Once we had gone through that period, First American Loss Mitigation, working with Suntrust, moved quickly to order the BPO and approve the short sale. First American Loss Mitigation was great to work with.
From the bank's perspective, they likely know that a flat fee broker that only lists the property in the MLS but leaves everything else to the seller is going to get even less attention than listing it with a full service broker, since the broker is at least looking at earning a commission on the short sale price and quite possibly, finding the seller another home, be it rental or sale.
There are many reasons why a lender would prefer a full service broker to a flat fee broker.
There is a method to the madness. First a lender must â€œallowâ€ a property to sell for less than what is owed by qualifying the seller (hardship, etc.). Second, for a lender to â€œallowâ€ the property to be sold for less than what is owed, lenders want to see that the property has been listed on the MLS for a period of time and has been â€œmarketed in a similar fashion to non-short sale homesâ€. Again, this is prior to the lender telling the seller that they can short sell their property.
Once the seller is â€œallowedâ€ to sell the property for less that what is owed, it can be marketed at the â€œShort Saleâ€ price and a purchase agreement must negotiated and be submitted to the lender for â€œacceptanceâ€.
Now letâ€™s think about that for a moment: Lenders require the property to be listed on MLS and be â€œmarketed in a similar fashion to non-short sale homesâ€. Obviously, since the lender has not yet â€œallowedâ€ the marketing of the property as a â€œShort Saleâ€, the property must be priced accordingly to pay off the note and the commissions that the listing broker is charging (in the listing agreement). The seller is taking on the responsibility of paying the commissions before the lender â€œallowsâ€ short sale marketing. Therefore, prior to the lender â€œallowingâ€ the property to be marketed as a short sale and be properly priced for the market, the property MUST be placed on the MLS in an overpriced position in case there is a buyer out there that is willing to overpay for the property. Personally, I have not seen many of these buyers in this market!
Now think about it from a listing agent perspective; would an agent put as much effort and marketing expense into a listing that they know is overpriced and headed for â€œShort Saleâ€? Not usually.
So what is the point of utilizing the â€œbest agent in townâ€ if they are not going to give their best effort to sell your overpriced property?
It seems to be in the best interest (monetarily) of the seller to utilize a flat fee listing broker before the lender allows marketing as "Short Sale" since they are responsible for the payment of commissions.
Once the lender allows short sale marketing, it is in the best interest of the lender to set a list price (based upon BPO or appraisal) and require the seller to utilize a flat fee broker to keep as much of the sale proceeds as possible that will go towards the loan payoff.
Elena: I agree. It seems odd that a lender would require the use of a commissioned listing broker rather than a flat fee listing broker since the issue really does come down to how much the lender is going to lose on the original note. With flat fee brokering and hence the elimination or significant reduction of the listing broker commission, the lender will keep more money on the short sale and recover a higher percentage of their original investment.
Erich: â€œmarketed in a similar fashion to non-short sale homesâ€.
How did the lender evaluate â€œmarketed in a similar fashionâ€? Were they looking to see if the typical marketing activities were completed; print ads, open house dates, virtual tours, etc?
Do most brokers/agents with both short sale and non-short sale listings put the same amount of money into the marketing of each?
Keith: I understand your logic from the lenders prospective and respect your statistics. In my experience, most of the reasoning for the longer time on market and failing to sell is due to poor seller pricing and emotional errors in negotiating, not the actual marketing activities of the flat fee/limited service broker.
Looking at it from a lenderâ€™s prospective, in which emotion does not play a part in negotiations or pricing, a BPO or appraisal should guarantee a well priced listing. Eliminating the listing broker commission should more than cover the 2.7% average price deficit (if there is one â€“ which there should not be since the lender will be stating the acceptable price.).
and...Yes, extremely related to IggysHouse.com. I do agree and can attest that the portion of the listings held by flat fee/limited service brokers in your market is extremely small. The previous IggysHouse.com performed poorly in the manner of attracting sellers to utilize the listing service in the entire state of CA. Iggys House would have used MRMLS in your area.
I would be interested in havng a discussion about the rules the treasury has put forth for lenders in the HAFA document released 11/30/2009 if anyone is interested.
(any relation to Iggy's house?)
You may be unaware, the performance of limited service brokers, or MLS Entry Only brokers, statistically not as effective as full service brokers.
I track the actual performance and here are the results in my MLS:
Listings taken by MLS Entry Only or Limited Service Brokers represent a very small portion of total listings.
When they take a listing it fails to sell more than twice as often.
When it does sell it sells on average for 2.7% LESS than the average of full service brokers
When it does sell it takes longer to sell.
So lenders are aware and simply want to maximize the profit from the sale and are willing to pay the normal market closing costs to efficiently and profitably sell a property in a short sale.
Faith Home Loans