With distressed properties accounting for a greater percentage of sales than ever — more than half in some hard-hit markets — agents and brokers who have never handled a short sale or bank-owned home may find themselves feeling left out if they don’t jump on the bandwagon.

But many real estate professionals who do specialize in short sales warn that it’s a business of risks and rewards, requiring skill, connections and patience.

Editor’s note:  This is the first in a two-part series that details companies that offer services, technology or training to expedite sales of distressed properties. Some companies charge fees that are passed along to consumers. Click here to read Part 2.

By MATT CARTER and PAT CURRY

With distressed properties accounting for a greater percentage of sales than ever — more than half in some hard-hit markets — agents and brokers who have never handled a short sale or bank-owned home may find themselves feeling left out if they don’t jump on the bandwagon.

But many real estate professionals who do specialize in short sales warn that it’s a business of risks and rewards, requiring skill, connections and patience.

As a result, some agents and brokers are turning to third-party companies that offer to assist in closing distressed-property transactions. Other brokerages have their own in-house departments that either take charge of negotiations, or staff that shepherd the paperwork for short-sale and bank-owned transactions through to completion.

The additional layer of complexity involved may also result in additional fees — and those fees are increasingly being passed on to buyers outside of the commission process.

"Sometimes, you don’t want to deal with short sales and foreclosures," said Realtor Melissa Bailey with ERA Reardon Realty in Jackson, Mich., who turned to a third-party company to assist with bank-owned (REO) property sales.

"(Short sales and REOs) are 10 times the work of a regular sale. But in Michigan, you have to do them or you’re out of business."

The practice was the topic of a recent piece by Inman News columnist Kris Berg, broker-owner of San Diego Castles Realty.

The column documented three listings involving fees for short-sale negotiators. In one instance, the listing description noted the "possibility" of a 1.5 percent fee "prior to split" for a negotiator.

Another specified a $1,595 flat fee to be paid by the buyer for a short-sale negotiator.

The third specified the buyer would pay a 1 percent fee for a "lender liaison," who, upon further inquiry, was identified as an in-house negotiator.

"What I am seeing is that agents either hire an outside negotiator or they hire an assistant to wear that hat," Berg said of the experiences that motivated her to write about the issue.

It’s becoming common practice for the listing agents to pass on all or some of this cost to the buy side, she said.

"The new pink for spring is to require (via the multiple listing service remarks) that the ‘buyer pay’ " for short-sale negotiators, Berg said.

"It makes me crazy … because this seems suspiciously like a cost of business that is being passed through," Berg said. "Honestly, ‘negotiators’ are not needed. There is no negotiating — just a lot of paperwork and phone calls." …CONTINUED

Foreclosure Response Team and OfferSubmission.com are among several companies that offer services and systems to assist real estate professionals in working through the inefficiencies of distressed-property transactions and/or shortening the time it takes to get offers submitted and properties sold.

Some industry professionals have a skeptical view of such third-party service providers and question their effectiveness and value.

Realtor Scott Coloney of the Ft. Lauderdale, Fla.-based Coloney Group launched Foreclosure Response Team in March with Chief Operating Officer Stephen Weiss as a way for Realtors to outsource the massive amounts of paperwork involved in short sales and free up their time to list and market properties.

"We take over the most significant time constraint: the loss mitigation," Coloney said. "We know how banks think and how to talk to them. Instead of the 30-plus hours they spent calling the banks, we’re doing it. A guy doing three, five or seven deals can do 10, 15 or 20, increasing his income."

The company’s client is the listing Realtor, who is charged a fee of 20 percent of his portion of the sales commission if the Realtor generates the listing.

If Foreclosure Response Team generates the listing, the fee is 35 percent of the commission. In addition, the buyer of the property pays a $695 premium that is listed on the HUD-1 as a Foreclosure Response Team processing fee.

Weiss said home sellers do not pay the company directly for its services, and the company incorporates "hold harmless" language into its documentation to protect Realtors and brokers. "FRT is hired by the seller but is compensated by the Realtor at closing," he said.

"Thus, the seller doesn’t pay anything for our services, thereby reducing liability associated with these transactions."

