Mike Kelly A…, Real Estate Pro in Santa Rosa, CA

"Short-Sale" or "REO" Listing Designation? Question to all Agents

Asked by Mike Kelly Allison Norman, Santa Rosa, CA Thu Sep 27, 2007

In our MLS we are seeing more and more "Short-Sales" (with all sorts of different clues, "Subject to lender approval", "Subject to Accountant's Approval", anything to get "around" calling a duck a duck!) plus the post Short-Sale afermath, "REO's" or Real Estate Owned bank proeprties. The problem we are seeing is some of the lenders are taking huge beatings in price. last one I heard was a sale of $649,000 a year ago and a short-sale agreed upon price of $479,000. Almost a $200,000 hit. What I'm asking is it time to designate a "REO" Listing and a "Short-Sale" listing in the MLS. The resources of the banks is killing the comps in some neighborhoods or is a comp a comp? Are other MLS systems doing this now? Your thoughts are trulia appreciated!

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Deborah Madey’s answer
Hi Michael,

Your question contains two parts: Are bank owned properties clearly identified? How do REO’s and short sales impact comparables?

Our MLS identifies bank owned as a category of ownership. Buyers may take note of this and buyer agents may point this out as it noted on the active listing for sale.

When pulling comps, how many Realtors and how many public members take note of these details when evaluating sold properties and formulating pricing opinions? A thorough Realtor will take the time, and be astute enough to differentiate a distressed sale. This is an important consideration for both buyers and seller when choosing their representatives. If one were to simply pull 3 bdr/2 bth 2 car garage solds from a database, we might find wider swings in the sold prices reported.

The definition of market value in the amount a buyer would pay a seller, if both were reasonably informed, neither were under duress or pressure, it was an arm’s length transaction, the property had been exposed to the market for a reasonable expanse and time period, and atypical financing did not influence the purchase/sale price.

Do short sales meet the definition of market value? There’s no doubt that the overall averages will be suppressed as a result. But what about individual sales transactions?

A strong negotiator for a seller, will be well prepared to discuss the comps and help a buyer (through their buyer agent) understand which comps are relevant for the property being discussed. A seller will benefit well from hiring an agent who is detailed and capable of using facts and documentation to support their negotiations. A strong buyer agent will be well prepared to discuss the averages and how the overall market performance impacts value of individual properties.

Not all pre-foreclosures or foreclosure sales are discounts. The allure of big savings draws pools of buyers who think they are harnessing a deal. In jest, I had a seller say he wanted to market his property as a “pre-foreclosure fire sale” and raise the price 30K. He said she thought he would sell faster and for more money. It was said in jest, but his observation of the market was that ‘perceived savings’ would draw buyers, even with a higher price than his current ask. (No, the seller did not really raise his price, or misrepresent his property. He was simply discussing buyer misconceptions.)

Now, more than ever, a buyer or seller can benefit from the strengths, skills and knowledge of their chosen agent. Distress sales impact sold prices and the right solds must be used as comps. Not all bank or foreclosure sales are distress sales, so those comps must be carefully chosen. Choose skilled agents who can choose comps wisely and justify why those chosen.

Deborah
4 votes Thank Flag Link Thu Sep 27, 2007
Deborah Madey, Real Estate Pro in Brick, NJ
MVP'08
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good question. REO is a powerhouse right now controlling about 60% and short-sales edging north 35%. You need to read REO BOOM by Aram Shah & Tim Shah. They break down the "multiple offer monster" strategies and valuations on BPO's and properties before and after they hit the MLS. It will really answer your question in depth.
Web Reference: http://amzn.com/193666156X
1 vote Thank Flag Link Tue Feb 14, 2012
We do not have any such designations in our MLS (Greater Tulsa) but I wish that we did! After reviewing what some of the other states offer, I am going to pass this on to our MLS for consideration. Generally the only way we know if property is foreclosure or short sale is by the language in the broker remarks. In some neighborhoods, the foreclosures have had a huge impact on the CMA's. I always try to run one CMA with the foreclosures included and onne without to review with my clients.
1 vote Thank Flag Link Thu Dec 13, 2007
In Tucson Az we have this in place currently. Our association has identified this as an entitiy or a new type of "duck". We can differentiate both REO and Shortsale listings in our MLS. It is important to track the profile of homes to determine the comps. You are absolutley correct on the the lower home values associated with shortsales and REO's the difficult part to determine is wether those properties were overpriced when they were first purchased and if what they are selling for today is indicative of their true value.
0 votes Thank Flag Link Thu Jun 24, 2010
Here in Tucson we do have a separate field for REO and for Short Sale. It has truly made a huge difference!!! Many of my buyers simply don't have the luxury of waiting for a short sale, and some clients do not want the additional risk of a distress sale. Others only want distressed properties. This way I can send my clients the best, most relevant information for their needs.

