Short Sale Newb needs help.

March 28, 2009 4:33 AM

Need more advice on how to proceed with a real estate short sale.

We are looking for a new home and have found one that we love but it seems a bit overpriced. The realtor told us that they completely renovated, had a huge loan and then lost their job. They haven't been able to sell for what they owe so they want to do a short sale. Their bank has told them to bring them an offer.

Their are a few posts on mefi that touch on the subject but I'd like a little more info. How should we proceed if we want to try to take advantage of a short sale price? What questions do we ask? The realtor indicated that she's done 2 in the area and can represent us both through the process. It is a small town and she has a stellar reputation to protect, but is this a good idea? Anybody bought a short sale and have advice? TIA!

posted by pearlybob to work & money (14 answers total)

I know a realtor who recently went through a Nightmare short sale. Getting the bank and buyers and sellers to all agree on a price was like having a cow. And then the buyers dropped out at the last minute, because the sellers didn't have their shit together. On behalf of realtors everywhere, please don't do that.
posted by metastability at 6:43 AM on March 28, 2009

(drop out at the last minute, that is.)
posted by metastability at 6:44 AM on March 28, 2009

I don't know anything about short sales but I would say that no, she can not adequately represent both your interest and the seller's interests fairly. You want someone that is only looking out for you: so a buyers agent. The fact that she wants to have all the commission to herself means she is actually looking out more for her own interest instead of either you or the seller. How fair do you think she would be in trying to negotiate a lower price for you (as a buyers agent should) and a higher price for the seller (as a seller's agent should) when she will make more money for the higher price? The only exception I could see is if she then reduced her commission to one-third or less of a regular commission reflecting her decreased workload.
posted by saucysault at 6:46 AM on March 28, 2009

saucysault: it is fairly common for agent's to represent both ends. good agents know how to do it right. And it is definitely not "decreased workload". It is a hell of a lot more work, actually, because they have to do both ends. And then someone comes in and tries to sue them, so they have to deal with that drama too.
posted by metastability at 6:50 AM on March 28, 2009

Wait, why not drop out at the last minute? I think the OP needs to make sure that the house they're bidding on is the house they want. They are entitled to drop out at any moment right up until the papers are signed. Sure, they might get sued for this or that, but any "Realtor" that goes that route is just begging to have a gigantic billboard up with that says "I BULLY YOU INTO BUYING A HOUSE THAT YOU DON'T REALLY WANT! ASK ME HOW!" If at any time you feel uncomfortable about the short sale, DROP OUT! If you've got an attorney, they know all kinds of tricky ways to get you out of this scot free.

I think what you've got to do is provide a reasonable offer, with reasonable terms, and prove that you're qualified and you have the means to provide whatever cash and funding is needed to fulfill your offer.

NEVER EVER use the same real estate agent to represent both sides of a transaction -- dual agency is a nono. No matter how much the agent says they'll look out for both interests, it's probable that someone gets preferential treatment. A "good agent" would never even agree to get into that situation. Well, I suppose it's all about your definition of "good agent". Good for who? Good for the seller? Maybe. Good for the agent's pocketbook? Definitely. Ask your attorney about dual agency, and watch to see if his eyes roll.

ALWAYS use an attorney. Use an attorney to close your deal instead of a realtor. Do not use an attorney the "Realtor" recommends. This is even more important with a short sale because there are a lot of funny docs that need reading and signing.

In a perfect world, we could buy and sell houses without Realtors budding in and stealing money from us. Now that we've got all the resources on the internet that real estate agents have, they provide next to no actual service besides unlocking doors. I can do that myself, thank you.
posted by Geckwoistmeinauto at 7:13 AM on March 28, 2009

I recently sold my house via a short sale. It wasn't an easy process for me or the buyer. I'll tell my story, using round numbers, as a way of explaining my experience of the process.

First, I voluntarily moved despite being able to make my mortgage payments. I bought near the top of the bubble. After living in the house for 3 years, I was considerably underwater with no prospects for regaining equity in the next 5 years or coming close to breaking even by renting the house, had spent a considerable amount of my savings in renovations that I would never recoup, and didn't like the area in which I lived. More than a dozen houses within a quarter mile of mine were in foreclosure. I wanted to get out of the house/loan sooner rather than later for my own sanity.

I had a $300,000 loan divided between a principal $250,000 mortgage and a $50,000 PMI mortgage. Days after buying our house, our mortgages were sold. A couple months later, one was sold again. At that point we were dealing with loan servicing companies that didn't hold the mortgages and were entirely and willfully opaque.

When I originally listed the house for short sale and stopped making mortgage payments, after nearly 1.5 years on the market, it was priced at $250,000. I accepted a full priced offer days later (June '08) and my real estate agent went to the mortgagees (actually, their servicing companies) with it. After no action from the mortgagees for 2 months, the potential buyers backed out.

