SHORT SALES
Is a Short Sale Property Right for you?
Everything you need to know about the short sale process
Dear Buyer:
Many buyers associate a short sale with foreclosure. That may be the case (if a short sale does not sell) however in some instances relocation or personal circumstances require the property to be sold when the market value is less than the loan balance. Regardless of the reason, your ability to negotiate a fair price is not impacted by the seller’s motivation for the sale. It is important for you to know that there is nothing “short” about a short sale timeline. Depending on the lender a short sale can take as little as 90 days and as long as 10 months (in extreme situations sometimes longer.)
An Overview of the Process:
Before You Buy a Short Sale
Buyers pursue short sales to get a good deal. So when you see a price listed for a home that you think is too low for the neighborhood, before you jump on that price like hot fudge on a sundae. Ask your agent to call the listing agent to find out if the home is a short sale.
You might want to think twice about making an offer on a pre-foreclosure, short sale home. It's not as simple as you may believe, and they do not close in 30 days or less, ever.
Many of my Connecticut home buyers have waited 4, 6 up to 9 months to close on a short sale, sometimes longer. It all depends on that specific bank holding the note.
What is a Short Sale?
A short sale means the seller's lender is accepting a discounted payoff to release an existing mortgage. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it.
Be aware that the seller need not be in default -- to have stopped making mortgage payments -- before a lender will consider a short sale. A lender may consider a short sale if the seller is current but the value has fallen. The seller may have over-encumbered, owe more than the home is worth, so a discounted price might bring the price in line with market value, not below it.
6 things to know about short sales
1. When you spot a short sale house that interests you, take your hand off the mouse and step away from the computer. Before you get all excited over the prospect of buying that short sale house, pick up the phone and call your real estate agent. Your agent needs to research that short sale listing first.
In some real estate markets, less than one in 10 short sales close. Just because that home is listed as a short sale doesn't mean it's really for sale (because it's subject to lender approval), nor does it mean it will sell at the advertised price. Here are 6 things you need to know before trying to buy that short sale.
Comparable Sales For That Short Sale House
The short sales I list in Connecticut are all priced below comparable sales, yet they are priced in line with pending sales. Why? Because short sales take anywhere from 4 to 9 months, on average, to close, and pending sales will become the comparable sales at closing.
Some short sales are priced ridiculously low, so low that the sellers' bank will never accept them. These types of listings receive multiple offers. But all is not lost. To get your offer accepted, it will need to be priced near market value. If you're not prepared to pay above a superficial price on a lowball short-sale listing, then pass. ALWAYS SEEK YOUR AGENTS ADVICE
Mortgage Amounts, Number of Loans and Lenders
Ask your agent to research how much is owed against the home and find out the number of loans that are recorded. A second or third mortgage lender will receive peanuts as compared to the amount a senior lender in first position will get. Keep in mind the secondary lender can halt the entire process by requesting the buyers offer be increased to meet their needs. If this happens and the buyer decides they do not want to increase the secondary lender could potentially put a freeze on the deal and wait for another offer to present itself.
Moreover, some lenders, deserving or not, get a reputation for being difficult to work with. If your agent is an experienced short sale agent, he or she will know who these lenders are and can advise you of the difficulty you may encounter.
If your offer is 20% or 30% of the mortgaged amount, it is unlikely that your offer will see the light of day on the negotiator's desk.
Short Sale Listing Agent's Track Record
A listing agent who is advertising a short sale but has never closed a short sale is a risky proposition for you. That's because it's up to the listing agent to submit the short sale package to the lender and negotiate. Your buyer's agent can't talk to the bank.
Some listing agents hire outside companies to do their job, and the results of those negotiations are sketchy at best. Ask yourself, do you want to risk rejection of your short sale purchase because the listing agent has no experience? At best, we should approach a short sale that has an Attorney representing the seller not just an Agent or Negotiator
Short Sale Seller Qualifications
Find out if the listing agent has received a completed short sale package from the seller, and ask about the contents of that package. A complete short sale package consists, at minimum, of the following:
· Sellers' hardship letter
· Tax returns
· W-2s
· Payroll stubs
· Financial statement
· Bank statements
Some sellers do not want to cooperate and are slow to return these documents. Others have never been told by their agent that these documents are mandatory. You don't want your short sale purchase delayed because the listing agent doesn't have the required documents. If they do not, it should only be that the Attorney they hired does.
