Buying and Selling: December 2010 Archives

This is a real, major and pervasive problem in the industry. For a while, it mostly went away as listing agents were desperate for any offer, but it has come back. At least two properties my buyer clients have made offers on in the last few months have sold for substantially less than my clients offered and were both willing and able to pay for the property. I can tell you this because I have copies of the offer paperwork and have since obtained the final sales price from public records.

This happens for two reasons: The listing agent wants both halves of the commission, and control issues having to do with kickbacks of one sort or another from other sources.

The first is by far the worse. Even if the property sells for ten percent off the price it could have gotten (which may be most or all of your possible equity), your listing agent representing both sides gets paid eighty percent more than if the property sold for the highest possible price to an offer represented by someone else. There are many agencies and brokerages out there that do one thing very well: Getting signatures on listing agreements. Everything else, not so much, but they really are great at getting access to property owners. No matter what city you live in, you've seen the advertising of this type of brokerage. They claim they're great so you should do business with them. However, anyone can claim they are great, especially in non-specific ways.

The goal of all of this is to get you to take the easy way and come to them first, because if they're that successful to afford all that advertising they must be doing a pretty good job for their clients, right? As a result, they can get listing agreements out of property owners who don't understand what's really going on. I hope regular readers know better, because I've gone over why you don't want a top producer listing your property before. However, because that signature on the listing agreement gives them control over the property, control over access to the owner of the property, control over what information the owners have access to, and control over who can so much as see the property, there isn't much anyone except the owner can do about it. Indeed, once they sign the listing agreement, there's not much even the owner can do about it.

There are also control issues with kickbacks. Illegal though it may be, many brokerages mandate that all of their transactions go to a certain title company, a certain escrow provider, etcetera, because they somehow make more money (either through kickbacks, common ownership, special services, or reciprocal referrals). However, if the listing agent controls both sides of the transaction, who's going to tell the principals involved that the agent is breaking the law?

Quite often, they even restrict showings of other people's clients, because one of their agenda items is using the property to get buyer clients. Rather than actually working to sell that property (which is what they are obligated to do), they dangle it out there as bait so they can make contact with the foolish sort of buyer who calls the listing agent to see the property and force them into a buyer's agency contract. I was out of town for two days one weekend, and one set of my clients called a listing agent about seeing a property. First, the listing agent told them that "Sure, no problem to see it today!" even though the MLS listing which all other agents see said "48 hour advance notice - by appointment only" There might have been a special circumstance of which the listing agent was aware, but I kind of doubt it because they also wanted my clients to sign an Exclusive Buyer's Agency Agreement in order to see that property. Since I make it a point to educate my clients on this point, they knew to refuse.

Here's the real sticking point: When that agent signed the listing agreement, they accepted a fiduciary responsibility to that seller. It is their responsibility to get it sold for the highest possible price in the quickest time with the fewest problems. It is a violation of that fiduciary duty to their listing client to act as that agent did towards my clients. Their duty is to get that house sold. If someone doesn't see it, they're certainly not going to make a good purchase offer. Anything unnecessary that causes or might cause a buyer to balk about making an offer on that property is a violation of their contractual and legal fiduciary duties. By conditioning prospective buyers seeing the property upon anything other than being there at the first mutually reasonable time, they are in violation of that fiduciary duty to their listing client. However, I must once again ask: If they control all access to that owner, who's going to point this out to the owner?

Here's one person who definitely can't: Any prospective buyer's agent. Both agency law and MLS rules everywhere that I am aware of make it an punishable offense for buyer's agents to contact that owner directly. A buyer's agent could lose their license, MLS access, or both for doing so. It doesn't matter if I "only" lose one - I can't stay in business without both. In other words, the one group of people who have the professional knowledge and interest to possibly inform that property owner that they are being hosed is legally and professionally constrained from doing so. Yes, Virginia, real estate law is structured to protect the major chains and brokerages that advertise constantly (and control the National Association of Realtors and state associations, so they control the vast majority of real estate lobbying).

