Don't lose short sales to foreclosure
Letter to the Editor
By Inman News, Tuesday, May 12, 2009.Re: 'Seeking closure on short-sale holdups' (May 7)
Dear Editor:
I support a position of being proactive. The lenders simply MUST get involved at the beginning. They need to obtain broker price opinions (BPOs) from agents not involved in the listing and also order an appraisal to provide the listing agent a target for list price. Today, agents are simply pulling numbers from the area to use as list price.
Often these prices are too low, which causes the homes to be sold for less than actual market value. This damages the seller and the lender. It can also damage the purchaser because the sale may NEVER close after everyone has spent months working on the transaction.
If real estate agents simply quit selling short sales then all of these homes will be foreclosed. We don't want to see that happen. It is stated that lenders lose less on a short sale than with a foreclosure, so they should devote attention and assistance on the short sale and work with agents at the beginning.
We could then put the property on the market at the right price rather than some made-up, ridiculous price, in order for us to get an offer.
Rachel Broadhurst
Owner
Century 21 Broadhurst & Associates Inc.
Myrtle Beach, S.C.
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Submitted by Jerzy (George) Szkup on May 12, 2009 - 1:30pm.
George Szkup
www.DestinationTucson.biz
Rachel
Do lenders really loose more money on Foreclosure than on Short Sale? This seems to be prevailing opinion among realtors and many economists. But - is it really true? This writer does not know of any credible (CREDIBLE) report supported by a true/reasonable calculation.
Somehow it is very difficult to imagine that lenders who know their costs would be that stupid? careless? inefficient?
Also, BPOs are not necessarily "inferior" to appraisals. After all, there are some agents
who know their job? If a lender has to chose between "good" job for $400 and, most likely, good-enough job for under $100 - it just becomes a business choice.
Just few remarks - not intended to excuse lenders from handling Short Sales in very inefficient way, our legislators for not coming up with proper regulations and NAR for not pushing hard for resolution of thus problem.
George in Tucson
http://www.DestinationTucson.biz
Submitted by Sean OToole on May 12, 2009 - 4:17pm.
George,
I have seen credible reports to that effect, but of course can't find one now. That said I believe it is simple common sense:
A good lender should get market value for the home, either at short sale, or at REO sale, so let's leave that part out of the equation.
Also, real estate commissions and closing costs will be paid in either case, so no difference there.
Now for the differences:
1. Market. In a declining market taking an additional 4 to 5 months to foreclose, evict, and resell the property can result in significant additional losses.
2. Capital costs. A non-performing loan on an underwater asset loses money every day it sits, as that capital could be redeployed to generate returns. Even at today's low 4-5% interest rates that can add up to serious money over the 4-5 months of additional time it takes to complete the foreclosure.
3. Property taxes. Property taxes will continue to accrue and will eat into lender proceeds.
4. Eviction costs. Lenders regularly offer $2-3k to the current occupant to avoid eviction and speed up the time to recover (important giving the costs outlined above).
5. Rehab costs. Short sellers cooperate in the move and leave the house clean. Foreclosed upon owners tend to strip appliances, fixtures, and leave behind a mess.
6. Foreclosure costs. Foreclosing isn't free. The attorneys, newspaper postings, notice recordings, auctioneers, etc. all cost money.
7. Management overhead. Someone at the lender has to handle the file longer and see it through the entire process. Or they have to outsource it.
Bottom line, there is ZERO doubt that foreclosing costs tens of thousands more than doing short sales.
Couldn't agree more that NAR should be doing a far better job for its members, like me, by working to get lenders to respond in a timely manner on short sale.
Sean O'Toole
Founder / CEO
ForeclosureRadar.com
ForeclosureTruth.com
Submitted by Terry Kelly on May 12, 2009 - 5:22pm.
Short sales by their nature artificially reduce the value of the subject property because of the extended time element and uncertainty of outcome, due in part to the process and the mechanics of the transaction. Most buyers cannot or will not wait the inordinate amount of time and the minority sector who will suffer the uncertainty/time will exact a premium for their trouble. Buyers' agents do not want to "negotiate" for their hard fought commission. Since short sales do offer a discount to the "normal" sale property, some are particularly attracted to these homes and tend to specialize in the mode. REOs bring out the bargain hunters, and those buyers will apply discount to the degree the property is stressed. Either way, discounts to market value vs. normal sales should be expected and taken into account when performing BPOs or full appraisals, so the normal sales do not suffer as result of being in the vicinity of distresssed properties.
We have used a short sale facilitator in the process. One benefit of short sale facilitators it that they can expedite the process by tendering an offer upon agent listing the home for sale. Eureka Funding Partners is one such entity that provides comprehensive short sale solutions for the homeowner suffering hardship and the agents assisting them. These short sale experts can be a blessing in getting the lenders to negotiate and accommodate an unfortunate situation. They are definitely "proactive" in getting the lender involved immediately. Another benefit is that they provide for full and bonus commission for the agents dealing with these sometimes difficult transactions. After you have used this service, you will not turn down another short sale opportunity.