Number of Short Sale Offers Received
Homes priced under market value will receive multiple offers. An agent is not required to disclose the terms of those offers, but you do want to know how many offers you are up against.
Here’s how it generally works:
· When a short sale home first comes on the market, the first offer will most likely be a tad below list price.
· The second, at list price.
· The third offer will be slightly higher, maybe by a $1,000 or $2,000.
· The fourth offer will be significantly more.
You want to make an offer that will beat the competition yet still be below market, or don't waste your time.
The Listing Agent's Short Sale Procedures
Although REALTORS are required by the REALTOR Code of Ethics to treat everybody fairly, not every agent is a REALTOR. This means the short sale listing agent may decide to submit only the first offer to the bank and withhold all other offers.
Withholding other offers could be considered to be a violation of the fiduciary relationship formed between the listing agent and the seller. The seller is entitled to receive the highest and best price. Realize that even if your offer is submitted to the bank, as time marches by while waiting for short sale approval, another buyer may outbid you.
2. How Long Should I Wait for Short Sale Approval?
A reader asks: "I submitted an offer on a short sale almost 120 days ago, and we haven't heard anything from the listing agent. My agent calls every week to find out if the bank has accepted our offer. Half the time the listing agent doesn't call him back. We don't know how many offers the bank is looking at or even if our offer is best. How long should a buyer wait for short sale approval?"
Answer: Short sale buyers across the country are singing the blues right along with you. Every short sale is different and as much depends on the lender as it does on the listing agent. Some listing agents outsource their short sale negotiations to a third party, which can often delay a response.
Qualify Your Short Sale Before Writing the Offer
Before you decide to buy a short sale home, ask your agent to do a little groundwork first. Some of the things your agent might do are:
· Examine the Comparable Sales
Many banks will discount the price a little bit from market value, but to get an acceptance, offers should be reasonable and close to the comparable sales.
· Check Out the Short Sale Listing Agent's Track Record
If the short sale listing agent has very few short sale listings and has little experience actually closing a short sale, your chances of offer acceptance may be slim.
· Ask How Many Short Sale Offers Have Been Submitted
While the listing agent may refuse to disclose the offer prices, the agent should let your agent know how many offers have been received. If there are multiple short sale offers, you may need to offer more than list price.
· Find Out if the Sellers' Short Sale Package is Complete
Bank negotiators will not process a file if the sellers' short sale package is incomplete. That file will go to the bottom of the pile if it's missing paperwork that the bank requires.
· Get the Name and Number of Lenders
More than one lender might mean the file will take longer to close. Some junior lenders are demanding unsecured prom notes from the seller or more money than usual from the first lender. Also, some lenders will consider only the first offer. If you are not the first offer, your offer may fall by the wayside.
How Long Do Short Sales Take?
This is the million-dollar question. I closed one Connecticut short sale in 67 days from the date I listed the property to the date it closed. That lender, which was Citi Mortgage, wanted to see every offer, and we had received a dozen.
Other lenders such as Countrywide/Bank of America are so swamped with short sale submissions that its employees can't respond in timely manner. What once took two months can easily take four months.
The short sale process, from submission to short sale approval, is generally as follows:
· Submission of offer and complete short sale package from the seller.
· Bank acknowledges receipt -- 10 to 30 days.
· Bank orders a BPO or appraisal -- 30 to 60 days.
· File is reviewed -- 30 to 60 days.
· Negotiator is assigned -- 30 to 60 days.
· Level II negotiator may be assigned -- 30 to 90 days.
· File is approved or rejected -- 60 to 120 days.
If you're running past 120 days, it's possible that the listing agent or a third-party negotiator is not on the ball and is lax about calling the bank. Calling the bank means waiting on hold anywhere from 10 minutes to an hour or longer.
