect” and it’s happening time and time again.

Upon first glance one might conclude that the listing agent should bear some responsibility since they are the one counseling the seller on where to price the short sale.  But the agent really only has an obligation to their seller as their representative, and to a lesser degree the buyer.  They certainly do not have any obligation to the lender nor do they to “the neighborhood”.  Clearly the banks need to do a better job of assessing value, but with so many distressed properties working their way through the system, homes fall through the cracks all the time.  As a Realtor, I am member of the National Association of Realtors and I am bound by a code of ethics, but that code doesn’t preclude me from selling a home at whatever my client is will to accept and a buyer is willing to pay, because in fact, that’s the job.  But should it end there?  I don’t believe so.  In fact, I believe we as Realtors have a responsibility to the communities we serve.  Sure, we’re in business to make money by selling houses, but I believe we should always try to get the best price for the market we’re in.  I tell my clients, that I will, “Get them the highest possible price, in the shortest amount of time, with the least amount of hassle”, yet to accomplish this I cannot “Give their house away” because that isn’t serving the seller’s best interest.  However, this is the “Short Sale Dilemma”. Because your seller gets nothing in a short sale, they have no vested interest in the selling price and in many cases, have very hard feelings towards their bank, so the idea of doing anything to help their lender, would likely elicit disdain.  So how then, are we as Realtors supposed to walk this tight rope?

If you reexamine the way I handled my short sale, you’ll find my answer: Try to get the best price you can and you’ll do right by your client; be fair to the bank and you’ll help the neighborhood and community you serve.  By approaching the business of short sales in this way, you might also get some new business out of it but if nothing else, find it a little easier to sleep at night.

About Tim Freund

Tim Freund has been a licensed real estate agent/broker since 1990. He spent 14 years as a new home sales rep, ran his own boutique resale brokerage for 5 years and is currently an Estates Director for Dilbeck Estates/Christie's International Estates in Westlake Village, Ca. Tim is a Certified Residential Specialist (CRS), an Accredited Buyer's Representative (ABR), a Corporate Mobilty Specialist (CMS) and a Senior Real Estate Specialist (SRES). Tim has successfully negotiated a loan modification for a client and has been a professional short sale negotiator. Tim sells along the Los Angeles and Ventura County lines, “from LA to Ventura..”. Tim has been married 31 years, has 2 children, is a native Californian and has been a resident of the Conejo Valley since 1991.
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