Sincerely,
Mary E. Diaz, Associate Broker
Long Realty
(520) 549-8769
mdiaz@longrealty.com
http://www.maryediaz.com
0 votes Thank Flag Link Tue Mar 30, 2010
Are the banks including as a part of their bulk sale transaction agreement An "all or none" clause and if so what does that really mean?
0 votes Thank Flag Link Wed Mar 10, 2010
Hi,

Great answers....I was goolging for this info and came across your post.
Check this post out of a blog I read daily:
http://timandjulieharris.com/2009/12/07/2010-is-the-year-of-…

Pretty amazing stuff happening with shortsales...

LR
0 votes Thank Flag Link Sat Dec 12, 2009
RMLS , Portland Oregon does this. We have a field titled "third party approval" we also have a field in which we disclose if we have already submitted an offer to the bank.
0 votes Thank Flag Link Thu Sep 3, 2009
Of course, we need this disclosure up-front as Realtors. Not only is it important for us to know what we are getting our clients into, there is also exposure we face. Many of these banks are now cutting commissions upon approval. Yes, there may still be a basis for a claim on the listing agent for the full, advertised commission but sometimes not.

Does your buyer broker always specify a fee that must be paid to you as broker? Does it specifically state that if the co-op is less than that fee, the buyer will pay you the difference. Maybe it should say that when working with short sales.
0 votes Thank Flag Link Sat Jul 26, 2008
Sorry, Michael. I saw the question has both Short Sale and REO, so when I read your comment about the status below, I thought you meant the status would apply to both, that's why I asked why would you want to do that. Now that I have reread the question above, I see that the status comment is an extension of the original question.

Since BAREIS MLS thinks the expense is too high for a new status, perhaps the way is to allow the agents to show it as Active, but mandatory a comment saying that that there are offers presented already. Although I am not sure who is going to police that, the same people who reported now I guess.

I have seen agent who priced the short sale property artificially low so it can get into contract, keep the status as active so they can try to get multiple offer to drive up the price. To me, this confuses the new buyers and can backfire. Like Jackie said, depresses the property value if the tactic does not work and can cause the property to sit on the market for a long time if the lender disagrees with the especially low priced offer.

Sylvia .
0 votes Thank Flag Link Wed Dec 19, 2007
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
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Sylvia, We proposed having a new "status" with our BAREIS MLS but they shot us down saying they didn't get enough approval votes to go forward with the expense of a new "Status". We thought of "CSS--Continue to Show ShortSale". This is ONLY with Short-Sales as REO's are the end result of most "Short-Sales"!!!
Jackie, I totally concur!! Problem is we have Realtors/Licensees slamming prices of "Short-Sale" properties so they'll generate offers. When they do that the damage all those around them who are not in such dire straights!
0 votes Thank Flag Link Wed Dec 19, 2007
Dealing with buyers and buyer's agents, my experience is that many don't want to mess with the short sales and foreclosures, but want the 'normal' property at the short sale and reo prices! I have the comp information and I know they do as well (buyer's agents), but they still want to lowball especially if these distressed properties have actually closed. They are selectively using the price, but not the fact that they are challenged!
0 votes Thank Flag Link Tue Dec 18, 2007
Michael and I are both on the BAREIS MLS (MLS for S.F. Northbay) and I tend to agree with both sides.

As a seller, we want to show the status when the offer(s) are being reviewed by the lender because we never know if the lender is going to reject the offer, then we are back on square one and at the same time, the house is not being shown for an extensive period of time because the status of 'contingent show' basically take the house off the 'active' status.

However, as a buyer who made the offer, we don't want the seller to continue accepting offers while we put in our good faith deposit, are being a good buyer, just sit and wait while others bring more offers in. We want the status to show as 'contingent show'

I wonder if there can be a compromise where BAREIS (or other MLS) can create a new status just for this situation. Since we now have new codes such as 'REO' 'Short Sale' on BAREIS as a required field, why can't we have a Contingent - Pending Lender Approval. This allows the agent to select their '24 hour watch' (BAREIS term) to include both Active and the new Contingent-Pending Lender Approval status and are fully aware that this house has an offer currently being reviewed by the lender.

For extraordinary times, we use extraordinary measure (or really not, just a new code). As fast as CAR came out with the short sale addendum and BAREIS came out with the short sale / REO check box, I think they can do this pretty easily. .

Question for Michael - I thought REO property is treated pretty much the same as regular sales except for this is a bank owned instead of individual owned. Am I wrong? If so, what's the difference?

