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By TR Realty | Broker in Las Vegas, NV
  • Brad comments on agents' misplaced priorities

    Posted Under: Market Conditions in Las Vegas, Agent2Agent in Las Vegas, Property Q&A in Las Vegas  |  February 8, 2012 3:59 PM  |  1,045 views  |  2 comments

    There is a place in the mall where everyone goes, yet no one purchases anything. It is a place that is in a more central, accessible location than any other, yet it generates no revenue at all. It is a place that people are happy to visit, yet it produces no profit at all. That place is the information desk.

    Many real estate professionals provide excellent customer service to the public. They answer questions, they provide data and reports, and they act as tour guides and taxi drivers. But at the end of the day, they are unable to achieve success in the real estate business. It is as if they are operating information desks.

    A successful real estate agent is one who can balance customer service and sales. To some people, the objectives of customer service and sales may seem to be in polar opposition. But to succeed in the real estate industry, sales associates must blend the two concepts smoother than an ice cold frappuccino on a hot summer’s day.

    The real estate business is just that: “a business”. And in order to survive and prosper (and eat!), an agent must generate significant, and hopefully even substantial, income. Income is not produced in our industry by providing copious amounts of information without reservation, protections or strategy. Neither is it produced by functioning as an information provider. In another words, agents will answer questions about available properties, market conditions, price trends, mortgage rates and more, and they will show house after house, just hoping at some point that their prospective customer will pull the trigger and consummate a purchase.

    Often, they will provide all of these services without even requesting a commitment from their prospective customer. But as all too many real estate agents mercilessly and eventually discover, “hope” does not pay the bills.

    I am not advocating that real estate professionals omit the requisite component of customer service. I am advocating, however, that more agents take their business and themselves more seriously, more professionally. When working with a prospective customer, upon the provision of information and/or service at each step, the real estate agent should gradually suss out their customer’s seriousness, and should gently move the customer forward toward commitment.

    Early stages of commitment should include a customer’s willingness to provide their full name, alternative methods of communication, insight into their real estate needs, as well as communicating a clear sense of direction.

    Then, customers should be willing to view properties, provide feedback of their likes and dislikes of each one, and demonstrate either sufficient liquid funds or a mortgage preapproval in alignment with the type of properties they are pursuing.

    Later stages of commitment should include a written agreement to officially hire the agent (exclusive buyer’s brokerage agreement), a decisive willingness to make an offer on a suitable property when one is located, and the provision of earnest money funds.

    Many real estate agents excel at providing customer service, yet they fall woefully short when it comes to making sales. In order to function efficiently, successfully and profitably in our industry, an ability to provide customer service must be artfully woven with the fortitude to effectuate a successful transaction. A real estate agent who is unable to see this and unable to achieve this may very well find himself impoverished and seated behind the information desk for a long, long time.

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  • Brad looks forward into the 2012 Las Vegas real estate market

    Posted Under: Market Conditions in Las Vegas, Home Buying in Las Vegas, Agent2Agent in Las Vegas  |  January 2, 2012 2:07 PM  |  1,230 views  |  No comments

    Last year at this time, I produced a blog with my predictions for 2011. Before I gaze forward into 2012, let’s look back at how things played out in 2011.

    First of all, I predicted that there would be no major changes to the Las Vegas real estate market. And in fact, that seemed to be the case. In some pockets of the valley, prices dropped a tiny bit more, but we did continue to “bounce along the bottom”, as I put it.

    Second, I said that an improvement in the unemployment numbers would be the key to recovery, but there was no substantial gain in hiring, and consequently, no great recovery in the market.

    Third, I predicted that foreign investors would be the dominant force behind any strengthening of the market. I think this was very accurate. Without investors, specifically Chinese investors, the market would have fared far worse. Once again, roughly half of all residential transactions in the Las Vegas area were cash. Foreign investors usually cannot qualify for financing and therefore must pay cash. Also, banks kept up, and in some cases even strengthened, their qualification standards. Mortgage rates did not increase - yet; nonetheless, the requirements for obtaining a mortgage kept most potential buyers on the sidelines unless they have sufficient cash to complete a purchase without a mortgage.

