I’ve written a lot about Virginia short sales (don’t miss the older “SS 101” post) and a year and a half ago came up with the 1st MLS search that would scrub short sales (see post) and put a * next to their price (it would look at both the remarks and checkboxes).

But that wasn’t enough. I also gave some guidance on a “Top 10″ questions to ask a listing agent, as they are the key to getting short sales closed (in my opinion).

The most important question on that list was “have you ever closed a short sale.”

Well now you no longer need to ask them! (and they so frequently get offended)

FranklyMLS.com will upgrade the normal asterisk next to a short sale and make it two green **, IF that agent has EVER closed a short sale within the last 4 years. Yep, the system will now look at every short sale, and then scrub the 4 year history of the listing agent and if their sold listings show a successful short sale… then BOOM, they get upgraded.

Now of course this is FAR from perfect and in no way is it an indication the short sale will definitely close (far from it), but I’d venture to say you have a 3x better chance. So in a quick second, a glance at the results might help you consider a short sale that before you might have been too scared to try.

Try it. Search for Arlington Short Sale.
About 40% have **.

Now, I’m still willing to tweak this. Should it require 2 closed short sales? Also I think it currently looks at whether the agent was either a lister or a buyer agent. I’ll be changing that to just successful sold short sale listings.

Also the system puts 1 green * if the remarks say “Approved” since an approved short sale has a better chance of closing.

Why am I so excited about this? Because it is my first attempt to incorporate sold data as an indicator or predictor about how an active listing will do. Next up is the Frankly Price Predictor that I talk about here for Inman News (I do a weekly video column for them now):

A few quick personal notes:
- All done with my 5 AU Law school exams, only a year and a half left.
- Just finished a shoot for HGTV’s “My First Place,” which you would have seen some behind-the-scenes videos like this one if you followed me on Twitter @FranklyRealty
- Was listed as a “Inman 50 Most Influential Online”
- I started a couple new Youtube accounts at Youtube.com/FranklyNews for my weekly Inman.com industry focused video segments and Youtube.com/LakeBarcroftcom (and snagged LakeBarcroft.com from a squatter), which is where we recently bought a home.

Written by Frank, Owner FranklyRealty.com and FranklyMLS.com

Photo by dichohecho

Sorry, but that was so 2000-2007.

With Banks, REOS and Short Sales, money is playing second or third fiddle to TERMS, TERMS, TERMS. Banks are taking 2-4% LOWER offers (when there are multiple offers) that are stacked with great terms including:

• ALL CASH
• No Home Inspections
• No Finance contingency
• No Appraisal contingency
• No VA or FHA loans*
• FAST closings
  * Many will debate this and say that these loans have evolved and are as good as regular loans. Guess what? Banks don’t care!

For example, I was talking to an agent the other day. Her client offered $100,000 over list with 50% down on a Virginia Bank Owned property. Another offer was for full list, ie $100,000 LOWER but with ALL CASH. The all cash won. But then the buyer persnickety (great word) started meddling with the bank addendum (see older post) . The bank said forget you. Went back to the 50% cash offer, which lowered the offer to $50,000 under full list.

Banks want LOW HASSLE DEALS!

For Virginia Short Sales, the seller doesn’t care about the price (slight exaggeration). They aren’t eating the loss. They want somebody that will standby and be patient. I even had one listing agent say “I don’t care about the price, the bank will determine that with a counter, I care about staying power.”

I am in no way saying that you should only buy with all cash (if you can great) and remove all contingencies. I’m just saying that it is very important to meticulously review all the terms in your contract and to make them as strong as you feel comfortable with. Maybe do a home inspection, but make it a “take it or leave it” inspection (not a “information purposes only,” I hate those. They are sheep in wolves clothing.) instead of the default which essentially says “we will inspect it and then demand petty changes.”

