Hi Guys,

Our team has been working on some strategic planning and we were surprised to find a lot of the short sale listings in our area that demanded that the buyer would be responsible for a short sale negotiation fee , attorney fee for the seller's attorney, or some portion thereof.

We would be interested in hearing your thoughts on this model. 

Does it discourage offers?

Thanks in advance.

Chris

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@Karen,

In any short sale a lender can refuse to pay a closing credit.  It boils down to meeting the investor NET.  It can happen on a short sale with or without a negotiation fee.  The NET is what controls the approved short sale price.  My negotiation fees ARE disclosed on MLS in the description of the property. 

Fannie Mae coming back and countering has nothing to do with a buyer paid negotiation fee.  Just google this board.  You'll see every agent is having issues with Fannie Mae negotiations.

I get that if you haven't gone through with a sale with a buyer paid fee, that it's difficult to comprehend, but my average time on my sales from submission to approval is 52 days.  It WAS less, but we had some FHA doozies lately.

Buyer paid fees are fairly common in my area, and any agent not having yet encountered it, I'm happy to sit and have a discussion with.  I can show hundreds of redacted HUDS with approvals, MLS numbers, and my firm speaks at many of our Realtor boards between two states. 


It doesn't discourage any buyer, but may discourage and uninformed agent.

What area are you in?

@Smitty:  I agree 100%.  Uninformed agents are the biggest problem for themselves.  They are absolutely no problem for me.  I never have a shortage of buyers and I watch the numbers in the MLS for the sales that are charging an additional 1 - 2% fee to pay the negotiator.  Their market time is competetive and doing just fine as well.

I am a market expert and a salesperson.  I earn my 3% for those two talents and duties; anything more that is done in the transaction should be payable by an additional percentage or flat fee, whether that be to me or to another 3rd party.

Unfortunately, I simply have not found a consistent negotiator in the area to work with or I would be using one.  I would also make it known up front on an addendum that if the lienholder denies the negotiator fee, that there WILL be a counter-offer with the fee added to the Buyer's side of the HUD-1.

It's not about working the first Buyer, it's about working with the most ready, willing and able Buyer. Personally, that is the only one I focus on.

Hi Karen,

This is certainly the consensus from the emails I received in response to this question. 

I'll try to delve into this a bit more deeply later.  But I think we agreed that if there is a proven, no-cost (to consumers or to realtors), no-obligation solution for short sales, that would be the way to go instead of potentially discouraging looks & offers by demanding a fee from the buyer.

Best,

Chris

This is exactly what the difference between a short sale processor/facilitator and a negotiator is!  Just because you can't get deals done at or under FMV doesn't mean a more experienced negotiator can't. Too many agents and processors give up or go back to buyers and sellers and say, "well, the banks want's X price..."  I don't.  I negotiate, and I usually get what I want. Case in point is a recent deal that Real FMV was in mid 600K range, the offer was originally for 500K.  I got out of buyer that he was willing to pay up to 600K. I had him adjust offer to 475K (There were distressed comps in the low 500's) and the bank countered at their appraised price of 739K. Dead deal?  Most agents and processors would have maybe gotten a little better, or lost the sale altogether.  After intense negotiation and a detailed value dispute, we have an approval for 502K, full release to seller.  You think the buyer isn't ecstatic to pay my 3% fee at close?

BTW, the agents are getting their 6%. Their full 6%.

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I do not see where some agents think buyers are getting a deal buying a short sale. If you take a good look at home  equity sale, short sale there is not much differance.   I belief that the seller is being forgive a heffy portion of the money they contracted to purchase a home and also most of the sellesr have not been paying rent,tax and insurance and other fee, so after everything is said and done the seller is getting the BIGGEST Benefit so the seller should at least pay for his mistake and pay the negotiator if his real estate agent  wants to hire a 3rd party. Just my believe No flaming needed  

Hi Obed.  I do think shortsales are of exellent value!  They allow my buyer to purchase a home that will have all utilities connected and working.  This gives us the best disclosure situation during the inspection phase.  The Washington state MLS P & S contract has prewritten language that states that the property must be kept in the same condition as when the buyer saw it and thus was compelled to write an offer for purchase of it.

