When it comes to helping sellers in foreclosure I feel like I am in so many grey areas the whole situation is overwhelming.
In my super slow market area the only people who seem to be buying short sales are investors.
Investors who want to make a buck (as well they should).
Investors who would like to have the help of an agent willing to bend the rules- to influence a BPO agent with some convincing low ball comps and a repair list to restore the place up to the Taj Mahal level using the contractor with the largest Yellow Pages ad.
Investors who have cash and can buy now, today, who don't mind waiting six months while three negotiators quit, the package gets lost and refaxed eight times, etc.
Investors who won't need an FHA loan that the home won't pass because it's missing a few shingles or has a bit of torn (eek trip hazard!) carpet.
I get approached as an agent who works with distressed properties and REO by investors all the time looking for great short sale buys... and I have no problem with bargain hunting. I made my living as an investor for years.
Here's where I get a little worried... a lender calls me wanting my opinion on the value of a house. The agent has the house listed for example at $150,000 (which is a normal nice family home in my area). I call the agent to see if there have been any offers, if the home needs repairs, etc.
Yes, they tell me, we have an offer for $80,000 (really? why is it listed for $150,000 if it's worth $80,000... first red flag).
It needs $50,000 worth of repairs they say. Wait, I have a list! I will meet you at the property along with my three brothers who work as bouncers in a bar holding comps you better use because we know where your office is they say (ok, that part is an exaggeration but not by much)
Second red flag.
I visit the property and the repairs are for a new kitchen, new roof, and all new bathrooms. House is about six years old and is in pristine condition.
Third red flag.
I tell all agents (nicely) before I visit a property I will not accept comps provided by them because 1. I know how to find my own comps or else I shouldn't be agent. 2. It's unethical to try to influence a BPO or appraisal.
What's going on here? The agent is collecting high price offers close to list price from retail buyers. Those don't get presented to the foreclosing lender. The only offer the lender sees is the low offer from the investor.
If the inspecting agent agrees with the listing agent and decides to do as they're asked, the investor (and usually also the agent) makes a good profit on the sandwich money in between what the investor is paying for the property and what the end buyer pays.
Okay, so who benefits? The investor, the agent and the end buyer who although they are paying close to retail usually gets a bit of a bargain. The end buyer doesn't have to wait three years for an answer to their offer because the bank has already agreed to do a short sale. The seller benefits because they get out of a foreclosure. Everyone is happy right?
But what about the lender who is leaving thousands on the table without knowing it? Are they our client and do we owe them a fiduciary duty? I guess technically they are not- at least in Ohio the seller owns the property until the house goes to sheriff's sale. Anyone who has hard a short sale listing go to sheriff's sale knows how tough it is to make that dreaded phone call to a seller. But don't we have an ethical responsibility to be honest in our dealings even with a non client such as the foreclosing lender?
Short sales are an important part of the real estate market these days, and likely will be for many years to come. I started doing short sales in 2003 before most people had ever heard of them as I have always worked in a depressed market.
Situations like the one above are going to keep happening, and are going to become even more prevalent, until some force steps in to regulate short sales AND make them easier on the agent, the seller and retail buyers. Until then, in depressed markets there are two dismal choices- bend the rules or tell the client you probably can't help them because buyers have wised up and are no longer willing to dangle from a hook for months waiting for an answer to an offer and neither are their agents.
I really don't like either :-(