And believe it or not, I can’t talk about all the things we do, but there are many other ways to win a contract for LESS than the highest offer. But yes, it takes some thinking (wow, an agent that thinks, imagine that?).

And generally I don’t like escalation contracts.

Why? If you have great terms, you will be outbidding a sucky terms contract. How dumb would you feel if you escalated $10,000 higher because there was a high offer with a home sale contingency? Or if you waive the appraisal and the offer you beat doesn’t. Why beat another offer the seller wouldn’t have taken? You can adjust the addendum to try to protect from this. Make sure you are beating not only the price, but the terms.

Please subscribe to this blog and leave a comment, and feel free to leave your experience, even if you disagree.

Written by Frank Borges LL0SA
Broker FranklyRealty.com
Owner FranklyMLS.com

Also I started a new blog that showcases each of my WheelEstateCam.com videos!

They are the best deal in town, by far. More so than bank deals. But if you don’t read this carefully you will be FORKED!

In case you are new to the world of home shopping, there is something called a Short Sale. You need to read the details on my post: Short Sales Are “Fake Listings.” Only 5% Close!

But the 1 liner explanation is this: A distressed seller facing foreclosure tries to get the bank eat the losses and allow a “short sale” thereby selling the home for 10-20% below market and the bank eats the $50k to $250k loss instead of the bank losing even more money in foreclosure.

The problem was that only 1 in 20 were closing. Read the post above to learn why, but it had to do with clueless listing agents (many still exist) and banks having 1 processor for 600 homes.

Quick Tip:
REOS/ Bank Owned MLS Listings are 7-12% below market
Short Sales MLS Listings are 12-20% below market.
Do you get why this is important? See Wheel Estate Cam Video

1 YEAR AGO
Everyone wanted a Short Sale. They seemed too good to be true… well they were. Then came horror stories of people waiting 4 months and then the bank saying “sorry we changed our mind” and leaving people homeless (they already sold their home!).

6-9 MONTHS AGO
Nobody wanted Short Sales. The pendulum swung too far in the other direction. “Hell no, I’m staying clear of Short Sales, they are fake!”

NOW?
Be Smart. Weed out & Pounce on the Good.

Well the time has come to putting our thinking caps back on. You have to learn how to spot a “bad” short sale and how to know if a short sale is “real.”

Bad short sales still have a 1 in 10 chance of closing (up from 1 in 20).
But a “Good” short sale can have a 80% chance of closing!!!

NUMBERS OF SHORT SALES CLOSING
In my post over a year ago only 3 short sales had closed in all of Arlington in a year out of many dozens of failures. In the last 4 months 3-4 have closed in my building alone (Clarendon 1021)!

Inventory levels
Short sale inventory can vary greatly by each area. Sometimes the “hotter” areas will be so infrequent that a Short Sale might not be an option (keep reading to learn about offers on Under contract Short sales!!! shhhh). Also if you have a good agent (insert plug here for me), for condos, consider asking management about upcoming delinquent condo units.

NEW TRENDS FOR SELLERS/ Listing Agents

1) Undisclosed Short Sales
SS got such a bad wrap that agents stopped putting “Short Sale” in the public remarks. Some even removed them from the Realtor-only remarks. How is that allowed? Something about privacy, and the rights of the seller. And who cares about the buyer anyhow, right?

If it has a crazy low price, like 30-50% off assessment … and it is NOT a bank owned property, it is likely a short sale. (only FranklyMLS.com lets you sort by tax
assessment as a ratio of list price, try it, it is the #1 best tool for bargain hunters, see video)

Sidenote: Undisclosed Bank Properties. This really blows my mind. More and more I am seeing REO and bank owned properties (after foreclosure) that do NOT say “bank” anywhere in the public remarks. Maybe people are getting scared of bank properties too? See video of me skiing a black diamond while talking about banks.

