Industry reacts to short-sale rule changes
NAR considers new disclosure rules
By Inman News, Monday, April 28, 2008.Bookmarking Sites
An Inman News article about the National Association of Realtors' consideration of new multiple listing service rules relating to properties that may be subject to short-sale transactions drew a range of reader comments and letters. An NAR committee is expected to consider next month whether to offer guidance on when MLS participants must disclose that a property may be subject to lender approval as a short-sale transaction.
Short sales are typically defined as transactions in which the lender agrees to accept less than the full amount due on a mortgage when a property is sold in order to avoid a lengthy and costly foreclosure process, and the consideration of new rules is in response to the growing share of short-sale and foreclosure transactions across the country. Short-sale transactions can lead to lower compensation for real estate professionals involved than they would receive in standard transactions.
Daniel Ickowicz, director of sales for Elite International Realty in Aventura, Fla., told Inman News that he had contacted the national, statewide and local Realtor associations to call attention to MLS issues with short sales.
In a letter to Realtor organizations, Ickowicz stated, "There are a large number of listings currently placed on our MLS system that are falling into the so-called 'short-sale' category. What concerns me is that the prices and terms being marketed are not realistic. Realtors, together with their sellers, come up with a figure that they 'think' the bank will take.
"Usually, it is not until offers start pouring in that the seller goes to his lender and tries to negotiate the terms, including price and commissions to be paid; mind you that pricing and most terms are on the MLS to begin with, without the bank's knowledge in most cases," he wrote. "I do not think that by placing a sentence on the remarks station stating 'offer subject to third-party approval' is enough disclosure."
Mike Thiel, associate counsel for the National Association of Realtors, assured in a response e-mail that the association "is giving serious consideration" to the issue of short sales, and Ickowicz also received responses from state and local Realtor groups.
Tom Scaglione, a Tampa, Fla., Realtor, said in a comment at the Inman News site that the Mid-Florida Regional MLS, which is owned by a group of 13 Realtor associations and serves about 35,000 users, adopted a short-sale rule that specifies disclosures and consent procedures properties that may end up in short-sale transactions.
The rule, which was deliberated by an MLS task force for several months and received a nod from the national Realtor group in January, applies when a listing broker "becomes aware that the listing price may not be sufficient to permit the seller to fully satisfy all encumbrances and pay the seller's closing costs, including the listing broker's offer of compensation."
In these instances, the listing broker may obtain written consent from the seller to disclose this potential for a short sale to cooperating brokers, buyer and the public; and "clearly and promptly disclose the short-sale circumstance to all cooperating brokers and, when and if appropriate, disclose that the sale of the listed property may be conditioned upon the approval of a court, a lender, or other third party."
These disclosures, according to the new rule, can occur at any time, "but it is suggested they occur at the time of MLS input, if known, or within one business day upon receipt of knowledge."
Under these new short-sale disclosures, listing brokers must specify to cooperating brokers that the offer of compensation may be adjusted by a third-party to the transaction after a contract for sale and purchase, Scaglione stated.
Derek Eisenberg of New Jersey-based Continental Real Estate Group said in a comment that banks, in approving short-sale deals, can renegotiate the real estate commission paid out to the listing broker, who in turn shares a portion of the commission with a cooperating broker to the transaction.
"A broker might sign with the seller at 6 percent" of the sale price as payment for real estate services, he said, though the bank could pay out 5 percent in approving a short sale, for example. He suggested that the advertisement of a percentage commission split of 50-50 to a cooperating broker, as an example, could eliminate confusion if the property is ultimately sold through a short-sale transaction.
Jay Thompson, broker-owner of Thompson's Realty in Phoenix, commented, "The practice of putting ridiculously low list prices into the MLS needs to stop," as it may not accurately reflect a price that the lender may approve. "It is difficult to impossible to know what a lender may accept in advance, but listing a home at $99,000 when the market value is in the $350,000 range is nothing but a snarky bait and switch tactic."
Another commenter suggested that there are too many other real estate issues of national importance for NAR to deal with, and that the short-sale issue should remain in the domain of local and state Realtor groups.
And Dawn Rupersburg, a Realtor for Coral Shores Realty Inc. in Ocala, Fla., said in a letter to Inman News, "I think the MLS needs to stand up to the banks and make them sign a listing agreement that they will pay 'X' commission or the listing doesn't go on the MLS.
"I think the MLSs should make the broker stand behind the commission that is offered in the MLS no matter where the listing comes from. Realtors have a business to run, not a charity, and by allowing the banks not to commit to a listing agreement with a commission we are saying, 'We love to work for nothing.'"