Terry Kelly
Kelly Properties
San Jose, CA
Submitted by Charles Ritz on May 12, 2009 - 9:30pm.
Broker Associate/Realtor
All Nations Realty and Investments
Rancho Cucamonga, CA
Submitted by J Philip Faranda on May 13, 2009 - 3:47am.
Short sales do not lower market values, they reflect them.
Banks lose far less on a short sale than a foreclosure, absolutely.
http://westchesterrealestateblog.net/post/1072523/your-tax-dollars-fund-...
Unfortunately, the awful judgement lenders showed in the run up to the current problems is still the culture of those institutions in short sales. Utterly no common sense.
If you don't like short sales, wise up. The alternative, REO, is not pretty.
www.jphilip.com
www.WestchesterRealEstateBlog.NET
www.NYShortSaleBlog.com
www.NYPhotoBlog.NET
Submitted by Julie Ferenzi on May 13, 2009 - 6:17am.
There certainly is a benefit to working with a short sale negotiator. If they are able to start the short sale early in the process with an offer to purchase, by the time a buyer comes into the picture half of the wait time is reduced.
The hardest part of doing a short sale is keeping the buyer on the hook while the sale is being negotiated.
We shouldn't fear short sales, but rather fine tune our skills to expedite them. Many lenders simply won't look at offers with incomplete files... and believe me, they won't call you looking for the paperwork, they are much too busy.
Submitted by Rita Boswell on May 13, 2009 - 10:38am.
I understand your thinking about being proactive but really you can’t do anything until you have an offer to present to the lender. It is a waste of time for the lender to spend time on a home that is in a short sale situation until it makes sense for them (offer). Actually by obtaining a BPO from the beginning you are setting that seller up for failure. Think about it, what is your ultimate goal? Isn’t it to save the home from foreclosure so that the seller can move on and has a better chance of buying a home in 24 months? The thing that seems to be so difficult for realtors to understand is that you need to think differently when it comes to short sales than you do with conventional sales. There is NO equity you must think backwards from what you would think if there was equity. Okay… here’s a scenario to help you understand, if there is equity, you want to get the best possible price for the house, if there is no equity, you want to get the lowest value possible to support an offer that the bank will be happy to approve.
I don’t understand your 2nd paragraph where it states, “Often these prices are too low, which causes the homes to be sold for less than actual market value. This damages the seller and the lender. It can also damage the purchaser because the sale may NEVER close after everyone has spent months working on the transaction.” Isn’t market value determined by what a buyer wants to pay?? And how does it damage the seller if they just avoided a foreclosure and very likely a much bigger ramification? As for the lender, they approved the offer, they must be fine with it and happy to get it off their books because if they don’t they end up losing far more at the REO sale. It can only damage the purchaser if they don’t have the patience to wait until the bank approves their low offer. They have to know that the process can take 3 to 6 months.
I understand the frustrations real estate agents must have selling short sales but I also see that they shouldn’t be selling them if they are not educating themselves about short sales and some of the agents that are not educated but selling short sales may be committing malpractice for not adequately representing the seller. They should be sharing with the seller their options and they should also share with the seller if they are not experienced to handle short sales. They should be familiar with the Mortgage Forgiveness Debt Relief Act and have read the IRS Publication 4681. Many short sale listings are going to foreclosure because of uneducated real estate agents. That’s where the major concern should be.
I agree with Terry, the solution to all of this, find a good, educated, reputable short sale facilitator that will buy the house and do the negotiating with the lender to ensure the highest possible success for the seller while also letting the real estate agent earn full commission and do what they do best, sell houses.
Submitted by Tom Teece on May 13, 2009 - 12:28pm.
Good letter, Rachel.
Brings up a lot of what's wrong with the way most short sales are mis-handled. And I agree with my friend, Rita, that short sales are a niche market, and agents need niche training.
In my opinion, there are 3 ways for agents to handle a short sale: 1) Become the dedicated short sale expert yourself. 2) Work with a dedicated short sale team. or 3) Stay away from short sales.
And just an observation from this discussion,the missing piece: If the homeowner cannot qualify for a hardship, the bank will kill the short sale, so a short sale listing really means nothing without a verifiable hardship. Save time and frutration. Send the potential seller to a HUD-approved counselor first. If they qualify, then list the house as a short sale. Some of them may even qualify to stay in their home, generating goodwill toward the agent, who did not waste anyone's time, including their own.
Best regards, Tom
Submitted by John Maclen on August 19, 2009 - 4:39am.
Don't spend hours on the phone trying to deal with the banks. If you are spending 25 hours a week with following up on short sales, making calls, and tracking down replacement paperwork. I want to take that burden from you and allow you to make your listing commission providing we are successful in negotiating the short sale and get the property sold.
short sale process