Nonetheless, if you want to sell your property quickly for the best possible price and without it coming back to bite you, you really do want an agent. The pitfalls and ways that the real estate sharks trap you into their own private feeding frenzy really are enough to make you want an agent even if you couldn't do anything to protect yourself from the bad ones.

So what is a self-interested consumer to do to protect themselves?

Two things: Eliminate the motivation to do this, and eliminate their control over access to you, the property owner.

Both are easy if you know how before you sign the listing contract. Afterwards, they are considerably more difficult if not impossible. Since most consumers don't know enough or don't care enough to do the research beforehand, this is why the vast majority of people who want to sell their property aren't protected. Some listing agents do a very creditable job even though you're not legally protected, but many others don't. Nor is there any real way of gauging their personality for certain ahead of time. It's easy to say the right things before that listing agreement is signed, then go off and do something completely different. Do you want to bet the return on a half million dollar investment on how they will really handle it?

The easy one first: eliminating control of listing agents. There is one exception to the rule about other agents having no permission to contact you: If they are instructed to. Most of the time, you (as the seller) don't want to talk to other agents. But there are two exceptions: If they're having difficulty seeing the property, and if they're making an actual offer. If the listing contract is silent about these two issues, then the listing agent controls these absolutely. Actually, it's their broker, which amounts to the same thing at best, and could be much worse. So if you don't negotiate this in advance, know that you're committing complete control over these two issues to that agent or their brokerage, and there literally is no way for you to find out about any difficulties they don't want you to know about.

What you, as a consumer want, is to get at least duplicates of any offers sent to you directly, and you want to be the one people come to with access issues. You want there to be explicit instructions in MLS to call you directly with any access issues, and to send at least copies of all offers to some facsimile number or email address that you control - not the agent. Put this right into the listing contract. You are entitled to check this on the listing at any time, and you should wander into your listing office at least once during the first week the property is on the market (without telling them you're coming) and demand a copy of your property's full MLS printout - the one that other agents see. You are permitted this on your property and your property only, so be prepared to prove you are who you say you are (Photo ID and copy of listing contract). You should also do this every couple of weeks the property is on the market. Check that the instructions stay what you want them to say in this regard.

Note that even if prospective buyers and their agents don't comply with this instruction, the listing agent has no real way of knowing they didn't. Especially if you wait for that agent to contact you instead of calling them the second you get the fax or email. If they don't contact you within 24 hours, that's everything you need to know about that agent and brokerage. As a buyer's agent, I would be happy to send such duplicates - it means I have some real assurance my client's offer doesn't disappear into the trash can, as I'm pretty certain the ones at the start of the article did. As a listing agent, even if I'm working with the buyers to get me more information (like whether they are qualified) before presenting the offer, I'm going to make sure my seller client knows we've got an offer right away. For me, this happens whether there are instructions to send offer duplicates directly to you or not, but if it didn't, how would you know? I won't get offended by such requests. No good agent who will work for their clients best interests should get offended. It's a legitimate control you are exercising upon the situation, just like any other contractor-contractee relationship. The old maxim about "trust but verify" applies. The agents who get offended or don't want to do this are the ones you should avoid at all costs.

Eliminating the monetary motivation for agents to filter out offers submitted by other agents is harder, but even more important. You as the seller do not want your agent also representing the buyer. Whose side would they really be on? In most cases, all but the worst crooks will be on the side of the seller, but there isn't any way to be certain you aren't one of the exceptions. There are tricks and things that one agent can do that you really can't guard against in general, but it is much less likely that two agents each representing different parties will collude upon. Anything shady, no matter what that might be, and at least one of them can be held legally responsible in a court of law! Nobody wants to be representing the mark in a con when the mark can come after them with an attack lawyer and expect to win a major damage award plus court costs and in many cases jail time.