    Fourth, I said that after a dark beginning to the year, foreclosures would go on the decrease as the year progressed. Again: this was the case.

    Fifth, I speculated that short sales would dominate the market, and that, too, was the case. Although the percentage of sales that were short sales did not get to the 50% that I estimated, it did increase and approach that number. Had banks cooperated more than they did, the number would have been substantially higher. In other words: it wasn’t for trying; it’s just that so many short sales ultimately failed.

    Sixth, I said that the number of real estate professionals would decrease. Later in this article, I will comment on that as we move forward into 2012. But paying Realtor dues for many has become burdensome. As proof of that, our non-MLS company, TR Alliance, which does not require Realtor dues, has continued to grow and blossom.

    So, all in all, my predictions for the Las Vegas real estate market, 2011, were highly accurate. Now what about 2012?

    2012 promises to look much like 2011, which looked much like 2010. With one possible exception, which I will get to in a minute, 2012 will crawl forward toward “recovery”. But unfortunately, there will be no magic moment, no silver bullet, no watershed event.

    Inventory of available residential properties will be tighter in 2012, as the results of Assembly Bill 284 will increasingly be felt. (In you haven’t read my blog on this new law, it requires lenders to tighten up their paperwork prior to being able to file a Notice of Default, the first major step in the foreclosure process). We are already seeing a diminished number of foreclosed properties come on the market as we enter the new year, consequently reducing overall available inventory. And if banks can’t file NOD’s, then they can’t foreclose. Also, a reduction in the number of foreclosures, which are largely responsible for dragging down home values, means that prices will shore up. In fact, I believe that prices will be higher at the end of the year than they are at the start. I will go out on a limb and say that yes, prices will increase a bit in 2012.

    I mentioned one possible exception: some pundits have expressed concern that once banks figure out the remedy to AB284, a glut of foreclosures will ensue. I do not think that will happen. I also do not think the bill will be repealed any time soon. I believe that AB284 will serve its intended purpose for the most part, and will curtail the glut of foreclosures entering the market. The oft-cited “wave” of foreclosures will ease this year, most assuredly.

    If we see a reduction in the number of foreclosures, we will see another increase in the number of short sales. Some experts have said the opposite: that if people know banks cannot foreclose on them, they are likely to stay as long as they can in their property, especially if they are not making any mortgage payments at all. They can live for free! Well, some homeowners will do that for sure. But my experience tells me that in the majority of cases, people want to relieve themselves of the burden that is an underwater property; they do not want to simply delay the suffering.

    Lenders, I hear, are already working on new programs for homeowners to induce them to cooperate with the short sale process. While this may be a Nevada-specific strategy, lenders know they have to do something. The whole foreclosure/short sale/loan modification debate really centers on lender attempting to minimize their losses. In other words, when property values fell, lenders took a hit. But that has already happened, and we cannot get the toothpaste back into the tube. So now, how can we move forward and minimize the loss that has already occurred? I think that lenders will see short sales as the least of the evils, and I think that lenders will cooperate more with the short sale process this year. Some of the new strategies that lenders are working on are variations of the ”cash for keys” program, in which lenders pay foreclosed homeowners to vacate their former homes promptly and cleanly. I hear that some lenders are planning to offer cash for short sale cooperation way beyond what has been offered in a HAMP/HAFA short sale.

    It is my opinion that there are other ways lenders could facilitate the short sale process beyond writing a check. They should streamline the paperwork; they should accept that a substantial drop in value IS a hardship and cease requiring any other evidence of hardship; they should allow real estate professionals the luxury of being able to complete the process quickly; and they should (if allowed under federal law) lessen the hit that short sellers’ credit scores take.

