An Inman News article about the National Association of Realtors’ consideration of new multiple listing service rules relating to properties that may be subject to short-sale transactions drew a range of reader comments and letters. An NAR committee is expected to consider next month whether to offer guidance on when MLS participants must disclose that a property may be subject to lender approval as a short-sale transaction.
Short sales are typically defined as transactions in which the lender agrees to accept less than the full amount due on a mortgage when a property is sold in order to avoid a lengthy and costly foreclosure process, and the consideration of new rules is in response to the growing share of short-sale and foreclosure transactions across the country. Short-sale transactions can lead to lower compensation for real estate professionals involved than they would receive in standard transactions.
Daniel Ickowicz, director of sales for Elite International Realty in Aventura, Fla., told Inman News that he had contacted the national, statewide and local Realtor associations to call attention to MLS issues with short sales.
In a letter to Realtor organizations, Ickowicz stated, "There are a large number of listings currently placed on our MLS system that are falling into the so-called ‘short-sale’ category. What concerns me is that the prices and terms being marketed are not realistic. Realtors, together with their sellers, come up with a figure that they ‘think’ the bank will take.
"Usually, it is not until offers start pouring in that the seller goes to his lender and tries to negotiate the terms, including price and commissions to be paid; mind you that pricing and most terms are on the MLS to begin with, without the bank’s knowledge in most cases," he wrote. "I do not think that by placing a sentence on the remarks station stating ‘offer subject to third-party approval’ is enough disclosure."
Mike Thiel, associate counsel for the National Association of Realtors, assured in a response e-mail that the association "is giving serious consideration" to the issue of short sales, and Ickowicz also received responses from state and local Realtor groups.
Tom Scaglione, a Tampa, Fla., Realtor, said in a comment at the Inman News site that the Mid-Florida Regional MLS, which is owned by a group of 13 Realtor associations and serves about 35,000 users, adopted a short-sale rule that specifies disclosures and consent procedures properties that may end up in short-sale transactions.
The rule, which was deliberated by an MLS task force for several months and received a nod from the national Realtor group in January, applies when a listing broker "becomes aware that the listing price may not be sufficient to permit the seller to fully satisfy all encumbrances and pay the seller’s closing costs, including the listing broker’s offer of compensation."
In these instances, the listing broker may obtain written consent from the seller to disclose this potential for a short sale to cooperating brokers, buyer and the public; and "clearly and promptly disclose the short-sale circumstance to all cooperating brokers and, when and if appropriate, disclose that the sale of the listed property may be conditioned upon the approval of a court, a lender, or other third party."
These disclosures, according to the new rule, can occur at any time, "but it is suggested they occur at the time of MLS input, if known, or within one business day upon receipt of knowledge."
Under these new short-sale disclosures, listing brokers must specify to cooperating brokers that the offer of compensation may be adjusted by a third-party to the transaction after a contract for sale and purchase, Scaglione stated.
Derek Eisenberg of New Jersey-based Continental Real Estate Group said in a comment that banks, in approving short-sale deals, can renegotiate the real estate commission paid out to the listing broker, who in turn shares a portion of the commission with a cooperating broker to the transaction.
"A broker might sign with the seller at 6 percent" of the sale price as payment for real estate services, he said, though the bank could pay out 5 percent in approving a short sale, for example. He suggested that the advertisement of a percentage commission split of 50-50 to a cooperating broker, as an example, could eliminate confusion if the property is ultimately sold through a short-sale transaction.
Jay Thompson, broker-owner of Thompson’s Realty in Phoenix, commented, "The practice of putting ridiculously low list prices into the MLS needs to stop," as it may not accurately reflect a price that the lender may approve. "It is difficult to impossible to know what a lender may accept in advance, but listing a home at $99,000 when the market value is in the $350,000 range is nothing but a snarky bait and switch tactic."
Another commenter suggested that there are too many other real estate issues of national importance for NAR to deal with, and that the short-sale issue should remain in the domain of local and state Realtor groups.
And Dawn Rupersburg, a Realtor for Coral Shores Realty Inc. in Ocala, Fla., said in a letter to Inman News, "I think the MLS needs to stand up to the banks and make them sign a listing agreement that they will pay ‘X’ commission or the listing doesn’t go on the MLS.
"I think the MLSs should make the broker stand behind the commission that is offered in the MLS no matter where the listing comes from. Realtors have a business to run, not a charity, and by allowing the banks not to commit to a listing agreement with a commission we are saying, ‘We love to work for nothing.’"
Gary White, broker-owner of FlexIt Realty in Grand Rapids, Mich., and a member of a local MLS committee, stated in a letter that his MLS has had discussions about short-sale disclosure. "Having to disclose (possible short sales) may further erode the distressed property pricing but have less impact on the sellers with well-maintained property that are looking for a fair market price based on condition, location and the real market."
What’s your opinion? Leave your comments below or send a letter to the editor.