2) “Approved Short Sales”
These can be pretty good. This oftentimes is an experienced agent that has already done the 1-3 month processing and has an “ok” from a bank and a set price. You can sign up for alerts on FranklyMLS for the phrase Approved Short Sale Virginia these can be good, but they go FAST. Note that 50% are under contract.

3) 3rd Party Short Sale Negotiators for sellers

This is a brilliant idea. Non-Realtors that are hired to negotiate short sales for the listing agent. I spoke with one company today. Their team comes from former bank loss mitigators. So they know all the ins and outs. They closed 60 last month! They know exactly what each bank needs, to the “T”.  Sure they cost about 1%, but who cares? If they can double your chances for closing a place, and for 20% under market AND make sure the seller doesn’t get stuck with a note of deficiency judgment… well worth it.

OLD TRICKS/TRENDS BY Listing Agents
1) Way Underpriced/Fake Short Sales. Recently one of my buyers found a $2.5M home that was listed for $700,000. Real or fake?

2) Clueless Agents. I am a 3 year member of the NVAR education committee. We are trying our best to get more free education out there for Realtors to list these properties.

NEW TRICKS FOR BUYERS
1) Offer on “Under Contract” short sales.
This is interesting. Do not skip this, you will be quized.

There is a huge Realtor debate on what it mean to be “Under Contract” with a short sale. Even though I got an “A” in my Contracts class in law school last semester, I am not a lawyer, and I am not giving you legal advice.

MRIS (the local MLS provider) has rules that you must put a listing as “Under Contract” when the seller signs the offer from the buyer (and then most people ignore the listing, but not us! & readers of Blog.FranklyRealty.com (make sure you subscribe, do it now, I’ll wait) ).

However some listing agents would prefer to keep it as active so they can get more offers. Obviously this ticks off the buyers.

On my previous short sale post I covered advice directly from the legal department at VAR. It talks about signing it “contingent upon 3rd party approval” versus “Acceptance upon 3rd party approval.” A night and day difference. One is under contract, one is not.

But regardless, the seller would sign anything. They would sign an offer for $100. They don’t care. They are having the bank eat $100,000+.

So my point is, something might be “Under Contract” for a long time, but if the bank doesn’t sign it, it means nothing. So why not offer on homes that have already sat for 30 days and are about to be considered by the bank (takes the bank at least 30 days to hire an appraiser/BPO, review the paperwork.)

Example:
Sold Market Price Home A: $500,000 (recently sold unit)
Short Sale Home B: $400,000 which is “Under Contract”
Active Regular Home B: $490,000

Offer $410,000 or $420,000 (note it takes hours for us to come to a real price based on FranklyCRA, and tons of other data, but play along here) for the place a month after it goes under contract.

Technically it would be a “bank up offer” but the bank would see both offers (in some/many cases) and reject the initial offer (which is signed by the seller) and take the 2nd offer that is $10-20k higher thus saving you $70k vs the next “regular” listing.

I go more into this over on my Realtor to Realtor Active Rain post where short sellers debate the concept. Anybody Offering on “Under Contract” Short Sales?

2) Short Sale Negotiators FOR BUYERS!

Make sure you read above about how these new companies help listing agents. But I think they should help buyers. I plan to use them, I will let you know how it goes. The next offer I put in, I will require in the offer that WE pay* for this 3rd party company to take over the negotiations. Sure we’ll stick around if professionals are running the show. They can get the deal done in 50% less time, and twice the closure rate. When I say “We” I refer to adding the 1% to the seller’s closing costs. This step could really turn around how short sales are viewed.