    I am not sure if we will see any real change in interest rates, but if we do, it will be up. I am inclined to believe that at the end of 2012, we will look back at this time and remember the opportunity that existed with the lowest interest rates in decades. I believe that interest rates should begin to creep upward soon.

    I think 2012 will continue to be terrible for commercial real estate, which has not yet hit bottom. Commercial vacancies will remain at unprecedented levels throughout the valley, with North Las Vegas most likely the hardest hit.

    What about the Las Vegas market as it pertains to the real estate professionals trying to work their way through these trying times?

    Every January, when annual dues come up for GLVAR members, there is some attrition, naturally. Dues are not cheap, especially for part-time agents. Although I firmly believe that if a person has a real estate license, they should have Realtor membership, it will be quite difficult for some agents to pay. Speculation has it that membership may drop below 9,000 during the month of January.

    Therefore, just as I said last year, there will be a slightly larger piece of the pie for those who are able to pay their dues and survive.

    TR Alliance offers license-hanging without GLVAR dues, and with no monthly fee, for those who wish to pursue that option. Then, they may transfer over to TR Realty at any time, with no fees, when they feel ready to do so.

    Another critical component of surviving as a real estate professional in this market is reevaluating the company with which a licensee is affiliated. Those offices that charge monthly fees, franchise fees, desk fees and the like should be shunned. Deals are not that easy to close these days, and sometimes, months can pass between transactions. Agents should not be paying fees to an office for nothing. Furthermore, commissions are smaller and more important than ever. The days of a Broker keeping a third or a half of the commission should be in the past. I have always believed in the 100%-commission method of running a real estate brokerage, and have always offered this at TR Realty. We are lean, efficient, tech-savvy, green, and able to pass these great savings and benefits along to our associates at every turn.

    Last year, I said there would be more short sales, fewer foreclosures, fewer Brokers and agents, increasing interest rates and lots of foreign investors. Those trends should all continue well into 2012 and beyond.

    If you enjoyed today's post, please subscribe to my blog: www.TheTRTeam.com/Bblogs.

  • Brad comments today on rental scams and frauds: a warning to the public.

    Posted Under: Market Conditions in Las Vegas, Agent2Agent in Las Vegas, Rental Basics in Las Vegas  |  September 19, 2011 2:10 PM  |  1,399 views  |  No comments

    Recently, I received a telephone call from someone (a potential fraud victim) regarding my posting on Craigslist for a house for rent in Henderson. The only problem with that is that I do not have an ad on Craigslist for a house for rent in Henderson.

    It seems as if someone (I am still investigating who) used my name to put an ad on the internet. He (or she) included my name as part of the email address to which prospective tenants should respond. The email address also included a number after my name, which either coincidentally or intentionally happens to be my age.

    The ad listed a house way below market rent, so it was sure to get a lot of responses. When the “landlord” was contacted, he wrote a VERY long email, explaining in incredible (and suspicious) detail why the property was for rent, along with countless other unnecessary specifics. He went on to say that he was recently transferred to Africa, so initial rent and security deposit payments would have to be sent via Western Union. (Sound suspicious yet?)

    He sent (by email) a lease agreement that is not one that real estate professionals use, which was pre-signed by him. He also sent photos of the property that he obtained off the internet.

    The person who brought this scam to my attention smartly checked tax records, and determined that the name of the owner listed with the county was someone very different. She then visited the house, only to find someone already living there. The current owner- occupant said that the house was for sale, not for rent at all, and of course, he had no idea that any of this was going on.

    It makes perfect sense that someone would go to these lengths to extort money from unsuspecting strangers using my good name. He surmised that if anyone suspected a scam, they would simply search my name on the internet (which is how the would-be victim found me), or perhaps visit the Nevada Real Estate Division, or Greater Las Vegas Association of Realtor web sites, and a simple search would reveal that I am, in fact, in excellent standing with all. The problem, of course, is that he is not me.

