There are lots of homes out there. Yours has to stand out.
With the way the real estate market is shaping up out there, you would think that the really bad agents would be falling by the wayside. Sadly, natural selection does not seem to be in full swing in the real estate business.
What’s worse is that I am seeing a trend that should concern anyone who is, or knows someone who is, considering trying to short sell their home.
What the hell is a short sale?
A short sale is when you sell your home for under what you owe the bank, with the banks approval. They will assign a “Negotiator” to your account and then they will tell you the price you can sell your home for and how much compensation you can offer to the real estate agents that will be involved. Why would the bank do this? Foreclosures are expensive. For many banks it can make more sense to go through this process than to end up holding a foreclosed home. Also, when a home is foreclosed, the bank is not what you would call ‘focused’ on keeping the home in good shape. So what they end up with is a home that is empty (also not good) that is only going to get uglier because they are not going to water the plants, trim the lawn, paint the walls… etc. Finally, many folks are not in the best of moods when they are leaving a home that has been foreclosed. This can sometimes result in cement in the plumbing, holes in the walls, removed granite counter tops, etc. etc. etc. The bank is far more likely to come out of this well if they can get it sold while someone is still in the house and it is in good shape. Plus, with some banks, even if you get them to agree to a short sale, they are going to eventually make you pay the difference between what you owe and what they get paid (although most banks these days are forgiving this amount).
Sounds simple. How could you screw this up?
Oh trust me, despite what seems like a relatively straight forward process, there is no shortage of ready and willing real estate agents prepared to totally screw this up.
Now don’t get me wrong, while what I have described as a straightforward process may sound simple, it isn’t. I mean really, is ANYTHING involving a bank ’simple’ when you get right down to it?
What is important to know right now is that most agents out there are totally screwing up the process of selling Short Sale properties. I cannot speak for the whole country, but in my little slice of the market, most agents are not performing at the level they should. If you are a seller, this is a HUGE deal.
So what exactly are agents doing that are screwing up Short Sales?
- Things doing order out of. See how tough it is to figure out what is going on when they are not done in the right order? Well imagine that kind of approach being applied to trying to sell a Short Sale property. Remember how I mentioned that the lending institution would assign a “Negotiator” to your case? These folks decide what the house can sell for and how much commission you can offer the real estate agents. In perhaps the cardinal Short Sale Sin, agents are listing short sales houses BEFORE the bank or lending institution has even assigned a ‘Negotiator’. Even worse, they are often placing the property on the MLS as a Short Sale before they ever even talk to the bank involved. So why is this a big deal? Imagine you are a buyer, you make a full price offer on a home that is listed as a short sale – lets say the asking price is $1 million. Since the bank has not signed off on the sales price, it is very possible that once the bank is contacted and a negotiator is assigned and decides on the ‘right’ price, they may not be willing to sell the home for less than $1.2 Million. So you could make a full price offer and have a counter offer asking for $200k more than what you offered!
- Delays, delays, delays. There are actually more problems caused by not getting approval from the bank BEFORE listing the home. When a buyer decides to make an offer on a home in todays market, they are not anxious to wait months for a response to their offer. The process to get an approved price and commission number can take months. If the listing agent has waited until they have an offer to contact the bank, the odds are that the buyer has a long wait ahead of them. We are in a market with historically high inventories right now… buyers have hundreds of homes to choose from in most markets. In the time it takes the listing agent to finally get an approved listing price from the bank (assuming the bank agrees with the price the agent has chosen) the buyer is very likely to find another property they want to make an offer on. I have seen many short sale properties start out with 3 or 4 offers, only to lose them all because in the time it took the listing agent to get things going with the bank, all the buyers had found other homes to buy.
- Ignorance is not bliss. Do you recall that the ‘Negotiator’ for the bank decided on the sales price and the commission for the real estate agents?