Or, a lengthy short sale period can also mean the bank has internal problems, not enough staff or has lost the file a few times, prompting the listing agent to resend the package over and over.
It can also mean that the appraisal is substantially higher than your offer, and the listing agent is building a case for a new appraiser.
Unfortunately, you can't always avoid problems on a short sale. Patience is key. You'll most likely eventually get short sale approval. Threatening to walk away means nothing to the bank. Your best bet is to stick it out and wait, providing you truly want the home.
3. 11 Reasons not to buy a Short Sale
Short sales happen when home values fall and sellers do not receive enough cash from a buyer to pay off their existing mortgages, providing lenders agree to take less than the amount owed to them.
On the surface, it may appear that a short-sale buyer is getting a good deal. Although a slim margin of short sales may be profitable for a buyer because there are always exceptions much of the time, a buyer would be better off buying a home that is not in default.
You are unlikely to hear real estate professionals tell you that it's not a good idea to buy a short sale. In part, that's because real estate professionals profit on a short sale. Everybody makes money except the sellers and buyers. Realize, too, that listing agents might push sellers to list as a short sale, because if the sellers went through foreclosure, the listing agents will not get the listing.
In Connecticut, where I work, for example, many agents ignore short sales like the plague.
Here are 11 Reasons Why Buyers Might Not Want to Buy a Short Sale:
1) Sellers Paid Too Much.
If a home sold for $500,000 a few years ago and is now for sale at $400,000, that doesn't mean the buyer is picking up $100,000 of equity for free. It means the seller paid too much in a rising market and now the market has fallen. It means the seller has no equity.
2) Sellers Borrowed Too Much.
Banks that were eager to lend money in appreciating markets sometimes allowed borrowers to over-mortgage the home, meaning the borrower's loan balance exceeded the value of the property. Appraisals are subjective, and not all appraisers will place the same value on a home. Although against the law, some appraisers are pressured by banks to appraise at the amount the home owner wants to borrow.
3) Stringent Qualifications.
Inexperienced or unethical real estate agents might push a seller into considering a short sale when the seller does not qualify for a short sale. Sellers must prove a hardship and submit evidence of the hardship to the lender for approval. Some agents list homes as short sales without ever talking to the lenders or pre-qualifying the sellers.
4) Homes Sell at Market Value.
Lenders aren't naive or unaware of the value of a home. Lenders will insist on a comparative market analysis, known as a CMA, or broker price opinion, known as a BPO. If a lender believes a better price can be obtained by taking the property back in foreclosure over a short-sale offer, the lender may hold out for a higher price. That price will be close to market value. Lenders accept short sales when the home is worth the short-sale price, which means market value.
5) Homes Sell "As Is".
If a mortgage company agrees to a short sale, it is most likely also paying the closing costs in the transaction. Lenders ask buyers to purchase the home in its present condition. Lenders typically will refuse to pay for:
· Suggested repairs disclosed on a home inspection.
· Pest inspections or work necessary to issue a clear pest report.
· Roof certifications or roof repairs.
· Home protection plans for the buyer.
· Deferred maintenance.
6) Length of Time to Close.
Depending on when the Notice of Default was filed, the lender's back-log of foreclosures and how much paperwork the seller has already submitted, it could take anywhere from two weeks to two months to get a response on a purchase offer from a lender. In addition, if two lenders are involved because there are two loans secured to the property, it could take longer to satisfy the demands of the second lender.
7) Lenders Can Change Conditions.
Some lenders reserve the right to renegotiate the terms of the short sale at the last minute. If the market changes, new laws pass or new information crosses the lender's desk, the lender can attempt to change the terms of the contract. Lenders generally have lawyers at their disposal, and ordinary buyers do not.
8) Lenders Discount Commission.
Generally, only lenders who have sold loans to Fannie Mae or Freddie Mac are paying traditional real estate commissions to real estate agents. The rest may want a discount. Moreover, agents end up doing two to three times the work of a conventional transaction and don't appreciate getting paid less to do more work. If you have agreed to pay your agent a certain percentage under a buyer broker agreement, you could be liable for the difference between what the lender will pay and what your contract stipulates, if your agent refuses to waive the difference.