The way to do this is actually pretty simple: Write it into the listing contract that you will not accept Dual Agency. Period. You don't really care if the buyer is represented or not - if they choose not to be, that's their problem - but you won't permit your agent to represent them. That agent needs to pick a side of the transaction - yours - and stay on it, or they're not getting the listing. If they show the property to some prospective buyer or some buyer wants them to submit an offer, there is a standard form - the Non-Agency Agreement, that explicitly states that both the buyer and that agent agree that there is no agency relationship being created, and the agent is doing whatever they are doing because their contractual relationship with you, the owner of the property, requires that they do it. Tell that agent you won't even consider offers made without another agent until they show you the Non-Agency Agreement. If they can't give you their absolute and sole loyalty for the sale, do you really want them to have the listing?

Furthermore, write it into the listing agreement that if there isn't another agent involved, your agent won't get to keep the buyer's agency share of the commission. A small amount of additional compensation is in order - there really is extra work and extra costs involved, so I ask for an extra half a percent if the buyer is unrepresented, which might just about pay for the extra my transaction coordinator charges plus the gas for meeting the appraiser, inspector, etcetera. You don't want your agent shooing away unrepresented fools offers, either, as they might do if they had to do extra work for no extra pay. You want to put the listing agent's financial motivation squarely where it belongs - they get paid the most money by getting you the highest price on the quickest sale with the fewest problems, not by getting both halves of the commission and the maximum in referral kickbacks.

I'm not real hot on Designated Agency, either, where two different agents working for the same brokerage are buyers and seller's agent. It can work, but the controls necessary to safeguard consumers on both sides are both complex and opaque to that consumer - not to mention that most brokerages don't have them. As a rule of thumb for buyers, if you're working with a good buyer's agent, had been for a while, and it just happens you like a property one of the other agents that works with them is listing, chances are decent that might be okay (about 8 in 10). If you contact the brokerage because they're the ones listing the property, and they refer you to their in-house buyer's agent, chances are 999+ out of 1000 that you should run, not walk, in the other direction. For sellers, it's worse. Unless your listing agent is unavailable for some reason, or that other agent from the brokerage can show a pre-existing buyer's representation agreement, I wouldn't want that offer. There are too many games that can be played, and it makes collusion to someone's detriment much more likely, as these agents work together constantly and might well have the level of mutual trust and teamwork (and possibly direction from the broker) to make a scam work and get away with it. In the majority of cases, this collusion more likely favors the seller than the buyer, but there just isn't a good way for anyone to be certain. As always, if there's a game being played and you can't prove who the mark is, you should assume it's you. Real estate attracts a lot of sharks because of the potential for high profits, and even the cheapest properties have enough profit potential to attract those sharks and all of the con games they play.

The difficult part about this is that the vast majority of agents, even those who aren't necessarily among the worst, will strenuously object to these provisions. Most agents really want to "double end" their deals - represent both the buyer and seller - simply because they do get paid more. Most have never taken the time to understand all of the ethical and legal issues with "double ending" a transaction. But these provisions against getting both halves of the commission really are necessary to remove the motivation that causes bad agents to throw up barriers to offers not represented by them. You don't want them to even be tempted to filter out offers, restrict or refuse showings, or require that prospective buyers do business with their business associates, all of which are bad for you, but result in that agent eventually receiving more money either directly or indirectly.

One more thing is beneficial: Require a notation in MLS that says you welcome
buyer's agents presenting offers in person. Your agent should also want to present counter-offers in person. This not only gives you another opportunity for outside contact uncontrolled by your listing agent, it humanizes that transaction. It turns a faceless fax machine spewing paper into real live human beings. You'd be amazed how much it helps the probability of the transaction actually closing.

The issue of listing agents acting for their own benefit to the detriment of the clients is real, is common, and is once more increasing in magnitude. If you're a property owner who wants to sell on the best terms possible, you need to protect yourself from the problem before you sign that listing contract.

Caveat Emptor

Original article here

One of the hard things to get through to sellers is to understand the characteristics of the sort of buyers they need in order to have a successful transaction. If a given set of prospective buyers can't afford the property, they might look anyway. They might even make an offer, and it's possible the offer might even be accepted. But in the current loan environment, the necessary loan won't fund, so the transaction isn't going to actually happen.