Gary White, broker-owner of FlexIt Realty in Grand Rapids, Mich., and a member of a local MLS committee, stated in a letter that his MLS has had discussions about short-sale disclosure. "Having to disclose (possible short sales) may further erode the distressed property pricing but have less impact on the sellers with well-maintained property that are looking for a fair market price based on condition, location and the real market."
***
What's your opinion? Leave your comments below or send a letter to the editor.
All rights reserved. This article may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this article without permission is a violation of federal copyright law.
Add A Comment
You must login or register to post a comment.
Submitted by christine barragan on April 28, 2008 - 2:10pm.
I absolutely agree that the ridiculous low list pricing on the MLS needs to stop. It is a diservice to all involved - banks, sellers, buyers and agents - and is a complete waste of everyone's time. Not only does it interfere with the perceived market value of homes by creating a false low, it gives buyers a completely unrealistic idea of what they can purchase a home for. The banks need to set a pricing standard in which a property must be priced at such as a certain percentage range (based on recent comps) of what they will truly accept or begin negotiations with. This will save time and energy for ALL parties as it will put a stop to the writing, presenting and reviewing of low-ball offers that we all know are going to go no where.
Submitted by Lynn Cromer on April 28, 2008 - 2:41pm.
I also think that the listing agent should be required to use a professional company to negotiate with the bank for the short sale process. Most of these listing agents I've encountered don't have any idea as to what they are doing. That would eliminate alot of the deals not going through.
Submitted by Peter J. Pike on April 28, 2008 - 3:40pm.
Daniel Ickowicz, director of sales for Elite International Realty in Aventura, Fla., stated "I do not think that by placing a sentence on the remarks station stating 'offer subject to third-party approval' is enough disclosure." However, this disclosure is being made on an MLS Listing, together with the disclosure that it is a "short sale". I would hope by now that all realtors understand exactly what those words mean, and no further disclosure would be necessary.
For Ms. Barragan to state that "the ridiculous low list pricing on the MLS needs to stop" is also not accepting the reality of the current market, and the difficulty in setting a "reasonable price". Again, I would expect that most realtors recognize that a listing that is priced 66% below the rest of the market, is really a request for offers. The actual sales price will have to be more in line with the current market conditions. Most selling agents should realize that no one is going to "snap up that kind of bargain", when dealing with a knowledgeable bank, that will ultimately have the control over whether a short sale proposal will be accepted.
It has been my experience that as realtors become more educated about the short sale process, they recognize that it is not always in their client's (the Seller's) best interest to get the highest price possible for their house. Often, there is a very real time limit to marketing the property (before it goes to the bank via foreclosure). Therefore, getting a reasonable offer for the property may require listing it at a ridiculously low price, just to get offers as quickly as possible!
Finally, realtors need to accept the fact that banks (mortgagees) do not have to accept a short payoff on a mortgage! They can (and do) negotiate from the position that they are hurting in these transactions, and everyone else involved is going to have to give a little, in order for everyone to get a little.
We all have to face up to reality, and unfortunately, for the foreseeable future, the reality in real estate is that short sales are driving the market.
Submitted by Teresa Knowles on April 28, 2008 - 6:01pm.
I think we need disclosure on short-sales for both buyer and seller. It is important to keep the buyer informed that the process is very slow and can possibly cause them to loose another property,interest rates etc. The seller's need to be informed on the repercussion of what to expect. BUT to say that this should be stopped is impossible. I have processed short sale transactions. I do not list the property at the lowest price. In fact a market analysis is completed for sold transactions for the last six months. The a market analysis for the current listings. The list price is determined by taking both market analysis into consideration. The loss mitigator for the bank require that a true effort to get the highest and best price over a period of time be put forth. It is very stressful for the seller and the short sale agent. It is my opinion that it would be better to see disclosed short-sales rather than a multitude of foreclosures. With the transactions that I have closed the loss mitigator has not negotiated my commission. Typically they will agree to pay 5%. As a realtor it is important that I serve the people. It is a very unfortunate situation that the sellers from 2004 to 2006 have been placed in. Mainly due to over inflated appraisals, bad lending practices and agents that have pushed for over inflated prices in a good market. The seller's are not dead beats they are real people in a bad situation and I personally think it is my job to assist in any way possible.
Teresa Knowles
Century 21 "The Knowles Team"
Reidsville NC
Submitted by Jose Lopez on April 28, 2008 - 6:12pm.
It seems Mr. Pike is of the opinion that it is ok for listing agents to place a ridiculous low price on a listing, just to get an offer to send to the bank. I strongly agree that we should do all we can to market the property agressively and solicit offers to send to banks. However, to do so by offering the property at a ridiculous low price is not the way to go. This behavior tells the bank that we are not interested in securing the best possible price for the property. It is no wonder that the bank would reject outright such offers, refuse to return phone calls, and then refuse to pay a reasonable commission.