3) FINDING GOOD SHORT SALES
a) Spot them using the Short Sale Scrubber (tm). Only on FranklyMLS.com, when you search, if you see a * next to the price, that means the words “Short Sale” (or 3rd party approval, and it removes the * when it says “Not a short…”)

b) Look for a HIGH # of Photos. While not conclusive, a listing with over 5 photos is 4 times MORE likely to go to closing vs a 1 photo listing. Lazy agent tends to lead to failed short sales (not always).

c) Look for Listing Agents with Prior closed short sales. Have your Buyer Agent run a FranklyCRA and see if they have closed a short sale before. IF they have, your chances skyrocket.

d) Top 10 questions to ask a Short Sale.
This was featured in the Washington Post. Ask these questions before getting serious. If the agent can’t answer them, walk. Today I got a “It is none of your buyer’s business if my seller client is still paying the mortgage.” Oh, yeah, my client waiting 6 months because the bank keeps cashing the checks and has no reason to eat $200,000? Yeah right. We have the right to know, or we walk.

e) Short Sale Alerts on FranklyMLS.com
You can set up alerts for phrases like Short Sale Arlington. Our site updates every 90 minutes. Make sure your Realtor is high tech and can do all the contracts digitally (like I always say, dont be silly and try and use the listing agent, subscribe to my blog and soon you will learn why). Consider even offering at or above list sight unseen (that would take another full post to explain pros and cons).

f) Wiki, Wiki, Wiki. 61,000 Additional photos. Found NOWHERE ELSE!
Don’t forget, FranklyMLS.com is the first and only site in the USA that encourages buyer agents to add photos (see video howto) to photoless Short Sales.
ATTN READERS: Why don’t you help out too? You, or your agent, should be contributing photos.
Look at Jeff Royce’s contributions to photoless short sales. Every other site has 1 photo for 14 of these 17
homes. Because of Jeff, we have 300+!

Every other MLS site= 14 homes 14 photos (1 each)
FranklyMLS.com WIKI= 14 homes 350 photos.

Hours saved and money on gas to see a 1 photo short sale= Priceless!
Thanks Jeff from OurFairfax.com for being the #1 Contributor on FranklyMLS.com!

Sidenote for Agents: Ask me about getting a Free Branded IDX. Yep, FranklyMLS.com with your name on each page and email alerts.

FUTURE BUYER TRICKS: (sign up for the new features blog for FranklyMLS.com)

1) What do you think of a feature that would put a GREEN * next to a Short Sales listing if it is being performed by an agent that has previously closed a short sale? I think that would be killer, anybody else? (please add comments)

2) Hyper targeted email alerts for homes in an area by “great short sale agents” that have closed 2+ short sales in a year. These people know what they are doing, and you can get a steal. Currently this is not automated, so email me directly to sign up for your area.

3) What do you think about a feature that lets you “favorite” a short sale listing, and if it goes off the market, but comes back as a REO, you get an email alert? Also working on alerts for closed price. Anybody want to get an alert the day your Favorited home sells with the price, including subsidy?

The End.

So, sorry for the long post. It was 3 months coming. I feel relieved. Now I can point people to this post instead of spending an hour on a 1/4th as in depth email.

Don’t forget to subscribe to this blog in the upper right corner of Blog.FranklyRealty.com and forward this to anybody considering buying short sales. Note every area of the country is DRASTICALLY different.

Written by Frank Borges LL0SA
Broker FranklyRealty.com
Owner FranklyMLS.com

Please report types.

Pendulum photo by Brandi666
Fork image by KevinDooley
Random Chair on Head by jawcey
Cat Pounce by Yogi
Back up truck by Wellohorld

Watch the video example below. (email readers go here).

How do we know if it is a Short Sale? Since only 17% of Short Sale listing agents check off the “Short Sale” box under Current Financing, we also crawl the Public Remarks for the phrase “Short Sale” and “Party Approval”. (Soon we will unscrub those that say “Not a Short Sale” ie, no asterisk Update6-16-08, this is now complete).

Why do you want to know which are Short Sales? So you don’t get your hopes up. There has been much discontent amongst buyer agent Realtors, some even calling for a complete ban of Short Sale listings on the MLS since so many are “Fake Listings.” (but they are starting to close, more soon on this, so subscribe to this blog). But now that we give them an *, you can quickly see which are which.