    I suppose an effective way to run a scam would be to prey upon the established well-known name of a reputable professional in the field in which you prefer to perpetrate a hoax, thereby alleviating or diminishing suspicious thoughts that a savvy consumer may have.


    If anyone is interested in the response letter from this scammer, just email me and I will happily send it to you.

    I have blogged on scams before, and now, here is another variation to add to the list.

    Whether dealing in real estate or any other business or service: watch out, use your head, and if it smells bad or seems too good to be true, it most likely is.

    If you enjoyed today's post, please subscribe to my blog: www.TheTRTeam.com/bblogs
  • Brad comments today on property management: announcing the launch of TR Realty Property Management Division.

    Posted Under: Market Conditions in Las Vegas, Agent2Agent in Las Vegas, Property Q&A in Las Vegas  |  September 8, 2011 1:06 PM  |  1,374 views  |  2 comments

    For all the years that I have been involved in one form of real estate or another, I have resisted the temptation to expand my company into property management. It is considered to be very time consuming, detail-oriented, and it requires tremendous effort for little apparent return. But the recent changes to the Las Vegas real estate market have finally brought me into a “must-do” field of thinking.

    Only a few years ago, cash purchases accounted for roughly 5 percent of Las Vegas home purchases. That number today is greater than 50%. One reason, of course, is the significant reduction in home prices. But even more responsible for the change is the number of investors entering the Las Vegas real estate market: specifically, the number of investors who do not live here. Recently ranked number one in the nation for real estate investment opportunities, Las Vegas has become, once again, an investment hot spot.

    Because so many out-of-state (and out-of-country) investors have been snatching up local properties in the Las Vegas, Henderson, Summerlin and North Las Vegas areas, property management services are in high demand. And if we wish to retain our clients for future real estate business, we need to service them properly for all their real estate needs, and that increasingly includes property management.

    TR Realty Property Management Division was recently born, after long-term planning and preparation. It was well-thought out, well-capitalized and highly organized. We have invested in the best software and tools, in order to provide the highest level of service to our property owners. Management personally attended property management school, successfully completed exams, and obtained proper licensing, rather than simply hiring a designated property manager like many other real estate firms. That means in TR Realty, there are already four fully licensed and insured certified real estate professionals with active property management permits, all of whom share the vision that ethics are paramount.

    Furthermore, we have expanded our offices to include a separate facility exclusively for property management. Virtually all of the time, a licensed property manager is on site. Hours vary for each individual, but Jose Montez, Allan Lovinger, Emily Tien or I are always happy to facilitate services. Yes, we are very serious about property management at TR Realty.

    TR Realty Property Management Division services include tenant screenings (credit, eviction, criminal and sexual offender), 7-day rental showings, full-service property oversight, tenant procurement, lease preparation and execution, security deposit trust account, rent collection, repairs and renovations, on-site property inspections, online tenant rent payment options, electronic landlord payments, environmentally-friendly services, fast landlord rent submission, and much, much more. Our property managers are multi-lingual, as well. And, referral fees are happily and expeditiously paid to licensed real estate professionals throughout the United States who send us their property management clients.

    Unlike many property management companies, we do not do just the bare minimum. We do the absolute maximum. We don’t just put a tenant into a property and hope for the best. We do our homework, exercise great diligence, reduce loss, and take care of each property as if it is our own.

    Different properties and different property owners have different needs. Therefore, allow our property managers to customize a strategy for your property: one that will enhance and protect your piece of real estate, minimize your headaches and maximize your investment. Please contact Jose Montez, Allan Lovinger, Emily Tien, or me, Bradford Roberts, to discuss your Las Vegas area property management needs.

