Short Sales - realtors commissions and concerns

Foreclosures, Short Sales, Tax Foreclosures
1

when speaking with real estate agents i’m ecountering concerns about the list agreement, commissions being paid, who the offers are presented to etc.

scenario:
seller is to sell the the investor if short pay off is accepted (A-B transaction)
investor sells to end buyer (B-C transaction)
listing agreement is between the agent and the original seller

concerns from most agents:
concerns:

1.if the listing agreement is with the seller, and an offer comes in during the negotiation phase, what does the agent do? it’s there fiduciary responsiblilty to present all offers.

2.if the listing agent is with the seler, and the investor purchases the home (A-B), the agent no longer has any involvment and they are “not involved with” future transactions (B-C).

3.which transaction does the agent get paid? the first (A-B)? or the second (B-C).

any feedback on this would be great. i’m having a tough time conveying the whole process so the realtor fees ok and that there are no illegalities involved.

thanks in advance.

2

When a homeowner can not make there mortgage payments and foreclosure is a given, there is no ability to pay and the only way out is a short sale, and you the investor comes along:

A. Before a hardship package is presented, offers to buy property and makes contract offer and puts together hardship package where the bank right away requests the owners who are in trouble to list it for sale.

B. Investor stumbles into Short sale property for sale and makes offer to buy property for $ dollars all cash.

The listing agreement is with the property seller who is in foreclosure or going to go into foreclosure and commission is paid from the gross offer made and excepted by the lender!

The offers are presented to the bank, the seller gets no funds and gains nothing in a short sale except it only reflects badly on there credit for 2 years instead of seven years and it guarantees the seller (Party in default) that there lenders or lenders will not seek a deficiency judgement.

They may however recieve a 1099 for the supposed financial winfall and be liable for state and federal taxes.

What you do as an investor after the purchase is up to you and is a completely different transaction!

The listing agent is mandated by state and federal laws and by fudiciary duty (Under state real estate license law) responsible to submit all offers to the lender or lenders.

This is why most experienced investors find short sales a tough situation and pays poorly as an investor in relation to time involved.

The lender wants additional offers and is hoping a end user (retail buyer family) will make a offer more towards the retail side of things, more in line with the current FMV (Fair Market Value) saving the lender as much loss as possible.

Most lenders want the property listed right up to 7 to 10 days before the trustee sale when they will make a decision and possible except an offer, provided any second deed holder has also agreed to a significient loss.

An listing agent only represents the seller and this transaction, there bank mandated listing fee is 5% to selling and buying agencies, in almost all cases the listing and buying agents split the commissions 50/50 but sometimes the listing agent in badly hit states and cities has to give up 3% to the buying agents to bring offers.

Realtor fees for your purchase of the short sale property and the commissions for your agent and the selling agent are paid by the lender and seller from the gross excepted offer.

You can not assign, option or convey a sale of the property without you closing on it first, this is the law because the lender is entitled to recieve the most money against there loan and what you do with the property after your purchase is completely on your hands.

Whether you rent, rehab and sell or straight out sell is up to you after closing.

B-C has nothing to do with this A-B purchase which you must close in your name.

3

i understand they are seperate transactions. the concern is how to handle the 2nd transaction.

in theory, as i understand it, you want to do the following:

-go into contract with the seller
-list the property with an agent
-negotiate with the bank to accept your offer
-during this time have the real estate agent bring in an end buyer
-once your offer is accepted, do a back to back closing. the first with the seller, the 2nd with the end buyer

since the second transaction is completely seperate, would this require another listing agreement to be written? i have yet to read this so i’m curious as to how investors are handling this scenario…also in a way which agents are not breaking any laws etc.

4

How about the LAW!!!

You are the investor who stumbles along and finds Mr. & Mrs. Jones who are missing payments and thier mortgage and either have or have not been served with a posting of a notice of default.

You say “I am an investor and I would like to buy your house! I will put together a Hardship Package and submit it to your First and if applicable your second Trust Deed (Mortgage Lenders)”

You write a contract, put together bank statements, make a copy of Mr. Jones layoff notice, make copies of Mrs. Jones medical bills and submit.

The lender may or may not ask that the property be listed, if when the lenders assessor comes out and appraises the property he finds it to be a fair offer, the lender may not require the property to be listed.
(Only 50% of US properties are VA/FHA and fall under Freddie and Fannie rules)

If the lender requests the property be listed (Guess what they probable did not like your offer) and this falls on the owners Mr. & Mrs. Jones to find a realtor and list the property.