He added, "Our service actually reduces the liability to brokers because their agents are not performing loss mitigation, for which many do not have the training or experience — thus helping prevent their (errors and omissions insurance) premiums from increasing."

The buyer premium that the company changes "makes it easier to obtain a strong offer by a qualified, capable buyer," Weiss also said. "We have learned that buyers are more concerned with getting the transaction closed than paying our nominal fee."

He said FRT has worked "to keep our fees the lowest in the market. We have already reduced the fees we charge twice in the past year." Also, he said, "FRT is more than a loss mitigation firm. We provide the Realtor with the tools and support to build a business around short sales. We offer Realtors the use of our name, marketing and public relations support and our technology to differentiate themselves in the market."

The buyer premium is disclosed in the broker remarks section of the multiple listing service entry.

The company does not "promote success rates due to the many variables that are out of our control" in short sales, he noted, though added, "We work strictly on contingency and thus are highly focused on getting every deal closed."

Davidson B. Lunger, a broker-owner with RE/MAX Allegiance in Arlington, Va., said he signed up as Foreclosure Response Team’s exclusive broker in Northern Virginia because many of his agents were afraid to work with short sales.

"My managers would spend hours and hours trying to get the agents up on top of the process," Lunger said. "We were overwhelming our settlement company because there was more success when a lawyer or a settlement agent called the bank."

FRT handles all the contacts with the lender. Agents can go online, check the status of an offer and see if any necessary paperwork is missing. …CONTINUED

"The agent is always up on the dashboard, seeing what’s going on and getting back to customers," Lunger said. "The buyers tend to wonder why no one has gotten in touch with them. There are a lot of confused people. Having a third party doing it and a screen you can look at to demystify it is a help."

The buyer’s premium is something new in Lunger’s market, and he said the jury is still out on that fee.

"It’s not a deal-stopper, but it takes some explanation," Lunger said. "If it’s a great house, I don’t think they’ll turn it down for that."

Meanwhile, Orange County, Calif.-based real estate broker Thom Colby said he has little regard for agents who intend to pass along short-sale service costs to buyers.

In the last two years, Colby has become a specialist in short-sale listings. Today, he not only handles short-sale listings exclusively, but will negotiate short sales for other agents and brokers, taking a share of the listing side of the commission.

"I think agents who are taking short-sale listings (and) are not going to negotiate the deal themselves, and are going to farm out to a third party for an additional fee above and beyond commission are lazy, and not serving the public properly," Colby said.

In exchange for the services Colby negotiates on behalf of other agents — both inside and outside his own brokerage — the listing agent agrees to split part of the listing agent’s share of commission with him.

Although he mostly works with sellers, Colby said that like Berg, he’s run across listings that include fees charges to consumers for short-sale negotiators.

"I came across one the other day that said in the MLS, ‘Buyer to pay $7,500 to short-sale negotiator,’ " Colby said. "I told my buyer … I don’t think that’s right, so it eliminates that property from our radar."

He said the reason buyers are in some cases getting stuck with the fees is that lenders, in his experience, are no longer allowing third-party short-sale negotiators to be paid from proceeds from escrow on the HUD-1 form.

"They’ve pretty much told all the escrow companies, ‘You can’t take any more money from us,’ " Colby said, adding that he was "shocked" to see negotiators charging buyers. "I think it’s becoming fairly common, and a year ago it was not," he said.

Colby noted that national short-sale negotiation companies have sprung up and are "advertising like crazy."

Agents are "susceptible to third parties reeling them in," Colby said, because "they are frustrated at the amount of time it takes to complete a short sale, at the lack of commissions, and the lack of business at all."

At a panel discussion on short sales at last month’s California Realtor Expo in Sacramento, all four panelists — including two real estate brokers, an attorney and former bank executive — advised against using third-party short-sale negotiators. The panel’s consensus view was that there’s no reason for brokers to put their licenses at risk when, with the right training and persistence, they can handle such work themselves.

Next: Part 2 of this series details an entity that offers training for handling distressed-property transactions, and a firm that offers a software platform intended to expedite REO transactions.

Matt Carter is a staff writer for Inman News and Pat Curry is a freelance writer in Georgia.

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