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  • Brad updates the Las Vegas short sale scene. (part two of two)

    Posted Under: Market Conditions in Las Vegas, Home Selling in Las Vegas, Agent2Agent in Las Vegas  |  June 3, 2011 11:41 AM  |  1,414 views  |  No comments

    Sellers in short sale situations can be so deluded and emotional that they think they still have control. They do not. Usually, homeowners will try many other strategies before even commencing a short sale (loan modification, as one example). Short sales are commonly their last attempt at maintaining a modicum of dignity, sort of like a controlled stop of a dying automobile. But these irrational, irresponsible behaviors can have the opposite effect, and can expedite the march toward foreclosure, as I have seen in numerous sad situations.

    Some short sales have been progressing easier and faster than before. One positive development is the addition of Wells Fargo to the previously Bank of America-dominated Equator system. Many asset managers (or negotiators, as some lenders call them) have become proficient at short sales, and have assisted in streamlining the process. But recently, I have also experienced more investors and MI companies derailing short sales. Sometimes, even when a lender approves a short sale, it can fall apart when an MI company is involved. Since MI usually has to pay the lender when the loan goes into default, they are more likely to demand a cash payment by the financially-strapped seller, or a promissory note that can stretch out for years to come, or some combination of two.

    Another problem is investors. In some cases, lenders do not have the final word; the investors do. And they can quickly veto a lender-approved short sale, seemingly not the slightest bit concerned with an imminent foreclosure.

    A trend that I despise is one toward lenders, investors and MI companies refusing to consider offers when an auction date is approaching. It used to be that a decent offer on a property could, at least temporarily, stave off an auction while the offer was being reviewed, considered and processed by the lender. But lately, more lenders seem unwilling to delay the auction based on a last-minute offer. I wonder if we real estate professionals have only ourselves to blame for this, since so many times, fictitious offers were created solely for this purpose. That, of course, is unethical, but I know that it happened countless times when agents were desperate to stop the sale and felt that they had no alternative.

    We will continue to see the prevalence of short sales in the Las Vegas real estate market for some time to come. Most likely, that will be at least a few more years. Homeowners have come to resent their new neighbors who have bought comparable homes for 50 cents on the dollar, and they are increasingly opting for “strategic default”, meaning that they can make their mortgage payments but choose not to. And I think that we will continue to see a significant attrition rate for real estate professionals who lack the time, experience or dedication to master their short sale files. No short sale listing agent can expect to close all of their files successfully, but I think they should demand of themselves a success rate of not less than 80 percent. In reality, most agents would crave an 80 percent success rate.

    As Broker of TRR, I have been teaching the importance of protecting short sale buyers and sellers, as well as the real estate professionals involved in the transactions. I have heard from some attorneys in town that they have been fielding inquiries from former homeowners, who contracted with an agent to do a short sale on their property, only to wind up in foreclosure. This liability scares some agents, too. I teach that a short sale without “full satisfaction” for the homeowner is not a successful short sale at all. In other words, when the agent only obtains “lien release”, which is required in order to close a short sale, it is not enough. The agent must strive for full satisfaction every time. So many times, an approval letter is only the beginning of the negotiation process, especially if it does not include full satisfaction.

    Indubitably, short sales are here for the foreseeable future. As of this writing, approximately two-thirds of contingent listings in Las Vegas are short sales. Some days, I feel as though every single parcel in the Las Vegas area has to be resold at the new market value before the market will experience even the slightest uptick. And if often seems as if all of us (real estate professionals, banks, et al) are slowly learning together and from each other how to handle these complex files. But handle them we must, as the only way to get to the other side of the mountain that is the Las Vegas real estate market right now, is to painstakingly cut a path right through the center of it.

    If you enjoyed today's post, please subscribe to my blog: http://www.Toyoda-Roberts.com/Bblogs.
  • Brad updates the Las Vegas short sale scene. (part one of two)

    Posted Under: Market Conditions in Las Vegas, Home Selling in Las Vegas, Agent2Agent in Las Vegas  |  May 31, 2011 3:07 PM  |  1,306 views  |  No comments

    As 2010 yielded its reign to 2011, I blogged that little would change this year in the Las Vegas real estate market. So far, this has held true. Prices have continued to bump along the bottom, with little to notice one way or the other. The long-predicted wave of foreclosures has (still) yet to materialize (it will not). And, as I have written many times, short sales continue to dominate the market. Las Vegas has become, by many measures, the short sale capital of the United States. And believe me: this will not change any time soon.

