Maryland and Virginia Real Estate and Homes Blog

WARNING TO BUYERS AGENTS, DON’T RELY ON THE REMARKS IN FORECLOSURE AND SHORT SALE LISTINGS (edit/delete)

                                    * * * *  HARD CORE REAL ESTATE TALK * * * *

LESSON FOR BUYERS AGENTS:   Information contained in listing REMARKS and about $3 will get you a cup of coffee at Starbucks. 

I COULD HEAR THE ANGER IN HIS VOICE.  I received a telephone call today from a broker (former agent) who had just lost a bid for a short sale.  His big complaint was that he relied on the REMARKS in the listing and yet they lost the bid.  The agent was hot.  Sadly, he didn’t get any sympathy from Lenn.  He was really complaining about the 5 hours he felt was wasted in preparing the offer and the additional hours previewing homes and showing the buyers homes in their approved price range.  Fact is, if the agent learned anything, the time wasn’t wasted. 

Lenn’s Law #127.  Don’t believe a word you read in the short sale listing REMARKS.  Or, REMARKS in any listing for that matter.  The listing remarks said:  “Lender approved for $210,000.  The buyers were pre-approved for $210,000.  They wrote a contract offer for $215,000 with $5,000 closing. 

There’s more.  In the area of Montgomery County Maryland where the buyers need to buy, every single listing meeting the minimum needs are priced $210,000 or less is a foreclosure or short sale.  Since the buyers can’t qualify for more, they already have a 47 ratio, they either have to look farther out in the county, or they will have to wait for prices to come down more, which may or may not happen.  In fact, I have shared similar experiences with other agents in my network about short sales and especially foreclosures selling for far over list price.  The lesson is simple.  Don’t rely on the list price or REMARKS. 

There’s more.  The market value for similar town homes in that area is about $235,000 to $245,000.

The agent relied on the REMARKS in the listing.  Big mistake.  An experienced agent knows to do their own research and advise their buyer based on the results of the research, not based on what is written by the seller’s agent in the listing REMARKS.  The agent has no way of knowing when those REMARKS were entered in the listing.  Most agents enter a listing and then, no matter what transpires, with the exception of price changes, never revise the listing details or REMARKS.  As it turned out, once the offers started to come in, the bank raised the minimum acceptable bid and may raise it again.  None of that is reflected in the listing REMARKS.  Nor does it have to be. 

DON’T LET THE FOX GUARD THE HEN HOUSE.  Buyers Agents should not rely on listing agents or sellers for information.  Between the time the information is conveyed, the sellers could have a complete change of mind, which is the case in this scenario.  Do your own research and advise your buyer/clients accordingly.  If the buyers insist on making low offers, losing one should teach them a lesson.  If not, perhaps they need to work with another agent.  Agents and brokers are experienced in market research for non-foreclosure / short sale listings.  We know when a home is overpriced and advise our buyer / clients about offering ranges.  We can do the same for underpriced listings.  Just because it’s priced below market doesn’t mean that your buyer will be successful trying to buy below market.  Factors such as average market prices, days on the market, condition, market trends, pre-approvals, contingencies, inspections, price range, etc. affect successful offering prices and negotiations 

Knowing that short sale and foreclosure listings have recently been priced low to attract bids, it’s doubtful that this buyer had a chance with any listing in this area.  In fact, we’ve discussed this between agents and brokers to alert them about the pattern evolving.  Bait and switch listings are nothing new here, but they’re usually auction listings. 

WHAT DOES LOSS MITIGATION MEAN?  We know that the bank is going to take a loss on the short sale listing.  It just makes sense that if they list low and several higher bid come in, that they would revise their “minimum acceptable bid”.  REMARKS like “Bank approved for $XXXX” are totally unreliable and meaningless.  The departments in the banks that process short sales and foreclosures have a title.  Loss Mitigation means that the bank mitigates their loss on a transaction. 

DUE DILIGENCEmeans that an agent or broker does their own research, their own CMA and advises their buyer client accordingly.  If the listing is clearly below market for the area and condition, the agent must expect that there will be vigorous bidding for a property and walking a fine line with qualifying and offer price just doesn’t compete.  First time home buyers and buyers for lower priced homes are back in the market.  If the buyers are bidding at the limit of their qualifying range, they are not likely to be successful. 

This is a good agent.  I don’t believe he’ll make the same mistake again. 

SHORT SALES ARE NOT FOR EVERY HOME OWNER
WHO CAN’T MAKE THEIR MORTGAGE PAYMENTS.

Many home owners, because of national publicity, believe that any home owner is a candidate for a
short sale solution.  It’s not that easy. THE OWNER MUST QUALIFY.

Some things must happen before your home should be listed as a short sale. 
        1.  You should have contacted your mortgage company and let them know that
        you are in financial difficulty and need a solution. The mortgage company
        may question you about
                a.  assets
                b.  earnings
                c.  have you tried to sell?

Once the mortgage company understands that you are serious, they may send you a “short sale package”
for you to complete with necessary information to return to the bank.  Based on your information, the
bank will advise that you may want to list as a short sale. 