Furthermore, it's a good idea to know the income characteristics you're aiming at by the price you set. If you set a price of $400,000, what does someone who can afford a combination of cash and loan that add up to $400,000 look like, in the economic sense of the word? You'll know better than I who makes and does not make that kind of money in your area, but you should know it. I know it for San Diego. This isn't the kind of knowledge that comes from 10 minutes on the internet. I know what professions do and do not make the required money, and what professions for which it's a matter of where a particular prospect falls on that profession's pay scale, but it's taken me years to learn, just for San Diego, and every city is different.

The point is this: Once you've figured out how much various professions make and the price you think the property is worthy of, that gives us a lot of information about how to get the property sold. You have to figure out how to get the attention of buyers in that category, you have to have a plan of how to set the bait so they will go look, you have to figure out how to make the property attractive to them when they do go look, and they have to have a clear action to take in order to make an offer. In theory, this is nothing more than the standard marketer's AIDA (Attention, Interest, Desire, Action) sequence, but the practicalities take a lot of effort to learn in this specific instance.

Most areas have their own character. Some neighborhoods have a working class character, while others attract highly paid professionals. Some have an artsy orientation, others are very matter of fact. Properties have their own characteristics. The one property in the neighborhood with a panoramic view of the area is not going to appeal to the buyer who's looking for any hole in the wall, so long as it's in that neighborhood so their kid can go to Super High. Put property character and neighborhood character and the price you want to obtain together, and if you're a listing agent, that had better give you an idea of exactly who you're hoping to attract to your property. Like all targeted marketing, you won't turn away someone from out of the targeted demographic, so long as they can actually get the transaction done, but you don't have to be in the business long to discover that you'll do better by appealing to the degreed professional who makes the money to qualify based on Debt to Income Ratio for an 80 to 100 percent Loan to Value Ratio loan, than you will targeting the fry cook who's saved and invested for twenty years and is all of a sudden ready to buy the property, now that he has a 70 percent down payment. That fry cook may show up on their own anyway, but how many people do you know who save that much over that long a period and then want to spend it all on real estate? As opposed to the newly married professional couple who've been in their careers a couple years each, have a little bit of money saved, and now they want to stretch their budget as far as they can? Most people take precisely this latter path, and that is why you should concentrate your efforts to sell to those people most likely to buy your property.

The rates are going to change a little bit every day, but in most cases, it's not going to be significant change. Things like interest only loans will stretch their qualification a little bit, but those are best approached with a trembling hand for purchases, and you're better off planning for the buyer being advised that the property may be too expensive for them in such an instance, and having a plan in place, than you are hoping that everything goes perfectly for you to sell to an unsuspecting buyer. Yes, you're selling and once you get your money, you really don't care what happens. But these days, a lot of agents and loan officers are suddenly discovering the advantages of really looking out for their client's best interest, and you don't want to assume that your prospective buyer's agent will not be one of them. Remember, you're trying to look ahead and get a consummated transaction for the best practical price - and a buyer with a loan that does not fund is not the one you want, no matter how good the initial offer.

Not all loan amounts are the same. Conforming Loans are better than Temporary Conforming which are in turn better than "Jumbo". There is no more 100% financing except for VA Loans. Subprime was kind of in Never Never Land back then (now it's mostly dead). If you read between the lines of what their reps were saying before the industry imploded completely, they wanted A paper borrowers who didn't know they could get an A paper loan. And nobody wants to touch stated income loans right now, no matter how good the credit score or down payment. Fact. Whether you're a seller or a buyer, you can live with it and plan for it, or you can fight it and still lose.

So what I'm going to do is compute the monthly cost of housing on purchases of a given size, together with the income to qualify. I'm going to assume this is California, with California property tax rates. Furthermore, I'm just going to make a flat allowance for Homeowner's Insurance plus Association dues of $250 per month. It's not exact, but it'll put you in the right ballpark. With a specific property, you can get closer, or course.