    Due to the complexity of the short sale process, and the staggering amounts of time and stamina required to process one from the real estate professional’s standpoint, it seems as though many agents simply cannot see the process to fruition. A paycheck at the end of the rainbow is far from assured. More short sales are being completed by a small number of those who “can”, and an intolerably large number of attempted short sales are resulting in foreclosure by those who “cannot”.

    I began saying a couple of years ago in my training classes that agents who are unsuccessful with short sales will not be around in our industry for long. That seems to be the case. Since short sales have become more prominent and ubiquitous, more agents have attempted to handle them. No surprise there. But frankly, the results have been disappointing.

    The National Association of Realtors says that the success rate for short sale listings is around 18 percent. Not good, to say the least. After all: a distressed homeowner turns to us to get him out of a bad situation, and if we are unsuccessful at doing that, his short sale ends up in foreclosure, an unacceptable outcome. So why is this happening?

    One of the main reasons, as I have already stated, is the inability of agents to handle short sales. Even those files that are successful take months of wrangling and negotiating, and often require that we sell the same property more than once. Short sales are a minefield of obstacles and a maze of hurdles, often perched precariously on islands in rocky waters that cannot be navigated by mere mortal man.

    Another reason for the high failure rate is the fact that in many short sales, agents are battling not just lenders, but HOA boards, law firms, collection agencies, mortgage insurance companies (MI), appraisers, investors and other interested parties. Often, when homeowners are unable (or in more and more cases, unwilling) to pay their mortgages, they do not pay their HOA assessments, water/sewer/garbage bills, or property taxes, either, resulting in still more liens against the property that must be settled prior to short sale completion.

    BPO’s frequently kill short sale prospects, too, when inexperienced BPO agents are sent out into the field to ascertain current property values by lenders cheaping out on real appraisals. Then, lenders rely on those values as if they are etched in stone. Consequently, unrealistic BPO’s trigger higher lender counteroffers, followed by buyers dropping out of the process. Then, most of the time that was remaining for the agent to complete the short sale has been burned, and it can easily result in the property going to auction before the procurement of another buyer.

    Another problem with short sales is the lengthy approval process. Lenders often send files from department to department, with little if any communication between them. Files can go from one work group to another; from the short sale department to the HAFA department and back again; from the lender to the investor; from the lender to the MI company; and around and around and around. With all of this confusion and duplication of efforts, it’s no wonder that short sales take so long. And every day that passes increasingly puts the entire transaction at risk, as the buyer grows more and more impatient.

    But there is another reason why short sales fail. And that is a lack of cooperation on the part of the homeowners. It’s bad enough that we need to battle the banks and all the other situations that I previously mentioned, but in some cases, we also need to battle our own clients. This is a strange, curious thing that I have witnessed lately. I have seen sellers argue over listing and contract prices, which is nothing short of baffling since they cannot leave the closing table with any proceeds any way. I suspect it’s really because these homeowners don’t want to leave their homes at all, and have only turned to the short sale process as a way of delaying the inevitable. Maybe they feel that the more they cooperate, the faster the process will go which means the sooner they have to leave their homes. But their nutty reluctance usually sends them right into an auction, followed by a very public eviction.

    I have seen sellers refuse to provide the financial documentation that their agent needs in order to process the short sale submission. Still others act as impediments to showings, thereby cutting the process off at the knees before it even begins. Recently, I experienced a homeowner who already had been served a Notice of Default take a three-week vacation, refusing showings while out of town. As if there was any time to be squandered! Some sellers have been so caught up in the emotions of the diminished value of their homes and their own financial situations that they refuse to agree to price adjustments even when the market mandates so. I heard another seller say that he would not accept offers from agents who work for a particular real estate company (one of the largest in Las Vegas), because he had bad experiences with that company in the past.

