Making short into sweet

Smart agents are learning they shouldn’t run from short sales anymore

This article originally ran in the May/June 2008 edition of VAR’s Commonwealth Magazine

Accept the reality: Short sales are here and, for the foreseeable future, they’re here to stay. And while some agents won’t go near them, the numbers are hard to ignore — as much as 40 percent of the market in some areas around Washington, according to Jeanette Newton, chief executive officer of the Dulles Area Association of REALTORS®.

It’s just not good business to ignore that much real estate. Even better, short sales, while not as simple as typical transactions, are starting to get easier to handle.

“In the very beginning of this, nobody knew what a short sale was, because it had been 15 years since the last ones.” So said Tony Arko of Market Advantage Real Estate in Loudoun County. Agents were reminded — the hard way — what makes a short sale different: bank approval. “Agents were getting them sold, but they didn’t realize that the bank wasn’t willing to sign off on them,” Arko said. That led to some bad blood, and, once bitten, buyers and buyers’ agents weren’t anxious to give short sales another chance.

“They’re good for buyers who have the time to wait,” said Jeff Royce of RE/MAX Choice in Fairfax. But “your typical buyer probably should avoid them like the plague.”

And lenders aren’t helping much, to say the least. “The management of these companies was not telling their worker bees ‘You need to work harder to work these things out’,” said Mary Dykstra of RE/MAX Valley REALTORS® in Roanoke. “They have an old-time mindset that the agent is the enemy.”

So short sales picked up a bad rap, and agents learned to steer clear.

The times, though, are a-changing.

Smoother sailing

When short sales first appeared on the radar, lenders weren’t interested. As Arko explained, “They were willing to take a risk of not selling it short because they could sell it for more on the foreclosure market.”

That might have worked when foreclosures were relatively rare, but as more and more ARMs reset and
more and more owners defaulted, the foreclosure market became saturated. Plan A wasn’t working so well.

“[Lenders] are finding that every month or every quarter the prices keep dropping and dropping and dropping,” Arko said. “So ’round about the fourth quarter of last year, the banks finally got the message.”

That message: Short sales might be better for your bottom line. Time to make nice with those REALTORS®. “It’s actually easier to get the banks to agree to a short sale right now,” Arko said. “The problem is, the buyers agents don’t believe it.”

Short sales still aren’t as simple as typical transactions, but they don’t have to be a nightmare, either. You have to handle them properly, starting with the owner — make sure he’s spoken with his lender (or lenders) and started the short-sale process on that end.

“As a listing specialist, I want to at least know the bank is in the loop,” Arko said. “I would only talk to
owners who have already established a working relationship — some kind of communication — with the lenders.” Especially, he cautioned, any second lender. “Nine times out of 10 it’s going to be the second one that holds up the sale.”

Next, you — as a listing agent — need to get into that loop. Dykstra said she’s had successful short sales using a specific technique: “The minute I can establish a relationship with the actual person [at the lender] who’s doing the workout, it becomes a personal relationship and I become much more successful.”

By building a relationship, Dykstra said, “my client’s plight becomes something she cares about. That will move my client’s paper to the top of the desk.”

Showing your hand

How should you market a short sale? First and foremost, remember the law: You can’t disclose a client’s financial information — including that a home is up for short sale — without the seller’s permission in writing.

But should you get that permission and list it as a short sale?

“There are two schools of thought on that,” Dykstra said. By listing it as a short sale, “you can attract a bargain hunter, perhaps,” but “you push a buyer away who wants a timely close.”

Arko is clear about which side he falls on: “My advice is to always be up front with what you put in the listing,” he said. “Because if you don’t put that it’s a short sale, you’re going to really tick a lot of people off.”

If you’re going to put your cards on the table, have as many things in place with the lender as possible.

“When I’m marketing a house as a short sale,” Dykstra said, “if an agent calls me who doesn’t want to get into it, I can say ‘Don’t worry — we’ve got things in place. It can be a quick closing’.”

Some lenders are better about it than others, which is why it pays to establish a relationship early on. National City Mortgage, for example, will send out an appraiser at the beginning of a short-sale process, even without an offer on the table. It will even give at least a ballpark figure of what it’s willing to accept in a contract, which can smooth the road considerably.