Let's start with 90% financing, a 90% loan with PMI, because that's the only way to do it right now. This obviously requires the buyer having a 10% down payment plus a bit, and limits us to conforming (and now temporarily, jumbo conforming) loan amounts. I'm also going to do the numbers at an assumed 6% loan rate, because that is a better long term rule of thumb. Here's what it takes:

In other words, a family who wants to buy a $400,000 property without a down payment needs to be making almost $82,000 per year. Them's the facts, and that's not including any existing debt service they may have. Credit cards, car payments, student loans, etcetera. If other debt service is $500 per month, you raise the income to qualify by over $1100, and the yearly income by $13,000 plus change. San Diego's Area Median Income is a little over $69,000, and a family making that much money can afford a loan of about $320,000 currently - if they don't have any other debt. If they have a huge down payment, of course, it's easier, but how many people have you encountered recently with huge down payments?

Now, let's consider people who actually have a 20% down payment. Most likely, they bought a condo a few years ago and now they've sold it, but they had enough equity in the condo to account for that 20% down on the more expensive property. Or they sold the condo and bought a starter home, and now they've sold that and are looking to move up again. This is without PMI, and having some equity means that not only are the terms of the loan more favorable, but you don't have to borrow as much to buy a property that costs the same, and so a property of the same value is much more easily affordable.

Once again, this assumes there's no other debt service involved. But if you've got a home with a $700,000 price tag, you're still looking at trying to lure in a buyer family that makes a minimum of at least $10,000 per month. These kinds of buyers are not going to go for old carpet and a carpet allowance. They want your seller to have already dealt with it. Even if it's the cheapest, most beat up property in Rancho Santa Fe, on the smallest lot, the sellers are still going to take a hit on the price that's a lot bigger than the actual cost of such things for not dealing with it themselves.

For a successful listing, you need to know your target market - know who you are trying to sell to. It's a hard lesson to get across, but it really is necessary to pick your targets in order to hit them. Some people do buy properties that are apparent mismatches between their lifestyle and the property, but not many. As listing agents, we not only need to understand what is and is not a match before setting off to attract a buyer, and recommending appropriate measures to the owner before it goes on the market, and not only we but our clients as well are much better off by concentrating our marketing efforts where they are most likely to succeed.

Caveat Emptor

Original article here

Somebody asked me that.

Well, I'd want to set some aside for liquidity and reserves, in case something happened where I needed money now. invest those funds in a diversified mutual fund and money market portfolio. Once that's done, I'd buy some rental properties, because when government inflicted economic sabotage shakes out, anything I buy now is going to be a lot more valuable in real terms. Leverage the money right, and we're talking at least two to one return, probably more like four to six.

Specifically, Condominiums, and Townhomes. High density housing.

Why? Well for an illustration as to the first part of that reason, look at my article Economics of Home Ownership in High Density Areas. We're in a phase here in southern California where we're getting ready to switch, by economic necessity, away from the single family detached property on its own lot and towards the community interest lot. Land is just too expensive. The average person or family, making an average paycheck, can no longer afford single family detached housing within commuting distance of work unless they've got one heck of a down payment. The demand is too high, and the supply too limited, for everyone who wants one to have one. When that sort of situation happens, price goes up until enough people get priced out.

Here's the trip: When you're talking rent, half million dollar single family detached housing rents for maybe $1800 per month. But if you buy a $200,000 condo, it rents for $1000 to $1200. Put 20% down, and it's very possible to have a positive cash flow on such a unit - something it's not currently possible to have with the detached house. The fact that the spread is so small is temporary, of course, but in the meantime it's an opportunity for a sort of arbitrage.

Furthermore, the average family can afford a fairly nice condominium or townhome. It's just that during the Era of Make Believe Loans, people were told they didn't have to "settle." So they purchased properties far beyond their real means, because they were being told they could qualify for those ridiculously high dollar value loans.