If you see any inaccurate asterisks, or ones that should have an asterisk, please let us know, and enjoy!

- Written by Frank Borges LL0SA- Broker FranklyRealty.com

I wrote about my distaste for Short Sales (aka Fake Listings), and how only 5% close in Northern Virginia (as of 2-08, but that might be changing). I guess now my distaste has shifted away from Short Sales, and more toward clueless agents listings Short Sales incorrectly.

On the buying side, instead of just banning them completely from my showing route, I have implemented a new:

Top 10 Questions to ask the listing agent BEFORE showing A Northern Virginia Short Sale.

Here is the exact e-mail I send to the listing agent of a short sale. Feel free to copy and paste this.

*********************
Hello,
I have a possible buyer considering your short sale listing.

Our company policy is to ask for more information from the listing agent before showing any Short Sales.

Can you please answer the following questions:

1. Have you closed a Short Sale before?

 

2. Have you requested and received the short sale package from the bank, including the hardship letter?

 

3. Have you sent the package AND have you confirmed receipt?
   

 

4. What communications, if any, have you had with the bank?
   

 

5. Has the bank approved the list price?

 

6. Have you received any other offers that you are waiting to hear back from the bank on?

 

7. Does the loan have PMI on it? (Private mortgage insurance)

 

8. Is there one or two trusts? Any other liens?
   

 

9. What are the names of the banks? Are these FHA or VA loans?
   

 

10. How long do you estimate that the lender will take to provide an answer to an offer?
11. (new) Has your seller completely stopped making payments on their loan.
12. 
    Update 1-22-09: Is the seller willing to hold a note with the bank for the difference? (much better for their credit score)

 

*********
Am I missing anything? Please add more in the comments.

I recently sent this to 10 listing agents. Only three replied. Only one really knew what they were doing. The winner was Realtor John Ryan in Woodbridge.

His reply:

Started talking with the bank? Yes Has the bank approved the amount? Yes

Have you received any other offers? Yes, however we are only a few days into the process with the new offer. All other previous offers dropped off.

Have you closed a short sale before? Yes, several. I also have a dedicated team of five people that work the banks to get these through. I can give you feedback along the way so that you can keep your buyers informed.

****

Joy to the world…

So I hereby lift my ban on Short Sales on the buying side.

As for the listing side, after an eight hour NVAR CE class, from a group that gets a 90 percent close ratio, I have no problem taking them on (if the seller qualifies). Don’t want a short sale? Send it my way.

Also at the most recent Finance Committee meeting at NVAR, we passed a resolution to consider enacting some sort of Short Sale ____ (certificate, pledge, designation) for those that know what they are doing with Short Sales, so they can put it in the MLS Remarks and buyers can have more comfort.

Update 1-22-09: Still reading this #1 blog post on short sales for a background on the process? Well it was written over a year ago. Short Sales are now closing MUCH more frequently in SOME areas (an 0 in areas like McLean). Subscribe to this blog for I plan to run some numbers on the % that are closing. My guess is the range is 1 in 3 (vs 1 in 20) before. However closing rates can be as high as 80% if your buyer agent asks the listing agent these questions: Top 10 Short Sale Questions.

(Update 6-16-08: This post was written on 2/08, this marketplace is changing ever month. Make sure to subscribe to the blog to get updated on the marketplace, like an upcoming post on more Short Sales starting to close.)

As of 2-08, most Short Sales in Northern Virginia are what I call “FAKE Listings.” (note that this is Virginia, every area is drastically different)

Only 1 in 20 sells.
In Arlington only 3 have sold out of 65 attempts.

I briefly went over Short Sales when I defined all SOL Homes including REOs, Bank Owned Etc. But Short Sales need more attention, as they are very tricky and misleading.

A Short Sale is a listing for sale that requires “Third Party Approval.” That means that 1, or 2!!, banks are owed MORE than the list price.

