Tuesday, March 31, 2009
Dazed & Confused over Short Sales?
If you have read my blog for a while or watch the movement of properties on the Key West Association of Realtors website you will see that some short sale properties seem to sell quite quickly and that others seem to languish. If you are dazed and confused by the process, the paragraphs that follow may offer some interesting insight on what some listing agents, renters, and owners do that impact why some properties sell and why others do not.
1. Some real estate agents seemingly do not understand the point of a short sale is to assist a troubled property owner to sell his/her property to a buyer for an amount less than the seller owes to his lender(s) on the condition that the lender(s) agree to accept that lesser amount in full satisfaction of the loan. The seller benefits from not having a foreclosure on his/her credit record. The lender benefits if the amount received outweighs the potential costs of foreclosure and consequent re-marketing of the property.
Here's the rub. Some real estate agents continue to price short sale properties at ridiculously high asking asking prices. I'm talking about per square prices that make no economic sense. The point of a short sale is to sell the property before it gets foreclosed, not to create an impediment (illogical pricing) that deters sane buyers from even looking at the property.
2. Conversely, some real estate agents price properties almost too cheap so that they (listing agents) can sell the property quickly. It is interesting to see how many properties get listed as short sales only to go "contingent" within a day or so of being listed. I believe this is helping to drive down the value of similar properties in the same areas. This is especially true in some condominium developments in Key West.
3. I've seen some listing agents deny that that the seller needs to negotiate the price or sell the property even though it is listed as a short sale. I recently submitted an all cash offer on a short sale property where the listing agent denied it was a short sale (even though it was listed that way in the mls). The agent even told me not to submit an offer less than a certain amount. The agent said the seller was only a few payments behind, yet I knew the lender had filed a Lis Pendens on the property months ago. The offer got rejected and a few days later the seller's agent substantially increased the asking price!
4. Many of the short sale properties in Key West are not owner occupied. In fact, many are rented. For some reason renters seem more in control of what gets sold than the owners or their real estate agents. Renters control when the properties can be shown, and what they look like and smell like. Renters usually demand at least 24 hours notice to show. Some renters refuse to show specific rooms even when proper notice is given. Dogs and cats (and their lingering odors) can make an otherwise nice place look or smell like hell. I have smelled pet urine in several short sale properties.
Some agents are never quite able to get potential buyers in to see listed properties. They may not have keys or the owner does not want the tenants to know the property is listed for sale less the tenant would stop paying rent to the seller. Restated: the property is listed for sale but cannot be shown. Make offer sight unseen.
Consider this as well. Owner rents a large house to a renter for let's say $2000 per month. Tenant then sublets each bedroom and even creates additional bedrooms by partitioning off "rooms" to create makeshift bedrooms. A three bedroom single family house suddenly becomes a five or six room boarding house. If you think I'm making this up, you are wrong. There are sure to be many beasts in the house as well. When a property owner no longer cares about what happens to the property, all animals are welcome. (Not all animal owners are bad. But some are!)
I've shown my buyers short sale properties that are rented. My buyers ask who gets the rental income. Not the lenders, dear readers. Even though most mortgages have an assignment of rents provision, few lenders exercise the right to collect the rent. In most situations the defaulting borrower (Seller)continues to collect rent until the property is foreclosed or sold in a short sale. One owner I know stopped making mortgage payments right after Hurricane Wilma in October 2005 and rented the house until last year. Now a relative lives in the property. There is no incentive to really sell when an owner continues to collect rent or lives in the property for months on end.
5. I've seen instances where people that sell real estate may be assisting sellers in depriving lenders from maximizing their recovery. Example number one: real estate agent lists a short sale house at an aggressively low price. Seller and Buyer (who might be a relative like a brother in law or cousin) enter into a Contract of Sale and Purchase. The short sale is then processed through the system without the lender having any knowledge that the "Buyer" is actually an insider of the Seller. Seller ends up staying in the property after it is sold to the relative as a "renter" or tenant. Example number two: Seller offers a short sale property that has an ancillary asset with a special value (such as an occupational license or furniture in a vacation rental property) that was purchased with the loan proceeds. The listing agent does not include the "asset" in the mls listing but does let it be known that the special asset can be purchased separately outside of the real estate closing. Wink! Nod!
6. Another instance can occur when the seller engages a negotiator to facilitate the short sale on behalf of the seller with the lender. The seller requires (as a condition of signing the Contract of Sale with the buyer) that a certain title company write the title policy and close the transaction. Seems harmless enough, except that the title company is run by an insider of the negotiator and charges fees in excess of what a local title company in Key West would charge. And when the lender demands the real estate agents reduce their commissions in order to close the transaction, the negotiator's fee remains unchanged.
Most of the short sale properties are straight-up offerings. It is not my intent to suggest anything otherwise. But there are instances where a few real estate sales people, renters, and property owners take actions that confound the process.
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Gary Thomas in a Nutshell
- Gary Thomas
- Key West, Florida, United States
- I first read about Key West in a magazine called "After Dark" sometime in the mid 1970's. But it wasn't until March 1984 that I made my first visit to the island that would become my home. I had two weeks for a vacation and reserved a room at Colours Guesthouse (now Marrero's Guest House) for one week. I thought that if I didn't like Key West, I could always go back to Miami or Ft. Lauderdale for the rest of my trip. But after a couple of days in Key West, that was no longer a consideration. But when I wanted to extend my stay for the extra week I found there was no room at the inn. The guesthouse owner did find me a room at LaTeDa, the infamous guesthouse/restaurant. That's a story I'll write another day. But those two weeks in Key West gave me the realization that I had found Paradise. Key West has been my home since 1993 and my only regret is that it took me so long to get here. I am a full time Realtor at Preferred Properties CRI. Let me help you find your new home or business in Paradise. Living in Paradise is not a slogan, it's a way of life.