    This is part one of a two-part blog. Part two will be posted soon. Please subscribe to be sure not to miss it.

    If you enjoyed today's post, please subscribe to my blog: http://www.Toyoda-Roberts.com/Bblogs.
  • Brad comments today on short sale negotiating companies.

    Posted Under: Home Buying in Las Vegas, Home Selling in Las Vegas, Agent2Agent in Las Vegas  |  April 3, 2011 2:16 PM  |  1,645 views  |  2 comments

    Just two or three years ago, when loan modifications entered the public vernacular, fly-by-night operators hung their shingles, wishing to hop on the proverbial bandwagon. Homeowners were sinking fast into financial turmoil, and these snake-oil companies promised a way out. The problems were twofold: first, most of them were unlicensed. And second, most of them had little if any experience and consequently, the majority of attempts at loan modifications failed.

    Recently, as short sales came to rule our landscape, with seemingly no end in sight, companies have been sprouting up all over the Las Vegas valley to take advantage of this latest craze. And I mean, literally, “take advantage”. The same two problems as mentioned above are ubiquitous. Law firms have even gotten into the fold, with TV spots, newspaper ads and billboards all touting their short sale expertise. Third party negotiating services have been spreading like wildfire, leeching onto the laziness and/or inability of real estate professionals too busy, too tired, too timid, and too inexperienced to handle their own negotiations.

    These companies have come up with interesting ways to structure themselves, both from a legal standpoint and a financial one. In Nevada, only attorneys, real estate licensees and mortgage brokers can legally negotiate short sales for others for profit. Yet many of these third-party operators forge ahead without any license, hoping to remain undetected. A few months ago, a representative came to my office to promote his company, and to drop off business cards and brochures. He said to me that his company does not technically “negotiate” short sales; they only “facilitate” short sales. Violation, violation, violation!

    A minority of these companies have bothered to expend the effort and expense to become licensed, and granted, that might make them legal in the eyes of Nevada lawmakers. However, some of the ways in which they structure their fees, while maybe legal under the letter of the law, make me very concerned, and in my opinion, break the spirit of the law. Some of them might even be in violation of federal law. And sometimes, though legal, there isn’t any concern for ethics. Let me give some examples.

    I recently had the chance to review some of the addenda that real estate agents are using when working with outside companies. In some cases, they say things like if the seller does not or cannot pay for the negotiating service, then the buyer must pay; or, if the short sale lender does not approve of the fees, then the buyer must pay. I saw one that mandated a $1,500 bonus to the negotiating company in the event that they obtained “full satisfaction” for the seller. Who should pay this bonus, and will it be on the HUD? I also saw an addendum that said if the buyer cancels the transaction for any reason, the short sale negotiation company can deduct their fees from the buyer’s earnest money deposit.

    As my regular readers know, I am vehemently opposed to a buyer or seller signing company-specific paperwork belonging to another real estate company. In other words: at TRR, we use GLVAR and NRED paperwork, and do not alter those documents in any way. We have a few of our own in-house documents, but only ask our clients sign them. We never ask the client of another real estate firm to sign our paperwork. And I strongly recommend to my agents that they do not allow our clients to sign other company’s paperwork either. They need to put their foot down and flat-out refuse. But I have seen agents, and even brokers, mandate this type of paperwork, and that has acted as an impediment to the transaction, and in my opinion, that constitutes a breach of their responsibility to their own client. Unless their client has given specific instructions to the contrary, no licensee can block a transaction or impede a transaction based on his company’s paperwork requirements. When a real estate company contracts with a preferred vendor to handle their short sale negotiations, and then requires clients of other real estate companies to sign that paperwork, I believe that we are dangerously to close to an ethical problem.

