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.
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.
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.”