(I call it the Era of Make Believe Loans because the agent made believe people could afford more expensive properties, the lender made believe that people could qualify, and the consumers made believe that there weren't deadly traps they were falling into on every single one of them. It was seductively easy for everyone. The agent didn't have to sell only the property the client could afford, or "settle" for the smaller commission. The lender and loan originators could make money hand over fist on paper. The consumers could pretend they could afford a property far beyond their means, and didn't have to "settle" for what they could really afford. And people are still making believe that the Era of Make Believe Loans is going to come back.)

But denial has a definite half life when it encounters pervasive economic reality. Once it's become accepted that the housing market has stabilized from its free fall, people will be forced to look reality straight in the eye. We had the bubble, we had the pop, and now it's time to start going up again. Once it starts happening, families will be forced to confront the fact that they can't get the American Dream all in one easy step by essentially clicking their heels together and declaiming, "There's no place like Oz!" They will have three options: Stay a renter forever, move away to somewhere there is less demand or more supply, or settle for what they can afford, leveraging it to something better. When larger number of people realize that those are their choices, the demand for and price of condominiums is going to shoot up.

So, put $40,000 or $50,000 into a $200,000 condo, rent it for $1200 per month, and your cash flow is just about even. That's the second half; the situation right now, as it exists. I've predicted rents are heading up in the near future several times. Rent goes up, I'm making a couple hundred dollars per month while values are climbing. In a few years, I've a property that has doubled in value while making me some small cash in the meantime. Multiply this by a dozen, and I've got two to three million dollars from an investment of six hundred thousand or so. Plus, of course, I'm going to pull all the old flipper's tricks just before I sell them. Yes, there's risk - risk that can be minimized and dealt with. That's why I wouldn't be sinking every last penny I had into it, a mistake way too many people have made in the last few years.

Right now, the market in Southern California is very highly segmented, meaning that prices and demand for some things (Single family residences in desirable parts of town) is through the roof while there's a glut of other things (condos). Condos are, for most people, what my econ professors used to call substitute goods for single family detached housing. But when people figure out that it's condos or rent or leave the place they really want to live, they'll start going for the condos. The hassle of HOAs is nothing near as bad as having a landlord.

Of course, nobody's giving me a million dollars. But if you have $50,000 sitting around, you can make about 10% per year in the stock market with a reasonable amount of risk, Over ten years, that's turning your money into about $138,000. Or, if California real estate increases at an average rate of 5% per year for the next ten years (our forty year average is about 7%), that $200,000 condo turns into a $325,000 condo, while your loan has been paid down to $125,000 and you walk away with $200,000, not counting the cash in your pocket between now and then. If we should actually tie our long term average of 7% annualized increases, that's a $390,000 condo and you walk away with $265,000. Meanwhile, the cash flow picture gets better every year as rents increase. Your choice, of course, but I'm not the only one who sees an opportunity here.

Caveat Emptor

Original article here

If a home for sale has a refrigerator included on the listing report, and the buyer's agent does not write that it goes to the seller in a contract, is the buyer actually entitled to the refrigerator. I am actually going through this right now.

The listing does not matter. What does the purchase contract say? That is the complete controlling fact of the whole entire transaction.

If the contract is silent, what matters most is whether the refrigerator in question is appurtenant to the land or not. Appurtenances are things which are physically and structurally attached to the land which is always the primary thing being sold in a real estate transaction. For a standard house, nobody would seriously argue that they have the right to remove it, because it is attached securely to the property. There are service pipes coming out of the ground attached to the ground and a foundation it is attached to. There are electrical service wires, telephone wires, and cable TV wires. All of which would come up if you pulled the house away. So the house is appurtenant to the land. This is how all real estate transactions are really structured, by the way. You are buying the land, and the house, if there is one, comes along because it's attached to that land.

So if the refrigerator is somehow built in, such that removal would be a nontrivial project, then it's appurtenant to the land. If all you have to do us unplug it and push it away on a dolly, that's not appurtenant, and there is no more reason why they should have to leave that than why they should have to leave their dog, cat, or child.

Now this is not to say that you can't build an excellent court case based upon the fact that there was an implicit promise made in the listing, and everything else in the contract was built off of what that listing said. Talk to an attorney for more information than I can ever give you on that score.