    Agents need to be incredibly diligent, and always very carefully read what they are asking their clients to sign. It is possible to unwittingly put their client on the hook for payment to a short sale negotiating company, sometimes outside of closing, even, in some cases, if the company fails their mission and the transaction falls apart.

    In some cases, these companies have instructed buyers and/or sellers to pay their fees outside of closing, which is a problem, as well. But one of the most clever things I have seen recently, involves what I consider to be a RESPA (Real Estate Settlement and Procedures Act) violation. And here’s how it works.

    In most cases, short sale lenders do not approve payments to short sale negotiating companies. I recently had a conversation with a senior asset manager at Bank of America who confirmed this. Outside companies know this, so they need to find a way around it. They also know that in most cases, short sale sellers are in financial trouble, so obtaining payment from them is difficult. So, they will work closely with the listing agent. Let’s say a buyer makes a clean offer for $150,000 on a property. The listing agent might counteroffer at $155,000, with a $5,000 credit going to the buyer (a credit the buyer didn’t even ask for, mind you). The listing agent will then create an addendum stating that the buyer will pay $5,000 (an amount equal to the credit) to a short sale negotiating company for its services. So, on the settlement statement, it appears that the buyer is the party paying for the service, not the seller. This scenario is more likely to fly under the radar of the short sale lender, they hope, since the payment is not coming directly from the seller.

    However, in many cases, the buyer’s lender will never approve this, especially if the buyer is obtaining FHA financing. Furthermore, how soon will it be until the banks catch on to this scheme, and put an end to it? It makes the appraisal process much more of a hurdle, since we are artificially inflating the purchase price. I am not an attorney, but to me, this appears to be mortgage fraud. It certainly smells bad. Isn’t this incredibly similar to what was going on a few years ago, when home prices were artificially inflated in order for cash-back to be split among unethical appraisers, mortgage brokers and others? Isn’t this mortgage fraud to the buyer’s lender?

    So, we have the seller crediting the buyer, then the buyer crediting the short sale negotiating company. I have even seen the payment requested outside of escrow, off the HUD, which is, to me, clearly a RESPA violation. It is my interpretation that in order to be RESPA-compliant, all fees and expenses need to be not only listed the HUD, but clearly and accurately identified.

    Frankly, whether this is technically legal or just ethically disgraceful, I have a real problem with it. I am calling for all real estate professionals right now to refuse to engage in these practices. Do not allow our industry to be further sullied by these companies!

    There should be no secret envelopes delivered to title companies “on behalf of the seller”. There should be no bonus system unjustly rewarding someone for doing their job in the first place. There should be no payments made outside of the HUD. There should be no maneuvering of payments in order to conceal the true recipient of funds. There should be no company-specific addenda that bind parties unfairly and without purpose.

    It is my opinion that negotiating short sales is part of a real estate agent’s job. Yes, it’s time-consuming. Yes, it’s difficult. Yes, it’s tedious. But I say: TOO BAD! This is today’s market, and this is what we do. Any agent who cannot handle short sales should reconsider their profession. Short sales are here to stay for the foreseeable future, as I have written many times before, and now constitute more than a third of all listings in the Las Vegas MLS.

    Agents who contract with these outside companies are jeopardizing their reputations, playing roulette with their ethics, and possibly, much worse. I seriously discourage the use of any third-party short sale negotiating company. While there might be a few of them that are legal and honest, in my experience, the vast majority are not. And even some of the legal ones have structured their fee system in a way that is unfair, unclear, and in some cases, might be at the least in violation of the spirit of RESPA and other laws.

    I am starting to smell new laws, new consumer protections and quite possibly, new paperwork from our governing bodies to specifically address these issues. I, for one, welcome as much oversight as we can get in this regard.

    Feedback on this blog topic from attorneys, mortgage brokers, title officers and other industry professionals is explicitly welcome and encouraged.

    If you enjoyed today's post, please subscribe to my blog: http://www.toyoda-roberts.com/Bblogs".

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