The agent and agency are paid by the seller and the lender, this party has fudiciary and legal responsibility under the law to represent the seller and the lender or lenders. Period.

It is illegal for this agent to look for or find a property buyer at this time for you to sell to! An agent or Broker can not except a listing on a property you do not own!

Your negotiation at this time is a contract offer, there is not verbal contact because you are not an authorized party. Your first contract $100k, second contract $110k, third contract $125k, etc.

That is your only negotiation if the bank asked for the property to be listed, it is all between the sellers, the lenders and the agent and agency.

The second transaction does require a seperate listing agreement after you close a purchase and your the legal owner you are entitled to list your property for sale, it is illegal for a agent, broker and agency to except a listing on a property you do not own! Period!!!

Typically most lenders will not short sale a property for more than 15 or 20% below fair market value. If I have to pay closing costs to buy, service a note for 1 or 2 or 3 months or more and then pay commissions and closing costs to re-sell I am typically not going to make money unless I buy way below FMV (Fair Market Value).

Now when you find a distressed foreclosure that FMV is say $150k and the family who just lost there jobs only owe $123k on thier mortgage this lender will probable except a short sale offer close to 15% below FMV because it costs them 5% to list, they have to maintain and take care of the property.

There are cash on cash costs and the lender has to hold 4 times the amount of the defaulted mortgage in reserve, and has the cost of internally paying someone to manage and handle the re-sale of the property.

The theory you laid out to me above is wrong and if you try to do real estate that way and in any way corupt the process, you will find your self in a state prison somewhere.

Hope you now understand this!

5

The third to the last paragraph should read “15% below the amount owed on the mortgage”.

6

Good reply Gold River…

7

There is a way to legally get paid on short sale flips. You will need to get equitable positioning first to list the property. You will then need to use Private money to get the deal done to flip and sell to a another buyer.

Matheno Howell-Bey
Positive Start Now

8

matheno1, not to sound rude but did you read my post? this doesn’t address the questions asked.

gold river, i will finish reading your post and then reply when i get further details

9

Some good replies there. Basically the reason you don’t read about this too often is that short sales are not a good way to make money which is probably why most people aren’t doing them. The method you’re trying to do sounds like a modification of an old method, but now you have bank involved. Lots of old strategies don’t work now because of the declining market and rules made up to prevent those old strategies from working. The bank has a responsibility to it’s shareholders to recover the maximum amount of it can. Trying to flip a short sale means that it’s probably not getting the maximum it can for the property which it why there’s rules that they don’t accept a short sale offer unless it’s been on the market for 60 days or maybe they’re going to do some sort of workout with the current seller.

As a broker, I’ve made several offers on behalf of my clients, but I’ve had very few go through. Maybe 70-80% of short sales end up in foreclosure. Typically happens if there’s two separate lien holders. Typically the second lien holder won’t agree to the sale so they end up getting wiped out in the foreclosure. Also if you do have a buyer lined up, will they stick around for the 6-9 months it could take to close? And what if the market has dropped in those 6-9 months? There may not be any profits at all.

Typically the best buys are the foreclosures, they’re priced a little bit below short sales. And of course short sales are a little cheaper than conventional sales, it’s just the wait that discourages most people.

You also have other problems if you were to get an agent to list a property that you don’t own. First how is the agent going to be able to show the property? The seller would have to know that you’re trying to flip the property and if that’s the case, why don’t they just try and sell it to a buyer directly instead of having you in there as a middleman? It sounds like you’re not really adding anything of value to the transaction. I’d be interested in seeing how you can even sell that to a seller. And of course if the bank makes the seller list the property, you can’t have two listings in the local MLS at the same time. You are going to have to revise your scenario so it makes a little more sense.

10

WRONGGGGG!!! We are still making money with short sale and you can get many of the requirements waived. You just have to know the right words to use with the rep or negotiator that you are speaking with.

You should pay the realtor on the first transaction A-B and if they brought the end buyer, I’d split my profit with the realtor. I 'd pay them more than conventional max 6%. They fall to my feet and work for me more. Short sales are just as cheap as REO if they ar done right. Problem is that there are still some stupid BPO agent out here who doesn’t listen to CNN. I shut files that end up with such BPO agents and start the short sale all over in 45 days if we got the time. That is why I do multiple files at a time. Note that I am talking as a savvy short sale investor and not a realtor that just found out the definition of short sale.

To Your Success
John Lee