That isn’t to say that, as a buyer’s agent, you should jump in eyes closed.

Buyers beware

Know your client, obviously. Some are better suited to a short sale, even one that looks to be smooth. On the top of that list are people who are looking for rental properties or long-term investments.

“If you’re an investor and you don’t really need the house,” Royce said, “then I think [you] might want to jump in and get a good deal.”

Arko recognized the kind of buyer who wouldn’t be a good bet for a short sell. “If you’re a buyers agent, and your buyer is not patient,” he said, “it’s going to be very, very tough to keep them patient long enough to get the deal done. It could take months.”

When Dykstra has acted as a buyer’s agent, “I want to know that the listing agent knows what she’s doing,” she said. If she does, and if she’s been working with the lender, it could be a quick trip from contract to closing.

Regardless, be up front to your clients when you first see “short sale” in the MLS. Think about the listing agent, the lender, and the grapevine. “Tell them it could be that we get a response in a week, or it could be longer,” suggested Arko. “But they have to know that there’s a process they have to go through and they might not get any answer.”

About Andrew Kantor

Andrew is VAR's editor and information manager, and -- lessee now -- a former reporter for the Roanoke Times, former technology columnist for USA Today, and a former magazine editor for a bunch of places. He hails from New York with stops in Connecticut, New Jersey, Cincinnati, Columbus, and Roanoke.
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5 Responses to Making short into sweet

  1. Jeff Royce says:

    It is still very difficult for a typical buyer, who plans to live in a home, to purchase a short sale. In Fairfax there have been 72 short sales that have gone off the market in the last 60 days (These are the short sales that were disclosed in the comments of the listing, there may be more as apparently some agents do not disclose this very material fact in the listing).

    Of these 72 short sales that went off the market, 24 actually sold. The other 48 were either withdrawn from the market or expired. Typically we think of expired/withdrawn listings of being overpriced. My experience tells me this was not the case with most of these houses. Almost all the short sales I’ve shown were priced very inexpensively.

    In most of these cases, the reason the houses were taken off the market was because the owners were not able to obtain their bank’s permission to sell for less than they owed. That means, at least in Fairfax for the last two months, that only about 1/3 of the houses listed as short sales were actually for sale in the sense that their was a possibility one could buy them.

    This is not very good odds for a buyer. Many have been tied up for months and in the ended simply get a “no.” Typical buyers cannot afford to spend that much time on a home, only to be turned down in the end. I think they very logically are avoiding short sales.

    It is a different story for investors. An investor has all the time in the world to purchase, can put out offers on more than one house and take his chances, and still has a home to live in if a bank says “no” in the end.

    Short sales are a great opportunity for investors, but I still believe they should be avoided by people who are looking for a home.

  2. Cindy Jones says:

    Short sales are not for someone who is looking for a quick close. What is more interesting about the process is the same bank that can give you a response on a foreclosure in 48 hours takes 60 days to go through the file on a short sale. We all realize it is two different departments but if you are sitting on a file with all of the required documents and four offers why wouldn’t you respond? It is a puzzle to buyers and agents.

  3. Pingback: Short Sales in Fairfax | Our Fairfax

  4. Eric Olson says:

    This is very true. The nicer you are, and it can be hard sometimes, the faster things go. Banks are overwhelmed these days with short sales. Its not hard to get lost in the shuffel if you upset a case manager. I have been working short sales for about a year and a half and found banks have been getting better but the expected wait for buyers is still very long and they need to be prepared to be patient. I always tell them the wait is usually for a better price than they could get for a normal resale. They generally like to hear that and will stick it out.

  5. Yes, short sales still have a bad reputation with the buyers agents. The banks do seem to be doing a better job of getting their responses to offers back and making things work a little better. Back in August of 2007 I put in a offer for a buyer on a short sale and finally we got a responce back at the end of October. Buy that time I had helped my buyer find a different home and we were well on our way to closing. The bank eventually sold that home for 10K less than we had been offering, but then again the bank also got to foreclose on the house and carry it for 4 months.

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