9) Higher Buyer Closing Costs.
Because lenders rarely will pay for any extras, like a seller would be willing to do, if you want any of those extras, you will pay for them yourself. Sometimes lenders will refuse to pay for standard seller closing costs such as transfer taxes, too. If you want specific inspections, you will probably pay for them out-of-pocket.
10) Lose Control of Transaction.
If you need to close escrow by a specific date, lots of luck with that. A short sale home closing process takes an indefinite amount of time. The seller's lender calls the shots, not the buyer nor the buyer's lender. If you are trying to close escrow concurrently with the sale of your home, it might not happen.
11) Little Seller Motivation.
When the seller discovers that the short sale effect on credit is close to that of a foreclosure, there is little incentive for a seller to cooperate with a short sale. Although sellers may qualify to buy another home in roughly 2 years after a short sale versus 5-7 (with restrictions) on a foreclosure, some have no intention of ever buying another home again.
Check the Public Records
Do your research before making an offer to purchase. Your agent can find out who has title, whether a foreclosure notice has been filed and how much is owed to the lender(s). This is important because it will help you to determine how much to offer.
If there are two loans, you may have a problem. The first mortgage lender's position is protected by the second lender, unless the second lender does not want to foreclose. If a seller owes $160,000 on the first and $40,000 on the second, offering $160,000 leaves nothing for the second. The first will need to give something to the second to gain its cooperation.
When most people decide to sell or buy a home, very few stop to take the temperature of the marketplace or wonder if the market is conducive to the goals at hand. That's because most folks tend to think of their home as a place to live and not as an investment. Then these are Californians, for whom real estate seems to be a secondary, if not primary, religion.
Buyer's Real Estate Markets
If you are a buyer looking to a purchase home in a buyer's real estate market, this is the best financial market in which to buy. Why? Because there are more homes available for sale than buyers to purchase them. Buyers have more homes to choose among, which increases the odds a buyer will find that **perfect** home.
In a cold real estate market, serious sellers are often willing to negotiate. This means you can probably buy a home for less than list price, and the seller might be willing to pay some or all of your closing costs.
Signs of a Buyer's Market
· Inventory is high as compared to previous months / years.
· More than six months of inventory is on the market.
· Comparable sale prices are higher than active listing prices.
· Fewer buyers are purchasing, resulting in lower closed sale numbers.
· Median sales prices are declining.
· Real estate ads are getting bigger.
· For Sale signs are staying up longer, resulting in longer DOM.
How to Compute Months of Inventory
1. Find the total number of active listings on the market last month.
2. Find the total number of sold or closed transactions for last month.
3. Divide the number of total listings by the number of total sales, which results in the number of months of inventory remaining.
For example, in a buyer's market, there were 8,722 listings available over a given 30-day period. During that time period, 1,021 sales closed. That leaves 8.5 months of inventory remaining on the market, making that marketplace a buyer's market.
Seller's Real Estate Markets
If you are a home owner who wants to sell a house in a seller's real estate market, this is the best financial market in which to sell. Why? because there are more buyers than available houses to buy.
In a hot real estate market, serious buyers are often willing to pay more than list price. This means you can probably sell your home quickly and quite possibly for more than you ask for it. If your market is sizzling hot, you might be able to demand that buyers waive appraisals and inspections, although it's always a good idea to let a buyer have a home inspection. Moreover, without waiving the right in writing, federal law says you must give a buyer 10 days to inspect for lead paint.
Signs of a Seller's Market
· Inventory is very low as compared to previous months / years.
· Less than six months of inventory is on the market.
· Comparable sale prices are lower than active listing prices.
· More buyers are purchasing, resulting in higher closed sale numbers.
· Median sales prices are increasing.
· Real estate ads are getting smaller.
· For Sale signs are up for a few days before a pending or sold sign is attached.
