One of the most challenging transactions that REALTORS® face today is a short sale. In this article, I will discuss the challenges facing listing agents and how to avoid listing properties that do not have a reasonable chance of closing once a buyer is found. However, before we discuss the many hats a listing agent must wear, let’s first define the short sale: a sale in which the total debt on the property, if sold, is greater than the value of the property in today’s market, and the property owner is unable to bring the additional funds to closing to pay all outstanding debt.
To Diagnose the seller's pain correctly, REALTORS® need to ask potential sellers very difficult questions. In this role, be mindful of the agency disclosures that must occur prior to asking a party for potentially confidential information. To qualify as a candidate for a successful short sale, a seller must:
- owe more on the property than the property will sell for in the market;
- be unable to bring funds to closing to pay off the outstanding debt; and
- have a valid hardship that can be documented.
REALTORS® often take listings from homeowners who are “upside down” in their equity position and want to sell their property. The REALTOR® takes the listing and the short sale inevitably fails. REALTORS® must explain to the property owner that loss of equity, although unfortunate, is not considered a valid hardship by lenders considering short sale approval. A valid hardship is a condition or event(s) that caused the homeowner’s payments to become (or soon become) unaffordable, such as employment changes, illness, death of an income earner or divorce. If the hardship is valid and can be documented, then the REALTOR® may consider listing the property.
When pricing a property, a listing agent should consider the details of the marketplace and put them into a thorough and understandable current market analysis (CMA). He or she must understand how to read the comparable sales, including all distress sales, to price the property correctly. It is essential that the property is priced to sell. The listing agent will need to support any contract price that eventually gets accepted by the seller as an accurate picture of value to the lien holder(s). In addition to a very detailed CMA, there is an abundance of paperwork and detailed reporting that must be completed by the property owner for all lien holders. The REALTOR® must believe that the property owner is willing and able to complete the paperwork necessary to document the hardship and supply to all lien holders the financial application and supporting hardship documentation to assist the lien holder(s) in determining if the property owner has an actual hardship. Most often, the paperwork that the property owner must complete is more detailed than the original loan paperwork. All lien holders must receive the entire documentation from the property owner in the form of a completed short sale package. Keep in mind that all lien holders may not ask for the same information, so the contents of each short sale package are determined by the unique requirements of each lien holder.
The last hat the REALTOR® must wear is that of the clinician. As a former psychotherapist, I recognize the inherent challenges when working with individuals who may exhibit a great degree of anxiety, pain and perhaps shame as a result of their current condition. I also recognize the anxiety a REALTOR® feels when having to tell a homeowner the reality of loss in value of a property. Property owners, especially those who have purchased within the last few years, often face the fact that selling their home will cost them any equity they had. They also must face the very real possibility that if payments are unaffordable and there is an actual hardship, the best solution may be to sell the property to avoid foreclosure. That reality is a lot to manage! In the role of the clinician, the REALTOR® must show compassion and understanding and, at the same time, offer objective solutions to the property owner. In other words, be empathetic. REALTORS® often share with me that discussing the foreclosure action with the property owner is extremely stressful, emotional and exhausting. In many cases, the REALTOR® is the same agent the property owner used to purchase the property, and it is extremely difficult to remain objective.
Objectivity is one of the greatest challenges for listing REALTORS®, but it is a must. It is very difficult to speak frankly with sellers who want their REALTOR® to show sympathy and save them from harm. Unfortunately, there are some people who have no valid hardship, have waited too long to get in touch with a REALTOR® and cannot do what it takes to get out of the bad loan. These folks may just walk away. REALTORS® must never assume the role of giving legal advice. However, make sure that property owners understand that walking away, although an option, is harmful and that they should discuss the legal ramifications of such actions with their legal advisors. The REALTOR® needs to remain objective and assist those homeowners in understanding their options and, if appropriate, list those properties that meet the necessary criteria: the property owner is ready to be helped, has a valid hardship and is able to pull together the paperwork and documentation that is required by the lien holders.
The bottom line is: every successful REALTOR® must wear three hats in today’s marketplace: diagnostician, technician and clinician. Be soft on the people, hard on the problem and be certain to work with the property owner to complete all necessary paperwork. To learn more about successful short sale transactions as well as REO transactions and the foreclosure process, be sure to look at the newest certification from the National Association of REALTORS®, Short Sale and Foreclosure Specialist Certification (SFR). Additional information about the SFR certification may be found at www.realtorsfr.org.
Lori Cox is the founder of Life Successes, Inc. and has dedicated her energies and passion toward helping real estate professionals succeed in establishing and reaching their business and personal goals. As a top producing REALTOR® for over 15 years, Lori knows what it takes to create business, maintain relationships and thrive in the competitive real estate industry today.