Sylvia
0 votes Thank Flag Link Tue Dec 18, 2007
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
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Clarification: Our issues revolve around having to report the property "Active-Contingent" which takes it out of the "fully available" or "Active" MLS status to the one which gets very little activity from the agent community. We all know once you report a property as "Continue to Show" or "Contingent 3DRC (3 day release clause) that the listings quit getting shown. With a "Short-Sale" the offer is not truly excepted until the lender agrees to the "Short-Sale". Our Realtor Attorney advises us to get any and all offers to the lender so we can make the offers as attractive as possible TO the lender. But our MLS insists, subject to a $500.00 fine, we report these "non-accepted" offers as "Continue to shows". So my question revolves around the other MLS's in the nation and what they make you guys do. We've had some agents just collect offers WITHOUT THE SELLER'S SIGNATURE so they don't have to report it as a "Continue to Show"!! Do you see our dilemma?
0 votes Thank Flag Link Tue Dec 18, 2007
I think you raised some very important points here. I think the different MLS systems should add the "shortsale" or "preforeclosure" designation in the MLS. The question is: will appraisers not still use these distress sales as comps? I think they will still use them, and that is the biggest problem with the current mortgage meltdown. This is affecting every home in the neighborhoods with foreclosures.
0 votes Thank Flag Link Tue Dec 18, 2007
If there is one short sale or REO in the area, then appraisers won't count it. BUT, if there are numerous of each, then they are the comps.
0 votes Thank Flag Link Thu Dec 13, 2007
Great Feedback Trulians! We had a discussion at our Realtor Marketing breakfast on Tuesday and our biggest problem now is dealing with "Status" after you've gotten offers on Short-Sale properies. Our Realtor Association counsel advises us to get as many offers as possible on a Short-Sale and present them all to the lender. However, our MLS by-laws states once an offer has been recieved and signed by all parties we need to report is as "Continue-to-show" Status which means it is NO LONGER 'Active". And you know the average agent won't SHOW a "Continue-to-show" status.
Some agents just have the Buyer present and NOT have the offer signed by the Seller but submit it to the lender therefore getting around the "Continue-to-show" issues as they reason no offer has been "accepted"! However, agents get ticked off at this and call the MLS and complain and the MLS reports a violation!! And when you report it as a "Continue to show" the agent who presened think they have a deal!!
ARRRRRRRRRRRRRRRRRGH!!
0 votes Thank Flag Link Thu Dec 13, 2007
Michael, Great question and good feedback. In Louisiana we designate REO, and 3rd party. I agree that short sales will make an impact in figuring comps. My suggestion is to look at it both ways, with REO's and without, to determine how much impact they are having in an area you are doing comps on! If your board has an mls users committee, you might try getting them to address this in your market. Good Luck! Carrie
Web Reference: http://carriecrowell.com
0 votes Thank Flag Link Thu Sep 27, 2007
I am from Marin County, CA.

The Bay Area Multiple Listing Service recently added a few fields to the Sale Condition. We now can and are required to choose among HAP, In Foreclosure, NOD, Offer As Is, REO, Short Sale, VA Repo, Other and None.

Disclose, disclose, disclose. It is advised that agents use the same judgment handling short sale as we advise our clients. Unfortunately, it does have an effect on the price of the houses (comps), but with that information, you can at least try to explain away.

Also, as short sale, foreclosure and NOD requires special handling and can take forever to get final approval, the buyers who are into this need to be very well prepared mentally to do it. So, the more you disclose the better. For us, we can not represent investors in NOD situation.. Commission with the selling agent is also a big issue, they need to be informed.

Some buyers also think they are getting a great deal upon seeing short sale/reo (whether it's true or not), it might encourage them to take a special look at a property even though the journey could be longer.

So, yes, I would rather know this is the situation going in than not.

Sylvia
0 votes Thank Flag Link Thu Sep 27, 2007
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
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ARMLS (the MLS for the Greater Pheonix area) has 2 indicators for a bank owned property in our Miscellaneous settings. They are: "Lender/Corp Approval Required" and "Lender Owned Property".

The Miscellaneous category is not a category available in our quick search, and so we have to create a custom search to search for those indicators, but at least it's possible for the listing to be entered with this duly noted. I'm not sure how compliant that is. Like I'm sure your MLS is, our MLS has some pretty poor data quality.
Web Reference: http://www.teambelt.com
0 votes Thank Flag Link Thu Sep 27, 2007
Hi Michael. Yes, Metrolist has both, the short sale and REO designations, which makes it very easy to search for properties that were short sales and/or REOs. On the other hand, out Nevada County MLS, which was just recently updated, does not seem to have this designation yet. One of the main reasons for that may be because Nevada County has very few foreclosures as most people who bought up here in recent years did not buy with subprime loans as they came with equity from the sales of their homes in the San Francisco Bay area and Southern California.
Web Reference: http://www.go2kw.com
0 votes Thank Flag Link Thu Sep 27, 2007
Ute Ferdig -…, Real Estate Pro in New Castle, DE
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