In October '08, I accepted an offer for $225,000 with a closing date of Oct 30, 2008 and buyers' lender paid closing costs (effectively $220,000 toward my mortgages). My agent again forwarded it to the servicing companies and basically received no response until December. At that point the principal mortgagee accepted the terms of the short sale but the smaller mortgagee would neither approve nor reject the sale. That went on for nearly 2 more months with very little feedback to me or the potential buyers. In the meantime, more houses in my neighborhood went into foreclosure and prices continued to drop. I expected the buyers to back out. The potential buyers had let the lease on their rental lapse, expecting to move in Nov 1.

Finally, in late Jan '09, both mortgagees came to terms on the division of proceeds from the sale and approved the sale. The closing was set for late Feb '09. But a couple weeks before closing, the smaller mortgagee demanded a higher payout and the sale was again in doubt. A couple of days later, the smaller mortgagee once again accepted the original agreed upon terms. Then a couple days before closing, the smaller mortgagees again wanted to change the terms, increasing the sale price about $10,000. We seemed to be playing chicken. The day before the closing, everyone once again agreed upon the original terms. At the closing, the paperwork was wrong and had to be fixed to match the actual terms.

The mortgagees (and servicing companies) that I was dealing with are not known for being easy to work with on short sales. I think that makes a big difference, so definitely find out who holds the mortgage and whether they have a reputation concerning short sales. In my case, the larger mortgagee is a relatively financially healthy lender/bank while (what I believe to be, still not positive) the smaller mortgagee is an investment "bank" which had considerable losses in sub-prime loans. For the record, my mortgages were 30yr fixed rate income-documented loans (not sub-prime) and my credit was excellent.

So, is buying a short-sale home a good idea? My experience suggests the answer depends on how urgently you need a house and your tolerance for (possible) emotional roller-coasters. My agent claimed to have handled a handful of other short sales prior to mine (and employed a short sale consultant) but that didn't seem to matter. I didn't deal with the buyers directly and didn't attend the closing, but I'm sure the buyers found the process even more stressful than the average home purchase. The last minute changes were especially irritating. But the buyers did get a nice house for a decent price (still too high, imho) without the risks of buying a foreclosed property.

In my case, both parties had their own agent (and attorneys). I don't think it mattered much since it comes down to the mortgagees accepting the short sale price. The terms of sale in my case dictated the total payment for the agents (if I recall correctly, $11,000 or ~4.9%). Dual agency could be an advantage since the agent should be prepared to reduce her commission to a greater extent in order to complete the sale.

For my part as the seller, I had already made peace with foreclosure and thought the banks were delaying the sale in hopes of a better deal in a Fed bailout. I was torn between wanting vengeance on the banking system for their reckless lending (you've read the stories?) and wanting a nice family to get my home for a good price. My credit was ruined once I stopped making payments and avoiding foreclosure was not a primary motivation for me. If we were playing chicken, I was not going to blink.
posted by McGuillicuddy at 7:29 AM on March 28, 2009

(Real Estate Broker in Missouri, laws will vary according to your state)

Just to clarify, this agent already has the property listed, and told you all of these things?

Or the house is not listed at all, and this is your buyer's agent?

It's tough to sort out the details of these deals, but in general if you come along as a buyer without a real estate agent they will attempt to sell you the home as a representative of the seller. The benefit to this is they control negotiations, and they keep all x% of the commission. The downside is that you could theoretically bring in a real estate agent to represent you (while it could be argued that the buyer's agent isn't entitled to half of the commission because they were not the procuring cause - they didn't bring the buyer's to the deal. That being said, most agents realize this is a possibility, and will split the commission without question).

If, however, the selling agent can act as a dual agent, they then remove the risk of giving up half of the commission, and they are then legally "neutral" for both parties.

For my part - you're best getting your own buyer's agent. There is no downside to you - the commission paid to the agents involved is the same no matter what. The upside is you have a dedicated agent who is legally bound to represent only your interests in the transaction.
posted by shinynewnick at 8:01 AM on March 28, 2009

Clarification, the listing agent told me these things. We don't have a buyer's agent yet. Great answers so far guys, keep them coming.
posted by pearlybob at 8:33 AM on March 28, 2009