That’s right, the agents in this deal have no idea what they will be paid until the bank approves a commission. Now think about this for a second. Do you believe that some portion of the folks in the real estate profession might not want to get involved in a deal till they know how much they will be paid for their work? Would you start digging a ditch for someone without knowing how much you would be paid for doing so? Would you show up at work on Monday morning if your boss told you that they had not decided what to pay you for that weeks work? Given that, you might see that agents would be less inclined to show a Short Sale property unless the ‘Negotiator’ had already made all the decisions about price and commissions. Keep in mind that the vast majority of Short Sales I have seen fall into this category where the listing agent has not gotten approval before putting the property up for sale on the MLS. There is no way to know for sure, but I am betting that a whole lot of short sale listings never get shown to buyers because the agent has checked and found that the bank has not approved the list price or commissions. - Blowing the first impression. The way the market is working today, clients are getting regular updates on new listings. I know in my business, I have clients getting daily and weekly updates on new short sale and foreclosure listings. What that means is that within just a few minutes of submitting that new listing to the MLS system, it could end up in the email boxes of hundreds of thousands of people. If an agent is not filtering new listings before they get to buyer clients (IE: only letting through to the buyer the ones where the negotiator has decided on price and commissions), buyers are going to judge those new listings immediately and either decide to get more info or to toss them aside. Many buyers simply do not want to deal with short sales that have not been decided on by the bank yet since the asking price means NOTHING without bank approval. Since buyers typically are only getting updates on new listings, they are likely to never see that listing again. There is no reason to go back and review older listings because of the huge number of new listings coming along all the time. So the agent, by not having the numbers approved by the bank from the beginning, has lost the attention of thousands of buyers. Of course, many of these agent also do not have a full set of photos and information on the listing when it first goes into the MLS, further ruining that first impression. Think about it, if you are a buyer trying to decide which 5 homes to look at this weekend from a list of 20 new listings, are you going to pick the ones with photos and full descriptions or the ones that have no photos and vague or missing details and descriptions? Agents get a pretty good amount of space to describe a home they are listing… want to hear my favorite one from a search I did for short sale properties this week? Here it is:
“DUH… Take off your shoes.”
- Generally pissing everyone off. You can imagine that all these delays, diminished attention and generally sloppy work can really get people upset. Buyers don’t want to look at the house because the list price is not real until the bank says it is, buyers agents don’t want to show the property because what their commission will be is a total mystery and sellers stand their wondering why their home is not getting sold, despite the fact they have 3, 4 or 5 offers just sitting there. Then when those ready and willing buyers all disappear, the sellers are just left with their jaws hanging open wondering what just happened.
So what can I do to avoid this 6th level of real estate hell you describe?
SELLERS:
Ask the questions that are important. When you are selecting an agent, don’t just pick the agent with the most signs around town. All that tells you is how many homes the agent is trying to sell, not how many they actually have sold. In fact, some of the worst short sale agents I have seen are the ones with signs all over the place. Them telling you they are the #1 lister of short sale homes means nothing to you. They may try to boast that they closed 20 short sale escrows over the last 12 months. If you later learn that they were only able to sell 20 out of 200 listings, would you be as impressed? Ask them what percentage of the homes they have listed have sold. This is something I am able to check myself and I have found that many of these “Short Sale” specialist agents actually sell less than 10% of the homes they list! Would you take those odds as a seller? I sure hope not. Ask the agent to show you the MLS listings for other properties they have listed. Are there photos? A good description? Full details? Are his short sale listings already approved by the bank?
Tell your agent that you expect everything for the marketing of your home to be 100% ready the day it is entered into the MLS and not a second later. This includes having the price and commission approved by the bank. Make sure to tell the agent to mention the numbers are bank approved in the description of the property. Don’t be shy about the fact your home is a short sale. Buyers can and do search just for short sales. Having one of the few homes listed with bank approved numbers will make you the stand out. Mix that with a full description and the maximum number of photos allowed and you are going to get calls on your home.
BUYERS:
Frankly, there is no reason for you to sit and wait for weeks or months while listing agents get their crap together. If you come across a home you like that is a short sale and the negotiator has not been assigned, tell the listing agent to contact your agent when the negotiator has made their decision. Make sure your real estate agent checks in on that property regularly so that when it is ready for offers, you are ready to go. If you are really hot for the property, give a long acceptance period for your offer but make sure your agent writes up the offer to make clear you are potentially making offers on other properties and that the offer is not officially accepted until the bank and sellers have signed off and YOU have initialed that you have received the accepted offer. The process to do this might vary from state to state, your real estate person can do what you need for your area to protect you.
AGENTS:
If you are listing short sales, stop putting them in the MLS before you get the bank approved numbers. Doing that screws up your clients, my clients and everyone elses clients. We are supposed to be here to make things better and in these cases you are doing more harm than good.
If you are trying to buy these things, be ready to be patient. If your client likes a short sale that is not yet bank approved, check in with the listing agent every other day asking if the bank has approved the numbers yet. Create an easy email action to automatically send this email every 48 hours… agents love it when you do that 
. When they finally do what should have already been done, if your client still cares, make an offer. If your client is hot to make an offer before the numbers are set, do it. Just make sure and write it so that they can still shop and potentially purchase something else without ending up being committed to two transactions at the same time – that would be bad.
The worst thing about this situation is that the folks that need help the most, the sellers in this case, are the ones who suffer the most when things are not done right with a short sale. It is tough enough that they find themselves in this short sale situation without making things worse by not giving these short sale homes the greatest chance to sell.
Even if you are not in a position to worry about having to do a short sale, the odds are that you will meet someone one is. Make sure they know this information, it can make the difference between a nice, smooth and speedy short sale transaction and a protracted trial of sanity.