Neutral Real Estate Markets
These markets are balanced. Typically, interest rates are affordable and the number of buyers and sellers in the marketplace are equalized. The scales don't tip in either direction, meaning the market is normal without experiencing volatile swings.
Signs of a Neutral Market
· Inventory is normal as compared to previous normal months / years.
· Three to six months of inventory is on the market.
· Comparable sale prices are close to active listing prices.
· Sales numbers have stabilized.
· Median sales prices are flattened.
· Real estate advertising remains uniform.
· For Sale signs are replaced with pending or sold signs within 30 to 45 days.
What is Title Policy
To understand title policy insurance in America, let's look at chain-of-title and how title companies search the public records. Title insurance companies aren't really concerned with when dinosaurs once roamed, whether our ancestors trekked across the Bering Straight or when American Indian tribes settled. Title searches begin with; when the United States government claimed the land - from the U. S. patent and moved forward from that point.
Because humans are involved in recording deed transfers and plotting land parcels, a lot can go wrong. You want title insurance because it will protect you against defects and human error.
Property Searches and Public Records
· Property transfers were first recorded alphabetically in separate Grantor and Grantee books.
· The books are heavy to lift and dusty.
· County records are often maintained at local courthouses or the Clerk of Registrars.
· Today, most records are stored on the computer.
Division of Land
· Early deeds involved large chunks of land known as Townships.
· Townships contain 36 sections and are six miles by six miles.
· Sections measure one mile by one mile and contain 640 acres.
· Half of a section is 320 acres.
· 1/4 of a section is 160 acres.
· 1/4 section of 1/4 section is 40 acres.
· An acre is 43,560 square feet
Title Search Basics
· Title searches start with the most recent deed, searching the grantee's name (the person now holding title) backwards in time, until the deed when the grantee acquired the property is located.
· That grantor's name is then searched backwards in time in the grantee's book to find when the grantor acquired title as a grantee.
· This process continues, and over time, the property description involves larger and larger parcels of land.
· Eventually, the searcher finds the U. S. Patent.
Other Factors Affecting Title
Deeds establish chain-of-title, but sometimes those chains are broken. In addition, title searches also look for re-conveyances (proof that the encumbrances are paid off), and they look for easements, rights-of-way, CC&Rs, other elements affecting title to the property. Here are more records that are searched to piece titles together:
· Marriage records
· Death certificates
· Tax sales
Title Insurance Coverage
Depending on the title company, consumers can choose among a variety of options, but the top three choices are Owners, Lender's and Extended Coverage.
· Basic Owner's Title Policy Coverage:
1. Clear title to the property
2. Incorrect signatures on documents
3. Forgery, fraud
4. Defective recordation
5. Restrictive covenants
6. Encumbrances or judgments
· Basic Lender's Title Policy Coverage:
1. Mechanic's liens and unrecorded liens
2. Unrecorded easements and access rights
3. Defects and other unrecorded documents
· Extended Owner's Coverage
1. Building permit violations from previous owners
2. Subdivision maps
3. Covenant violations from previous owners
4. Living trusts
5. Structure damage from mineral extractions
6. Variety of encroachments and forgeries after title insurance is issued
Who Pays For Title Policy Insurance?
· This depends on your local custom.
· It can differ from county to county, but it is also negotiable in the purchase offer.
· Sometimes sellers and buyers split the fee for the owner's policy.
· Typically, the buyer pays for the lender's coverage.
How Long Are Title Policies Good For?
Forever, theoretically, if you are planning to resell the property within a couple years, ask your title company about "binder" coverage. Most companies will sell you a binder policy for 10% more. A binder is good for two years, often can be extended beyond that time, and the fee charged for the new buyer's policy will be the difference between what you bought the property for and the price at which it sold. In other words, you will get a credit for the amount of coverage you purchased under your own Owner's Title policy.
How Often Are Title Policy Insurance Premiums Paid?
The fee is due when you buy. You will never pay it again. Title policy insurance is the best insurance policy you can ever buy.
How Can I Find Short Sales
A reader asks: "How can I find short sales online from MLS listings? Some of the listings say it's a short sale but some do not. I know my agent can figure out which ones are short sales. Is this information not available to the public?"