I'll point out that mygothlaundry's recent post has considerable similarity to the chaos of my short sale. After passing on a better offer, months of sitting on the final offer, and a few weeks of on-again/off-again closed-door mortgagee changes to the P&S agreement, my mortgagees eventually set a non-negotiable unalterable closing date and required notarized documentation with just 48 hours of notice. The notice came while I was actually en route to a country in which I do not speak the language for a series of full-day meetings. I was required that I find a notary and overnight delivery service (despite no legal requirement for my signature because I'd signed power-of-attorney papers. Yes, my lawyer looked into the legal requirements and notified my agents of the difficultly involved.) Because of the difficulty it caused for me, I was tempted to call my mortgagees bluff, assuming they wouldn't get that far and then file for foreclosure (the mortgagees had never started foreclosure proceedings). In the end I jumped through the hoops after considering the colossal clusterfuck banks have made of the economy. I'm not sure whether they were bluffing or are just that stupid.
posted by McGuillicuddy at 8:48 AM on March 28, 2009

With that clarification - get thee to a buyer's agent, immediately. Personally, I would let the listing agent know that your next contact will be via your buyer's agent. The only reason the listing agent wants the deal to him/herself is their financial gain - possibly keeping the price higher (which is their duty to their client) and definitely keeping the full commission (which is not a duty to their client, of course).
posted by shinynewnick at 8:52 AM on March 28, 2009

I've never completed a short sale, but two of my closest friends did last summer. My advice to you is to make sure this is absolutely the best house for the best price and that it is worth the incredible hassle. The process my friends went through took more than 6 months, and they were not sure whether they were going to end up in the house until the day they signed the papers. If they could do it again and had known how long it would take and how frustrating it would be (their apartment lease ended 2 months too soon, and one of them slept on my couch) I think they would have offered lower or purchased a house through normal channels. During the course of their proceedings, home prices fell significantly all around them, and they probably could have gotten a similar deal with less hassle.

Also, the same agent represented the buyers and the sellers in their situation, and I don't suggest going that route. Get someone you really trust, they'll earn their commission on a short sale.
posted by mjcon at 11:00 AM on March 28, 2009

Take this for what it's worth. My parents are buyers in a pending transaction on a house via a short-sell. They didn't know that it was in short-sale when they first looked at it. Beautiful house in a neighborhood with property values that have already leveled off after seening a precipitous drop of about 30%. Even at the asking price the house was an okay deal - probably 4-5% under the fair market appraisal with solid construction, great condition, and desirable extras. Immediately after learning it was being sold short, my parents did a little thinking and made an offer that reflected their position of wanting a second home pretty badly, but also having the time to look around and, being lifetime flea-marketers, a propensity to walk away. Their offer was 15% under the asking price. The sellers asked for a 1% good-faith deposit because the home has been on the market for over 15 months and two potential buyers manged to go to the point of just not having the ability to get the loan. The mortgaging company asked for proof of assets. Currently, all my parents are waiting for (45 days after paperwork) is the yes or no from the mortgaging company, which is taking its sweet time. If they get the home, they will have done so at 80% of it's present (and hopefully near future) fair market value. If they do not, they will have wasted a tremendous amount of time and energy finding exactly the right home at exactly the right price and probably not entertain a short-sold house again.
posted by mrmojoflying at 12:34 PM on March 28, 2009

We bought a short sale in August. We found it through a buyer's agent, so that's different from your situation, but he really earned his money due to having to wrangle both the sellers and their agent over various dealbreaker issues that turned up unexpectedly at the last minute. We thought the whole thing was likely kaput for about three days during the week of the closing.

The selling agent told our guy that two other bids on the place had come in after we viewed it, while we were dithering about what to offer. We wanted it, so we actually bid a little over the asking price (but still under what we estimated the FMV to be). We kept looking at houses after putting in our bid and paperwork, because our agent told us and we'd read online that you can wait for months and months and months to hear whether your offer's been accepted or rejected. Our agent called us every week to say "No, haven't heard anything yet" or "There's been some movement, your bid's going through the first/second/whatever stage of the process at the seller's lender's, so that's a good sign".

He said that sellers' lenders were processing short sale paperwork faster than they used to (before the downturn) because they're realizing that these days it's a bird in the hand worth two in the bush situation, but even so, it's a waiting game; that the lenders have piles of bids on their desks to evaluate and if the selling agent is on the ball prodding them about your bid, that can help speed things up, but if the selling agent for whatever reason doesn't keep prodding as time passes, then things can stall and you're waiting in limbo; that it was part of his job as our agent to prod the selling agent to prod the lender to make sure our bid didn't get buried.

We got word two and half months after our bid that it was accepted. I gather that that's a relatively speedy timeframe, so we were lucky. Like McGillcuddy's situation, we were expected to get all the remaining paperwork done very fast once they finally accepted.

Two main pieces of advice, then: 1. get a buyer's agent, and 2. if you put in a bid, keep looking at other houses. Good luck!
posted by cybercoitus interruptus at 11:27 PM on March 28, 2009

Thanks everyone. The advice in this thread has been great. Just what I was looking for. We are going to get our own agent and proceed with caution. MeFi comes through again!!
posted by pearlybob at 3:35 PM on April 5, 2009