Even if they're not obligated, the seller might leave the refrigerator anyway. Maybe they've got another, maybe they are just living up to what they promised even though they might not be legally required to do so. It's not like most people go around looking for ways to be evil. I've never met anyone who acted like a Disney villain. I have met some pretty shady characters, but mostly they're more sophisticated about it.

The thing to do, if you're concerned about the refrigerator or anything else where you want it to stay, is to put it in the purchase contract. If the listing says these appliances stay, putting it into the purchase contract won't offend the owner - it should be something they expect.

In any of these cases, the seller can force you to go to court by being an obstinate donkey, even when they haven't got a leg to stand on, legally speaking. It's not like you have the magic power of enforcing agreements. That power belongs solely to the executive branch of government, which will take no action in cases like this without a court order. Whatever the court says is final. Unless it's some $25,000 wonder fridge, however, it is not likely to be worth going to court over. Much cheaper to buy a new refrigerator, and your expected return on investment is much higher.

Caveat Emptor

Original here

I am seeing a very disturbing trend these past few months. Rather than do the work they should be doing, listing agents are treating the entire short sale process as a kind of "Black Box", delegating the negotiations with the lender to a negotiations firm, treating the negotiation firm's advice as if it were handed down from on high, and expecting buyers (and their agents) to blindly follow along in profound indifference to the buyer's interest. Sadly, they're getting a lot of cooperation from buyer's agents who should know better but are acting more like sperm donor agents than real agents.

I have seen the following demands from these knuckleheads :

• trying to require buyers to pay repairs, termite etc before they own a property, when in fact the transaction may never come off
• requiring buyers to pay the negotiation firms that they had no role in hiring, because the lenders allegedly won't allow it to come out of sale proceeds. Maybe you should take the hint the lenders are giving you - these negotiators and their recommendations do not serve the interests of any of the three principals to a short sale transaction. The interests they serve are those of a lazy (and horrible) listing agent
• Agreeing to keep the offer open at least sixty days without an accepted purchase contract

The answer to any of these demands is short, simple, and to the point: No.

You want my client to pay for repairs to a property they don't own (and most often the sellers don't want to take it off the market)? How can agreeing to this not be a violation of buyer fiduciary interest?

You want my buyer to give keep an offer open two months without a valid purchase contract?

You want my buyer to pay a firm that they have no role in hiring and does nothing to represent their best interests?

First off, ladies and gentlemen, if you don't have a valid purchase contract, the thing to do is walk away. There is a world of difference between "offer accepted pending lender approval of short sale" and "we have submitted your offer to the lender" In the first case, you have a contract with one contingency - kind of like a loan or inspection contingency on the buyer's side, only from the seller's side instead. Nothing wrong with that. Transactions with seller contingencies happen every day. But it also means you have an accepted offer. There can be only one accepted offer, and once there is an accepted offer, the property needs to be removed from the market and no other offers may be considered until this one falls apart. In other words, the seller is stuck with the buyer every bit as much as the buyer is stuck with the seller.

But if you don't have an accepted offer, what you have is "Hope I get it". Kind of like the Little Engine That Could, except there is no defined end to the process and it's not under your control. It's just repeat the mantra of "Hope I get it' until you get told that you didn't. That choice of phrasing was very considered, by the way. Under this scenario, listing agents submit multiple offers to the bank - a recipe for disaster if ever there was one from both the perspective of the buyer and the seller. If the bank keeps getting offers, what are they going to do? That's right, keep the property on the market hoping for a better offer. Whereas if you show them some hard back and forth negotiation and one or more prospective buyers dropping out of the process until only one is left, that's good evidence that that is all the property is worth.