There are several events that must occur for a potentially successful short sale.
        1.  You need to understand the market value of your home. 
        2.  You must list the house for sale with “third party approval required”.
        The “third party” that must approve the contract of sale is your mortgage company.
        3.  When you select a listing agent, make sure to use the services of an agent with
        short sale experience. 
        4.  Understand the market in your area before pricing the home.  Your mortgage company
        will require detailed market information before approving a Contract of Sale.
        5.  Your agent may recommend that you obtain the services of an attorney to communicate
        with your mortgage company because real estate agents cannot give legal advice.
        6.  Make sure you disclose to your agent all mortgages, liens and encumbrances that
        you may have.  HELOC loans, second mortgages, consumer purchases that are a lien
        against the property can make short sales difficult. 
        7.  Make the house as accessible as possible.  You can’t sell it if you don’t show it.
        8.  Cooperate with the bank with timely letters and forms as requested.  The banks are
        not always quick to review and approve short sale contracts.  Everyone involved in the
        process must have patience.
        9.  You must disclose all of your assets to the mortgage company.  Your mortgage
        company will not approve a short sale on your residential real estate if you have assets
        that can be liquidated to pay your deficiency. 

Consider the above and if you believe that you may be a candidate for a short sale, contact
Homefinders and we’ll help.  800-711-7988.

NEW GUIDELINES FOR MLS LISTINGS 

The giant MLS system, the Metropolitan Regional Information System (”MRIS”) covering Maryland, Northern Virginia and DC has promulgated new guidelines, definitions and rules for Short Sale listings.  MRIS is the largest MLS in the country and covers about 22,000 square miles.  This is welcomed news. 

“SHORT SALE” IS MATERIAL INFORMATION.  In the past, agents working with buyers have no assurance that a listing is not a potential Short Sale listing.  It is presumptuous and thoughtless when a potential Short Sale property is not disclosed in the MLS.  We have a number of relocating buyers, buyers with expiring leases, etc. that may not have an undetermined amount of time to wait for a Short Sale transaction to close.  It’s bad enough that lenders have a thoughtless contempt for the needs of home buyers.  It’s worse when listing agents do not disclose what this real estate broker always considered “material information”, i.e. that the property listed for sale, if sold, will be a Short Sale.  The knowledge that a listing is a potential Short Sale means that we can contact the listing agent and ask if there are already offers, inquire as to the status of the lender’s approval of the owner/seller position as a potential Short Sale seller. 

“CONTINGENCY” IS MATERIAL INFORMATION.  One thing is for sure, “it isn’t a short sale until the lender says it’s a short sale”.  That fact is often not understood by listing agents.  In their zeal to list properties, many inexperienced agents fail in their due diligence and, by not disclosing that a property is a potential Short Sale, may cause unnecessary financial harm to prospective home buyers and their agents.  Many listing agents have their own policy of not disclosing the potential Short Sale status of a listing.  They often fear that disclosure of this material infrormation would encourage low offers.  By not disclosing that a seller may only accept a contract with a contingency (lender approval), the seller is misleading potential buyers and their agents. 

WHY DISCLOSE THAT A PROPERTY IS A POTENTIAL SHORT SALE?  Our market is slow.  Home buyers’ time is valuable.  Buyers Agents’ time is valuable.  Our reputation is not helped by misleading the public and each other.  It’s an unfair practice to list a SECRET SHORT SALE.

SECRET SHORT SALES
MRIS has received many complaints from agent and broker members about listings that do not disclose “Short Sale” status.  The status of “Short Sale” has been available as a single keystroke for listing input for about 6 months.  Yet, many potential Short Sale listings do not show that listing status.  Without a strict policy for Short Sale listings, there was little the MRIS could do.  That all changes this week with the publication of guidelines for Short Sale listings.

Highlights of the MRIS Short Sale policy:

STATUS OF THE LISTING
This policy is one of the most important.  Often we read listing that are totally silent as to (1) the listing is a potential Short Sale and, (2) there are 1, 2 or multiple offers on the property.  Worse yet, often a fully “ACTIVE” listing does not disclose that there is an accepted contract on the property.  It’s isn’t unreasonable that the actual status of a Short Sale listing should be disclosed in the MLS just as the actual status of any listing should be disclosed by use of the CNTG/KO or CNTG/NO KO keystroke option.

With disclosure that a property listing is a potential Short Sale, it may make a difference in the lender’s letter, price offered, terms and conditions.  We would, for instance, know to avoid “drop dead” contingencies.  There is little need for a seller to receive an offer that requires acceptance or a counter offer within 24, 48, hours if the offer must be approved by the seller’s lender.  With the information that there is a contract accepted, home buyers and their agents can pursue contracts with properties that are fully available.  What a concept. 

The new guideline requirements are clear.  When a potential Short Sale listing is under contract, with or without a KickOut, that too is material information and should be disclosed.

Appropriate Status.   The status for any listing where a ratified contract is subject to a lender approval must be changed to CNTG/KO or CNTG/NO KO, indicating a third-party approval contingency.  MRIS’s perspective is that a listing broker, in such an instance, may continue to market the property and continue to accept back-up offers.  The MRIS Rules and Regulations require that the listing’s status be changed within 48 hours excluding weekends and holidays.

This policy for Short Sale listings is welcomed and will help listing agents and buyers agents conduct our business in a more orderly fashion and better serve our buyer and seller clients.

Chalk one up for “transparency in real estate transactions”.