Answer: Every MLS system is different, so short sale listings aren't always evident. This seems to be a movement toward identifying short sale listings because of commission disputes. When agents fight over money, systems are often immediately put in place to keep disputes from happening.
What is a Short Sale?
Short sales occur when property values drop or inflated appraisals were obtained, making the property worth less than the amount of its mortgage. This means when a seller enters into a purchase contract to sell for an amount that is less than the home's present mortgage balance, if the seller isn't bringing in money to close, the lender must approve the short sale. That's because the lender is taking a loss.
Generally, short sales are not bargains for a buyer. It doesn't mean the buyer is purchasing the property under market, and it can take a long time to close, if it closes at all, among a host of other reasons. Not all lenders will approve a short sale, and many short sale prices that are advertised are not real prices. They are guesses at what it takes to sell the home.
Short Sale Commission Disputes
The problem arises when an agent takes a listing on a home that is not yet in default, meaning the seller is still making payments to the lender. During the listing agreement term, if a Notice of Default is filed, this could change the terms of the listing. It now becomes a short sale listing, subject to commission negotiation by the lender.
In the Connecticut MLS, our rules state that agent comments -- those that the public cannot see -- must contain verbiage that specifically spells out the sale is subject to lender approval and the commission will be divided 50/50 between the agents.
Most lenders discount the commission, paying less than a seller would pay. One listing agent did not include this verbiage. While in escrow, the buyer's agent insisted that his brokerage was entitled to the fee originally listed in MLS. The listing agent ended up giving a big chunk of his commission to the buyer's agent.
Finding Short Sale Listings
Most short sales are listed by real estate agents. You will find these listings on local web sites and in MLS feeds. Some lenders have complained about advertising that identifies the home as a short sale, because the lenders feel it puts them at a disadvantage when it comes to home pricing. They are right. A buyer generally offers less when it's advertised as a short sale.
If you have access to search terms, first look where the term short sale appears. It might be under "status modifier" or it might be contained in the marketing comments. Choose that field as your search term.
Read the listing carefully. Agents slip in words that identify the listing as a short sale. Look for the following terms:
· Subject to bank approval.
· Pre-foreclosure
· Notice of Default
· Give the bank time to respond.
· Preapproved by bank.
· Headed for auction
Above all, hire an agent who is well versed in handling short sales and can advise you of the procedures. If you have legal questions, please ask a lawyer for advice and guidance.
Hire an Agent with Short Sale Experience
It's one strike against you if the listing agent has never handled a short sale, but it's even worse if your own agent has no experience in that arena. You need an experienced short sale agent.
An agent with experience in short sales will help to expedite your transaction and protect your interests. You don't want to miss any important detail due to inexperience or find out your transaction is not going to close on time because no one has followed up in a timely manner.
REO’s (bank-owned) and short sale listings offer buyers an opportunity to buy a home under market value. Bear in mind, however, that not every REO listing nor short sale listing is a great deal. In some ways, they aren't any different from any other type of listing. Buyers will find a Goldilocks' variety: some REOs and short sales are priced too high, some too low and some are just right.
If you're a first-time home buyer, you will greatly benefit from hiring a buyer's agent who has experience selling REO and short sale listings. Hiring a buyer's agent without REO or short sale experience is almost as dangerous as hiring the listing agent. You deserve an agent who will make your interests a priority.
Searching for an REO / Short Sale Buyer's Agent
In soft or falling real estate markets, many buyer's agents find the bulk of sales comprise bank-owned homes and short sales. If you can find a busy buyer's agent (not an agent who closes 3 or 4 deals a year), most likely this agent will represent a lot of REO and short sale buyers. Here are ways to find an REO / short sale buyer's agent:
· Referral From Friends, Coworkers or Family to REO - Short Sale Agents
Chances are someone you know has recently purchased a home. Ask for a referral to that agent, then call to inquire about REO - short sale experience. Referrals are the preferred and most popular method of finding an agent.