For Example:

1. Home is bought for $500,000 with 5%, or $25k down.
2. Home has a $475,000 mortgage.
3. Value dropped below $475,000
4. If the seller is facing foreclosure, they slash their price for a quick sale
5. A Short Sale is attempted at $450,000
6. If the bank accepts it, the BANK eats $25,000 (see Phantom tax for Seller)

The Theory Behind Short Sales: Banks would be better off to accept a loss now, versus going through the legal expense of a foreclosure, just to end up selling it for less later. Win win, right? Wrong. Read on.

Bank Trick 1: “Sure, we will consider a Short Sale, IF YOU KEEP PAYING US.”
Yep, a bank sees a desperate seller, and a potential $50,000 loss. They then mislead them into thinking that they might consider taking a bath on the deal IF the owner keeps paying their mortgage. The bank then ignores offers for 2-4 months in order to squeeze out another $2,000 x 4 or $8,000 profit. Brilliant. The bank then takes it over after foreclosure and sells it for $10,000 OVER the Short Sale List price. $18,000 better off, NOT doing a Short Sale.

Bank Trick 2: Sometimes the bank has mortgage insurance and it is CHEAPER for them to let it foreclose versus allowing a Short Sale, which is NOT insured.

For example, I was at an NVAR short sale class and a Realtor asked the speaker, “Why after 60 days, calling 2 times a day (120 calls) with a full price Short Sale offer, did the bank not call us back?” The speaker claimed it was due to an overworked staff.

I asked:

1. Did they tell you they would consider a Short Sale IF you kept paying $3,000 a month? The answer was Yes.
2. Was the home bought with Mortgage insurance? The answer was Yes.
3. Bingo! Why eat $50,000, by accepting the low offer, if the bank a) gets $3,000 a month and b) is insured against a foreclosure and NOT a Short Sale.

She was pissed. She realized that she had been “had.” But this goes on ALL THE TIME. It can take MONTHS to hear back.

Another example:

1. A seller in Clarendon 1021 tries to sell his property and profit $30,000 at $600k. (Yeah right!)
2. Then he drops it to $570,000. No bites, but the foreclosure is pending!
3. They SLASH it to $530,000
   (sidenote, I get flooded with calls from friend that want to pick it up for a steal at $470,000! I said that it was impossible… since I’d buy if that price was a possibility.)
4. It sits for another month, then the listing disappears after 100 days!
5. A month later it is “bank owned” and listed for $560,000
6. It sells for $540,000 in 26 days.
   

The moral here is banks are not dumb and the market isn’t so horrible that they will take all these lowball offers. They sold it for $10,000 OVER the previous list price (which probably had lower offers).

Reston homes from $300k to $400k.
- 20 Active “Short Sales” in Reston (watch out for “Not a Short Sale” listings)
- 73 were Withdrawn, or Expired.
- 3 Under Contract (1 under contract since Nov 2007! Many UC do not close.) />Only 3 sold in the last 24 months. 3 closed sales in 100 attempts!

1. Dropped From $480k to $400k, sold at $400k (Full list)
2. Dropped from $430k to $400k sold for $380k (5% under list)
3. Dropped from $380k to $350k sold for $345k (2% under list)

Arlington Short sales.
- 25 Actives
- 37 Withdrawn
Only 3 have sold in ALL price ranges in all of Arlington in the last 2 years.

1. Listed at $335k, sold for $335
2. Listed at 700k dropped to $620, sold for $600k
3. Listed at 480k dropped to $420k sold for $420.

In Alexandria, only 8 have closed in 2 years out of 80 attempts.

(most were at list, or 2% under list, some were $20k over list)

I show this, so you don’t think “Wow, they are desperate, we can now lowball. These 3 were the ONLY successful ones. Probably because they gave the bank a real offer.

Ok, so enough already with the War N Peace, what should I do?

