Some properties are being advertised as a short sale when they really aren’t in an attempt to lure bargain-hunter buyers. A new book,Foreclosures, Short Sales, REOs, and Auctions: Tools for Success in Today’s Real Estate Market, published by Dearborn, provides guidelines for using the term correctly. Here’s an exclusive excerpt:
There are a number of licensees who are attempting to attract buyers by using the term short sale in marketing property. It is very similar to the furniture stores that are constantly advertising that they are going out of business to draw purchasers. The fact that a home has lost value or that the loan has increased in amount and is now more than the value of the property does not automatically make the transaction a short sale.
It’s important that a licensee conduct a thorough analysis, not only of the property value and loans but of the prospective seller’s financial condition as well. As was indicated, according to some licensees who are experts in the field, only a small percentage of short sales are approved by lenders.
What is to be gained by these licensees who advertise properties as short sales when they really aren’t? The answer is attracting more buyers, of course.
Some licensees are describing properties as preforeclosure listing or short sale and use the terms synonymously. Appropriately, a preforeclosure sale of property would involve one where the owner is in default. The property may or may not be worth less than the loan amount.
On the other hand there are owners who are not in default attempting to sell a property for less than the amount of the loan who appropriately call the transaction a short sale.
Is it a short sale if the lender has not approved a sale? How can a lender approve a transaction without having an offer from a buyer? What can be done about these situations? It may be as
simple as indicating a property is a possible short sale. Additionally, standards and rules can be developed to curb the abuses.
In May 2008 the NATIONAL ASSOCIATION OF REALTORS® approved new model rules that would allow a real estate practitioner to alert fellow licensees to potential short sales and notify them that it is possible the lender could require a reduction in the gross commission and that the cooperating broker would share in the reduction of the commission received. Each MLS may decide whether or not to require their participants to make a disclosure if it is reasonably likely there could be a short sale.
It is common in short sales for the lender who is considering discounting the loan amount to seek others who are willing to sacrifice as well, including the real estate broker who has the short sale listing.
The question becomes, when the listing broker chooses to reduce his or her commission, is he or she still obligated to pay a cooperating broker the commission published in the MLS? Too often, this issue is left unresolved and harsh feelings develop as a result.
While the model rules do not make it a requirement of submitting a listing to a multiple listing service, it would be considered good practice to place a conditional offer of compensation to cooperating brokers in the “Remarks” section of the property information sheet that clarifies what the agreement with the listing broker is going to be.
Such an agreement could be: “Both the sale of the property and the gross commission payable is subject to lender approval.”
What would put the cooperating broker on notice that his or her commission is truly subject to the lender’s discretion would be the additional agreement: “Any reduction in total compensation by the lender is to be split 50/50 between listing and selling agents.”
Of course the percentage amount of the split is totally at the discretion of the listing broker. The important thing is that the cooperating broker is put on notice up front and if the terms of the agreement are not satisfactory to them they may not show the property.
In the absence of such phraseology in the MLS a diligent agent will want to call the listing agent and clarify exactly what the agreement is before performing actions. No one is required to work for free. If a cooperating broker should choose to show a property whose commission is unclear at best, or is unhappy with any offered commission, he or she could insure the desired compensation by using a buyer’s broker agreement.
This textbook is currently used across the country in continuing education classes for real estate agents and mortgage bankers. Please note that this book can be purchased through RECampus for professional development purposes; however, it cannot be purchased through RECampus for continuing education credit. Visit the Dearborn Education site to purchase the book.