I agree with Mr. Pike in that there is a lot of education that needs to take place regarding short sales. I am quite surprised at the level of ignorance that seasoned agents show towards short sales. Most agents think that if the bank approves the short sale, then the seller is off the hook completely. What they do not know is that their client might get a call several years down the road, asking for the amount forgiven to be paid back. This is all part of the short sale negotiation with the bank, and hopefully more realtors will become aware of this.
Submitted by Trish MacDonald on April 28, 2008 - 6:31pm.
Finally... I am very happy that NAR is taking this into consideration. Not disclosing that a property requires a short-sale is, in my opinion, a material fact. In addition, having short-sale addendums are very important in order to avoid confusion on both seller and buyers part. Florida now has a short-sale addendum, however, I am also licensed in North Carolina as well as Florida and North Carolina doesn't currently have one.
I believe it is not a realistic view of the market if a appraiser or BPO agent uses another short-sale closed transaction to compare a property that is not distressed.
Requiring agents to disclosure all of the above will make things much smoother and clearer in the long run.
Trish MacDonald
NC Realtor
Helen Adams Realty
Specialist in pre-foreclosure and short-sales in luxury home market.
Submitted by Ronald jensrud on April 29, 2008 - 12:03am.
Forgive me if I am wrong but why are the banks even involved in the negotiations at all? Isn't the listing agreement between the brokerage and a seller that is desperate or in financial straits?
The amount to be accepted by the bank is something that is totally seperate and is between the seller and the bank. Not between the listing agent and the bank and definitely not between the buyer and the bank. Any amount the bank is going to accept needs to be determined before the home is even listed.
I think that inexperienced agents are allowing this world to collide is the major issues with not getting these transactions done in a timely manner.
I took a course with a gentleman recently that does alot of foreclosure deals and he said that when he sees listings that say "Subject to bank approval" he tells his buyers that the listing agent is inexperienced and is trying to market an unsalable property. I guess I have to agree with him.
Plus not only that we have alot of contract interference here, including banks renegotiating commissions etc. Why even deal with it this way, just let the bank go through the added expense of the foreclosure process and lose a ton more money. Maybe they'll wise up or maybe only the experienced agents should be taking the listing.
Ron Jensrud
Minneapolis Minnesota
Submitted by Tom Scaglione on April 29, 2008 - 5:50am.
Inman misquoted me on the issue of compensation. The following is the correct position in the Mid-Florida Regional MLS... All compensation offers to a cooperating broker is an Unconditional Offer of Compensation. The placing of a comment in our MLS as to the offer of compensation being subject to adjustment is not allowed. It was the position of the taskforce that the listing broker does not have the right to negotiate the selling broker's compensation away. All offers of compensation in the MLS are in fact unconditional and any reference to conditions violates that rule.
Submitted by Bill Fauth on April 29, 2008 - 10:20am.
Why should real estate brokerages have to take it on the chin with reduced commissions? Does the surveyor, appraiser, home inspector, exterminator, etc, take less?
Submitted by Kaye Thomas on April 29, 2008 - 1:02pm.
I agree that pricing well below market value isn't a smart idea if you want the bank to approve the short sale. However one of the problems is that banks often will not even discuss a short sale with a seller unless they have a contract in hand.
Listing agents and sellers need to know their particular market. In markets that are still facing few offers and declining prices it may be necessary to offer property at very low prices to get buyers. In other areas that is not necessary.
As with all things real estate related agents need to know what they are doing before they proceed.
Submitted by Kaye Thomas on April 29, 2008 - 1:05pm.
I agree that pricing well below market value isn't a smart idea if you want the bank to approve the short sale. However one of the problems is that banks often will not even discuss a short sale with a seller unless they have a contract in hand.
Listing agents and sellers need to know their particular market. In markets that are still facing few offers and declining prices it may be necessary to offer property at very low prices to get buyers. In other areas that is not necessary.
As with all things real estate related agents need to know what they are doing before they proceed. If you haven't done a short sale find someone who has and learn what you need to know. Take a class from the board. Don't make assumptions based on what you think you know. When all else fails talk to the lender and find out what they want to see.
Submitted by George Donaldson Jr. on April 29, 2008 - 4:52pm.
Listings need be taken at a price that is agreed upon between the seller (owner) and the broker after a competent CMA is established. The commission is a figure that is between the seller and broker by contract. Lenders should not be allowed to modify the commission amount. If and when the lender tries to modify the commission amount, they need to be put on notice that they are not a party to the listing contract and any interference with that contract can and will be subject to litigition. Brokers need to call the lenders bluff.