Advice for Regular Sellers

1. Do NOT blindly compete with a Short Sale. If you get an inexperienced agent, and they see 3 Short Sales in your neighborhood, and they have you compete against these “fake” listings, you can lose $25,000. Hope you “saved a ton” on that agent. (see Realtor Rebates)

Advice for Sellers Facing Foreclosure

1. Watch out for the bank tricks to “keep paying.” Talk to a lawyer that specializes in bankruptcy to help guide you. They MIGHT recommend stopping payments immediately and saving it up for a rental.
2. Use an agent that has completed (as in CLOSED, not listed) at least 1 Short Sale.
3. If you have mortgage insurance, be extra careful, the bank might prefer that you foreclose.
4. Get bank approval for your list price before listing it. Put in the listing remarks “List Price approved.” Otherwise you will get lumped into all the other Fake Listings and ignored by smart buyer agents.

Advice for Buyers looking for a “steal” (see “deals” post)

1. Avoid Short Sales, or expect to wait 2-3 months and expect to put in 5-10 offers on Short Sales before one is accepted. A Short Sale in my building now has 4 offers. He says he is expecting a reply any day now… sorry, but yeah right!
2. Look for Approved Short Sales. Ask if the bank has been contacted and if a price has been approved. Multiply time estimates by 4. Ie. 3 days= 12 days.
3. Consider offering near, full or OVER list. What! Over list! Are you nuts! CNN says this is a BUYER’s Market! I know it sounds crazy, but if you and your agent see the price is well under your other options… I’ve said time and time again, I’d rather you pay $10,000 OVER list on a house that is $50,000 under the competition versus “saving” $50,000 on a home that is overpriced by $100,000. Ignore list price, focus on VALUE.
4. Focus on Bank Owned. These units get replies in a day or two. (See video of Realtor buying a Bank Owned property)

Advice for Buyer agents & Listing agents

If you get one to close, change the remarks to SHORT SALE, NOT TO BE USED AS A COMP in hopes that the appraiser will take that into consideration and not trash the neighborhood (buyer agents, demand it of the listing agent to try to help your client’s “deal” not turn into destroying his own investment).

Sidenote: A home should NOT go under contract until the BANK signs it, but many agents will make this mistake. The seller signing it means nothing, and it should stay on the market as Active.

• Updated Correction 2-29-08 I’d like to thank DAAR CEO Jeanette Newton for this correction. I’m excited that she is participating in blogging!
• My above sidenote about when to go Under Contract is 100% wrong. So let me explain… IF a seller signs the offer, as written, it is to be listed by default on the MLS as Under Contract with No Kick Out. The problem for the seller is that most MLS websites will remove the listing, so the chance of a better offer (and a higher chance for the bank to accept) is slim to none.

  Here are a sellers’ options (please comment if you know of more options) :

• 1) A seller can counter the contract and add in a “Kick Out” so further offers can be reviewed. The listing then can be set to Under Contract with Kick Out (this was suggested by Loudoun Realtor Tony Arko). But only a buyer agent looking on the back end MLS can find UC/KO. (A Kick Out means “there is still a major contingency here, feel free to submit another offer, it still can be considered and the first contract might be kicked out.”)
• 2) Another way to keep it active (like the unit in my building with 4 offers) is for the seller to send the “offers” unsigned to the bank. Why not try and keep your home as “Active” for as long as possible? Some banks will require the seller to sign, so try #3.
• 3) Or lastly, the seller might add “acceptance of the contract is contingent on lender approval.” or “contingent upon review and approval of the lender.” That one line can keep it “Active.” I am not a lawyer, so please verify any additions you make to a contract with a lawyer.

• As a buyer agent I would prefer it to be “Under Contract” if I was the listing agent, I would want it to be Active. So it depends whose side I am on, it is part of the negotiations. You can even counter with “Increase your price $2,000 and we will place it UC/KO.”