Understand this in your bones: That short sale lender wants one thing above all else: Their money. As much of their money as they can possibly arrange to get back. The owner's job transfer, illness, etcetera, are not their problem. I straightforwardly advise buyers to avoid short sales but some people decide they just have to try for one. That lender needs to see conclusive evidence that there is no way they are getting any more money out of this property and this owner before they will approve the short sale. They need to understand that this is all the market will support, and that the current owner cannot pay them any additional money, and that if they don't get off their fat backsides and approve this pronto, not only are they going to end up with less money when this buyer walks, but they're going to have to pay the expenses of getting it sold as well as the penalties for having a nonperforming asset on their books.

The way to approach that is to negotiate hard with prospective buyers, as if the lender weren't part of the picture. The best evidence that this is what the property is worth is that you tried to convince multiple people to offer more, and this one you picked is the one that's the best for the lender. Submitting more than one offer to the lender is a recipe for Delay and two different forms of Denial from that lender. They are going to want to wait until they get still more offers.

The lenders do have a secondary concern to getting their money, and that is time. It may be difficult to believe for agents and buyers and sellers who wait three months waiting for the bank to make up their mind, but the bank really would rather move quickly. Time costs them more money. It's just that most listing agents do not and will not do the work of actually getting the offer approved by the short sale lender - which they accepted responsibility for when they took that listing. "Short sale specialist" means a lot more than hiring a negotiating firm!

This nonsense about asking buyers to fork over cash for repairs before closing, asking them to keep offers open without an acceptance of that offer, and asking them to agree to pay the negotiating firm are all things that an appropriately represented buyer is going to ask for concessions for. Concessions on price, concessions on indemnification, concessions just for putting up with the ridiculous nonsense on stilts. This all translates to the buyers who are well-qualified and have plenty of resources walking away, while the ones who are marginal or even below qualification level are perfectly willing to hang around in the hope that a miracle will happen. What else this means is that the property sells for a lower price. But the Broker's Price Opinion has no way to reflect these unattractive things making the property worth less to the buyers. It is therefore going to come in higher than the sales price. So we have two additional ways that the transaction falls apart because the listing agent couldn't do the correct thing in the first place. With stuff like this happening, is it any mystery why four out of five short sales fail? Is it any wonder that the better buyer's agents advise their clients to avoid short sales?

Short sales done correctly are really pretty much like regular sales, albeit with one long, difficult and thoroughly unpleasant step added. But what happens before that step shouldn't be any different for a short sale than any other property. Nor should what comes after be any different, except that the seller cannot get any cash out of the deal. The one extra step that is actually necessary does impact buyer desirability, but not nearly so much as all of the unnecessary nonsense (euphemism alert!) that some listing agents insist upon adding.

All of this is, incidentally, one more piece of evidence that most major real estate brokerages are built around the seller and listing property for sale for minimum effort on their part, especially of any actual licensed agent involved. The buyer can go hang. In some cases, literally. No buyer's agent worth what comes out of the south side of a northbound cow is going to counsel their buyers to put up with this stuff, at least not without a lot of concessions including a major downwards adjustment on price (and as I covered above, the lenders will deny such sales when the broker's price opinion comes in too high). But people still keep calling listing agents about their property without having a buyer's agent to advise them. Given that, the agents think they'll find some clueless victim to sell it to. All too often, someone proves them right. In the meantime, like Tina Teaser, the worthless listing agent who is really impeding the sale of the property uses the listing to make contact with as many buyers as possible.

Buyers can't force sellers to sell, much less to sell to them in particular. But sellers and listing agents shouldn't be blind to things that cause buyers to walk away or to be willing to pay less simply because the sellers are not getting cash out of the deal. Especially in a short sale situation. They may not get cash, but soon enough they will be back to getting 1099s for forgiveness of debt, a taxable event. Every dollar they can prevent the lender from losing is going to help them.

The general statistic is that one short sale in five actually comes off. Given the nonsense listing agents expect buyers to put up with, it's no wonder that buyers getting disgusted and walking away is right at the top of the list of reasons for fall out. Sellers need that buyer - without a buyer, they don't have a sale, and nobody sells their property on a short sale without a need. Nor does this nonsense on stilts motivate the bank to get off their backside and approve the short sale. Quite the opposite, actually.

Caveat Emptor (and Vendor)

Original article here