It’s time for the National Association of Realtors and local boards (SEVRAR and others in the Phoenix area), to implement a series of procedures and conduct rules for the handling of “Short Sales” by the Realtor community. I say this because of my consternation of how many Realtors are conducting short sales from a seller perspective.
The conduct is hurting the perception of buyers, it is damaging buyer representatives stature with their clients, and it is eroding any remaining sense of Realtors as professionals in this business.
The following is a situation that came up this week. Here’s the backstory. Note–this process is common.
I am the buyer’s agent for a buyer interested in a Chandler home. We were the second offer on the property and put in a backup position for the property. I ascertained through the listing agent and basic research that the other offer is $190,000 for the home currently listed at $210,000.
My client put a very fair offer forward above list price given our belief that the first offer represented an unrealistic low-ball. My client wanted her offer to be compelling and her best effort out of the gate. That was about 2 ½ weeks ago.
I have checked back every 4-5 days or so to check in for updates. Even though we were the backup offer, I knew that the lender would take our offer over the primary offer.
This week, I checked in with the listing agent. At the end of her email explaining the latest status, there was mention of a third offer. Let me say that I have issue right here. The selling agent should show professional courtesy to make the call to all seriously interested properties in a listing to notify them of additional offers. Failure to do so can leave a buyer at an unknown disadvantage and lead to big disappointment.
At this point, I emailed the listing agent and inquired about how my client’s offer compared. It took two emails to get the following single line response:
“You are both extremely close dollar wise.”
I called the other Realtor. Through a series of probing questions, I came to understand that the third offer was right around our offer in terms of the “sale price” but that the other offer did not ask for seller concessions for closing costs. The statement above is true if you only think of the actual sale price in the agreement.
But from a bottom line or ‘net’ perspective, my client’s offer was now low by about $6,000 to $6,500! Given the list price, this is hardly ‘extremely close dollar wise.” Ironically, I got the sense that the Realtor was looking at our offer as inferior for asking for closing cost concessions (when the other didn’t) and that the Realtor didn’t even know if the lender would cover them. This is despite the fact that the offer was actually higher than list price to accommodate the concessions.
I ruminated on this a little while. For anyone working short sales or lender-owned properties, regardless of being the buyer or seller representative, you know that the lenders are only interested in the bottom line or net value they can expect to see in handing the transaction. They also have been very open to covering closing costs (and even down payment assistance up until mid-to-late September).
It is clear that a few things have happened here. First, the Realtor likely disclosed the value of my offer to prospective buyers. I can accept this. However, the Realtor failed to inform me and as a result, I don’t believe that the Realtor is serving their client’s best interest or fiduciary by not doing so. The fact is that my buyer may want to improve on their offer. Though this is a short sale, the Realtor should still be pursuing a strategy to get the most value for their client’s property.
Additionally, this property remains in “Active” or available status and so more Realtors will be showing the property and likely some will submit offers. Despite their now being three offers on the table, the property remains in Active status.
Coming back to the National Association of Realtors, I believe it is time for NAR and local boards to create and enforce a series of rules with regard to the conduct of short sales. There has to be more rigor, purpose and professionalism applied to this process in the future.
Specifically, the following should be adopted:
First, the flexibility of the “Active” status in the MLS system should be curtailed. Short sales whereby the current owner has accepted an offer (subject to lender approval) should be reclassified to “Active with Contingency” or a new status such as “Active With Contingency – Short Sale Lender Approval Required.” If the transaction breaks down during escrow, then the property can be reclassified as “Active” and available again.
It is my belief that the current broad use of “Active” status for these transactions is actually slowing down the market as buyers spend time and energy on viewing short sales only to be disappointed to learn that offers are already in process. Buyers are getting hurt through this process. As well, I believe that the market outlook in terms of total available inventory versus properties under contract is blurred as these properties push the boundaries of available status.
Second, NAR and local boards should mandate to communicate to all seriously interested parties to a transaction that an additional offer has been received. Realtors that don’t notify other parties should be considered in potential breach of their fiduciary responsibilities to their clients for not doing so. Only unless they have written instructions from the property owner should they not do so.
Laslty, NAR should require that broker representatives representing short sale listings provide a disclosure form to potential buyers that notifies them of the specific process to be used for attracting and handling multiple offers. Buyers and their Realtors should have the process to be employed communicated to them in writing given the clear lack of understanding and even transparency.
Short sales serve a very specific function and useful purpose in a market recovery. However, their handling is also creating pain and consternation for buyers and damaging any professional perspectives of the Realtor community in the eyes of the public.
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{ 3 comments… read them below or add one }
My local MLS within the past year has added a couple of separate catagories to help with short sales. If a property is listed for less than what is owed, it must be placed in Active Short Sale catagory. When a property has an offer accepted by the sellers but not agreed to by the lenders, it must be placed in Active Short Sale Contingent status. This alerts agents, buyers, etc. that there is at least one other offer on the property. Short sales are not put into pending status until bank acceptance.
The addition of these new catagories seems to have helped the process here.
My husband and I are actively trying to sell our house and buy a new house. We put an offer in on an Active Short Sale home in which we personally knew the seller and agent. We soon found that the agent was playing us. She continued to accept offers, tell everyone each others offer price, and encouraged everyone to keep increasing their offer amount. We quickly backed out of the scenario, which re-confirmed our reasons why she is not our regular agent. Our local MLS uses ASC to indicate contingency sales; however, it is up to the individual agents to use this code. The agent I just mentioned continues to take new offers. It doesn’t help that she’s the mother of the son who is losing his house. So, an increased offer amount just means an increased commission for her. This seems like quite a bit of a conflict of interest. We’ve pretty much decided to stay away from short sales.
Darla-
Thanks for your comment. This is something that was allowed to happen here for some time before the local ARMLS board put rules in place to require that Realtors move the listings into Active with Contingency status to avoid this scenario. I still see Realtors doing this (even yesterday) and when I see it, I, like many Realtors, will report it as a violation. For the exact reasons you mentioned above, this is not something that should be allowed and it reflects poorly on my profression.