New Trick: Now that Short Sales are getting a bad wrap, some listing agents are NOT disclosing that it is a Short Sale.

Conclusion as of 2-2008: Short Sales in Northern Virginia suck.

Question: Realtors, should you have a “No Show” policy for Short Sales that aren’t approved by the bank? Are they really “for sale” if the owner (the bank) doesn’t even know about it? Feel free to just tell your clients “read this blog.”

n style="font-weight:bold;">-Written by Frank Borges LL0SA- Broker FranklyRealty.com

Please report typos.

p.s. See Washington Post Article on Short Sales

• Top 10 Questions Before Showing Virginia Short Sales

• FranklyMLS.com, 1st to Scrub for Short Sales & Post Article

• Feb 2009 Short sales are closing!

• [Lead up to quote; red emphasis added]… The aggravation has been building for a while and stretches beyond the agreement announced yesterday. For instance, under one congressional proposal, there would also be a break for “short sales“ — that is, when owners sell a home for less than is owed on the mortgage and the lender forgives the difference. Now, the amount that’s forgiven is regarded as income, and the seller owes tax on it. The proposed legislation would forgive that tax.

 

• [My quote] Without the threat of the tax, sellers might not be as reluctant to consider a short sale, said Northern Virginia real estate broker Frank Borges LLosa. He predicted the number of such [short] sales could double. 

  Maybe Congress should allow a 50 to 75 percent break instead, he said. “I am not saying not to help out these people,” LLosa said. “It’s very sad. I have spoken to people who have lost their homes. I just don’t know if a bailout is the right thing for the marketplace as a whole.”

I’ve discussed Short Sales previously in “SOL” Homes: Virginia MLS Foreclosures, REO, Short Sales Defined, but here is a quick recap:

Short Sale: Usually a Realtor MLS listed house that is heading toward foreclosure. The deal requires 3rd Party Approval (the bank) because the seller is trying to sell for BELOW the loan amount and is hoping that the bank will approve the deal, and eat the loss. Only about 5-15% actually get to closing since banks oftentimes say, “no” (blog post coming soon on this, so make sure you subscribe Update: Here it is).

Example of a regular Upside Down Sale: (loan amount is over the sales price)

1. 2005, $500k home was bought with a $475,000 loan and $25,000 cash (5% down).
2. 2007, home price drops to $450k.
3. To sell at $450k, seller must bring a $25k check to closing.

Example of a Short Sale:

1. 2005, $500k home was bought with a $475,000 loan and $25,000 cash (5% down).
2. 2007, home price drops to $450k.
3. To sell at $450k, they show the contract to the bank and ask for a short sale approval.
4. Upon rare approval, the bank eats the $25k.
5. Seller still gets a taxable 1099 for bank’s loss, also called Phantom Income (at least for now).

• The benefit for the seller is not having a bankruptcy and or foreclosure, which is worse for their credit.

 

• The benefit to the bank can be lower foreclosure, legal and remarketing costs.

For those that they can’t afford an Adjustable Rate Mortgage that is resetting much higher, this can be the savior, with the exception of having to deal with the Phantom Tax. But now the “Mortgage Cancellation Tax Relief Act, H.R.3648″ wants to remove the 1099 tax bill.

This sounds great and dandy for a polititian to “keep from kicking people that are already down,” but if you remove the penalty for doing a short sale, this will lead to… MANY MORE short sales.

More Virginia short sales will drive down prices, thus hurting others in financial trouble, and their neighbors that didn’t buy risky loans.

And regarding any legislation to FREEZE rates for distressed homeowners, Freeze Interest Rates? From Bankruptcy to Profit?

-Written by Frank Borges LL0SA- Broker FranklyRealty.com (please report typos)

Sneak Preview: My next blog post will talk about FAKE Short Sale prices, and how you can lose $10,000 as a seller competing against these oftentimes fake listings, and how only 5-15% ever get to closing.