· Call an Agent Friend and Ask for an REO - Short Sale Referral
Agents who don't negotiate a lot of bank-owned or short sale transactions generally know which agents do. Agents judge each other by harsh standards, I have discovered, that buyers judge agents, so you're likely to be directed to a top-producing buyer's agent. Plus, agents regularly pay each other referral fees, which means the referring agent has an added incentive to make sure you end up in the right hands- because if it doesn't close, they don't get a referral fee for you.
· Talk to Agents at Open Houses
Whether the host of the open house is the actual listing agent or another agent from the same office doesn't really matter as long as you aren't there to buy that particular home. Open houses give buyers a relaxed, non-threatening atmosphere to talk with other agents. You can ask the agents to describe for you a recent REO or short sale experience and find out how many of these types of transactions the agents typically close every year.
· Search for REO /Short Sale Agents Online
Many agents write blogs about their experiences. It's almost like reading a diary because you're given an inside peek at what goes on behind the scenes. Be careful you aren't suckered into a site where the agent relies solely on keywords for Internet traffic and doesn't really handle very many REO or short sale transactions. Ask direct questions, don't be afraid or timid.
One of my favorite agent sites is Active Rain. Scroll down to the menu of states, select a county, then a city, and read the blogs of agents who interest you. You can also search by "REO" or "short sale" from your favorite search engine site.
· Sort MLS records by REO and Short Sale Agents
If you have a friend in the real estate business with access to MLS, run a search by limiting the returns to REOs and short sales, and pull up the closed sales for the past six months in your preferred ZIP code or neighborhood. Look up the buyer's agent name on each of the sales, and then go to that agent's web site for more information.
Top 10 Agent Protocol Tips - Rules for Working With Agents
One of my clients knows how to safely remove a brain tumor from the base of his patient's neck, but she doesn't have a clue about real estate agent protocol. Nor does she understand why some listing and buying agents have yelled at him.
In his mind, she hasn't done anything wrong. She is only trying to find out information about a house for sale.
It's not that difficult once you know a few simple rules. Here are protocols you can use while shopping for a home that will keep you out of hot water:
- Understand Agents Work on Commission
- Very few real estate agents work on salary.
- Most real estate agents are paid commission. If an agent does not close a transaction, she does not get paid.
- Agents are not public servants and do not work for free. Do not ask an agent to work for you if you intend to cut the agent out of your deal.
2. Keep Appointments & Be On Time
· Be respectful, use common courtesy and don't expect an agent to drop what she is doing to run out to show you a home. You are probably not that agent's only prospect / client. And if you are, lord help you.
· Do not make an appointment with an agent and then forget to show up.
· If you are going to be late, call and let your agent know when you expect to arrive.
3. Choose A Real Estate Agent
· Decide whether you want to work without representation: dealing directly with listing agents, or if you want to hire your own agent.
· If you decide to hire your own agent, interview agents to find an agent with whom you are comfortable.
· If you are interviewing agents, let each agent know you are in the interview stage.
· Never, never, never interview two different agents from the same company. Trust me, don't do it.
4. Do Not Call The Listing Agent if You Are Working With a Buying Agent
· Listing agents work for the seller, not the buyer. If you hire the listing agent to represent you, that agent will now be working under dual agency.
· If listing agents show you the property, the listing agent will expect to represent you.
· Listing agents do not want to do the buying agent's job. Let your buyer's agent do his job.
5. Practice Open House Protocol
· Ask your agent if it's considered proper for you to attend open houses alone. In some areas, it is frowned upon to go to open houses unescorted.
· Hand your agent's business card to the agent hosting the open house. Sometimes this agent will be the listing agent, but often it is an agent also looking for unrepresented buyers. Announcing you are represented protects you.
· Do not ask the open house host questions about the seller or the seller's motivation. Let your agent ask those questions for you.
6. Sign a Buyer's Broker Agreement with a Buying Agent
· Expect to sign a buyer's broker agreement. It creates a relationship between you and the agent, and explains the agent's duties to you and vice versa.
· Ask about the difference between an Exclusive and Non-Exclusive Buyer's Broker Agreement.
· If you're not ready to sign a buyer's broker, do not ask that agent to show you homes. Otherwise, procuring cause may pop up.
· Ask your agent if she will release you from the contract if you become dissatisfied. If she refuses, hire somebody else.
7. Always Ask For and Sign an Agency Agreement
· By law, agents are required to give buyers an Agency Disclosure.
· Signing an agency disclosure is your proof of receipt. It is solely a disclosure. It is not an agreement to agency. Read it.
· The best and most practiced type of agency is the single agency. This means you are represented by your own agent who owes you a fiduciary responsibility.
8. Make Your Expectations Known
· If you expect your agent to pick you up at your front door and drive you home after showing homes, tell his. Many will provide that service. If not, they will ask you to meet at the office.
· Let your agent know how you want his to communicate with you and how often. Do you want phone calls, e-mails, text messages, IM's or all of the above?
· Set realistic goals and a time frame to find your home. Ask your agent how you can help by supplying feedback.
· If you are displeased, say so.
9. Do Not Sign Forms You Do Not Understand
· NEVER feel silly for asking your agent to explain a form to you. It is his job. Many forms are second nature to agents but not to you, so ask for explanations until you are satisfied you understand.
· Do not sign forms titled Consent To Represent More Than One Buyer. This is never in your best interest. Find anothis agent if this happens.
· Realize agents are not lawyers and cannot interpret law.
10. Be Ready To Buy
· If you aren't ready to buy, you don't need a real estate agent. You can go to open houses by yourself; call listing agents for showings -- but be honest, say you are "only shopping"; look at homes online; but don't waste an agent's time if you aren't ready to act.
· If possible, hire a babysitter to care for children who are too young to stay out all morning or afternoon touring homes.
· Bring your checkbook. You'll need it to write an offer because an earnest money deposit may be required to accompany your purchase offer.
Submit Documentation and Purchase Offer to Lender
Once the seller has accepted your offer, send it to the lender for approval. You do not have a deal until the lender accepts. Also, send the lender a copy of your earnest money deposit. Do not be astonished if the lender asks you to increase it.
In addition, the lender will want to see that you have your own loan available and you are preapproved. Send a preapproval letter to the lender. It will help if your agent sends a list of comparable sales that support the price you are offering to pay for the home.
Give the Short Sale Lender Time to Respond
Make your offer contingent upon the lender's acceptance. Give the lender a time frame in which to respond, after which, you will be free to cancel. Normally I set the time for (2) business days which will never happen however, allow you an out, should you need it
Some lenders submit short sales to committee, but most can make a decision within two to three months. Get a name and phone number for the appropriate contact at the lender. Don't send an offer blindly to a department.
Understand Short Sale Commissions
Regardless of the commission the seller has agreed to pay, the lender is actually the entity paying the commission. The reason is the seller is not receiving any money with which to pay a commission. Since the lender is losing money, the lender will likely negotiate the commission directly with the listing broker, who will then share the commission with your agent.
If you have signed a buyer's broker agreement with your agent, ask if the agent will waive the difference due or you might have to pay it out of your pocket. Some brokers feel it is unfair to penalize the agent, but the lender is calling the shots.
Reserve the Right to Conduct Inspections
Generally, the lender will not pay for customary items that a seller would pay. These include home protection plans for the buyer, buyer credits of any kind and pest / termite inspections. A buyer will be asked to purchase the property "as is," which means no repairs.
It is extremely important that a buyer obtain a home inspection and pay for these types of inspections such as pest, roof, sewers, septic tanks, chimney or fireplace inspections. Do not waive your right to obtain these inspections and make your offer contingent on approving them.
- Also a worthy Note:
Bank owned properties in just about every case DO close within thirty days. Reason? A bank has already gone through the motions of (in some cases) short sale to Foreclosure to Bank owned (sold through a Broker/Realtor) thus the appraisals have been done, the negociators are already available to insure the process moves smoothly and quicly. Terms used in the industry. BANK OWNED.
Al Cocchia. Realtor Short Sales Specialist The Border Group Keller Williams Realty