My perception of FMV for shortsales in my marketplace is that we now have a healthier and more diverse assortment of properties to choose from.  Buyers have a good selection of new construction, resale, shortsales and bank owned properties to view and select from when they purchase.  Given that three of those options allow for the buyer to have much better control over their overall purchase; shortsales are NOT valued as highly as a normal resale, which would be the closest true comparable. 

I always educate buyers or the agent on the other side to be sure to cover what may happen in terms of interest rate or extension fees, points charged, etc. for a shortsale transaction that takes longer than expected.  This is an important piece to most buyers that are financing. In new construction there are special financing deals available to the buyers through the site lender that take away that risk.

I price my shortsale properties with all of these (and other) factors in mind.  I believe if the buyer can spend some time, she will have a property that has been well taken care of by the current homeowner and she will receive turn key equity as compensation for her patience and diligence.

I'm curious to see how Bryant and Smitty handle this.  In Phoenix, I see a LOT of the following:  Buyer to pay third party negotiation fees through seller concession (and they are often times the entire 3%), buyer to pay non-refundable earnest for 90 days, and inspections are to be completed at time of contract.  The asking price is at or above market value, so no room to put the fees back into the offer and many buyers need the concessions for their own costs.   What do you guys to differently that makes this acceptable for the buyer?  

Hi Marti. If you have a buyer that needs 3% in closing then they probably would not be "qualified" to purchase the short sale with those restrictions. As a listing broker our job is to get the best deal for the seller. Not all buyers will fit the deal.

Personally, I only negotiate for others when we "share" the listing and split the listing side 50/50. There are no additional fees to anybody. The other agent lists the property and I handle the short sale. I communicate directly with the sellers for the short sale.

I do however require buyers to commit to a deal for 90 days and that the inspection is done within 7 days of contract. I'm in Florida and we have an abundance of buyers so we can be picky. Your market may be different.

Thanks Bryant:  Yes, markets are very different.  I think that's something Realtors on this site need to keep in mind as they are asking for assistance/advice.  Homes with attorney negotiators in Phoenix, on average, take longer to sell.  I agree with you 1000%.  Clients first.  So if you are a listing agent for short sales, keep the client in mind.  If it is a prime FHA buyer area, be careful about treating like a cash buyer area.  You may not be doing the right thing for the seller by implementing your basic strategies.  I have softened on the non-refundable earnest, depending on the listing agent.  If they have a good reputation for getting deals done, I don't have as much of an issue with it.  But the inspection at time of contract is just not something I can ever advise my buyers to do.  There's just too much risk for them and I don't see the purpose.  Would love to hear back from you about the inspection at time of contract.  How would a buyer's agent be able to make that a benefit for their buyer?  And how does the seller protect themselves if something goes wrong between inspection and COE, which can be many months?  Don't you think that puts the seller at risk?  If my buyer did an inspection right away, and then something went wrong, I would use that inspection against the seller to say that they must have known something was about to go wrong and they didn't disclose.  Just a thought.

You can do the inspection up-front as long as you don't give away your right to cancel if the property is not in the same condition as you bought it when you get to the final walkthru.  Most buyers don't want to pay for inspection when they don't know if their offer will even be accepted.  Things change so quickly.  A couple of months ago, any house on the market was getting offers.  Now, only the best deals are getting offers.  With Fannie and Freddie now inflating their purchase prices above market value, it becomes even less desirable for a buyer to put money on the line with the greater chance of not being able to complete the sale.  Financed buyers still have to have the property appraise.  Cash buyers are not likely to overpay. Good agents know how much properties are worth and should never advise their clients to overpay.  This sets them up for significant problems later.

Bryant and Smitty are, as usual, right.  I also do not buy the excuse "All my buyers are FHA"  You know what, market to someone different, they are out there. I have agents constantly tell me "Your buyer paid fee will never work in ____market."  You know what, it certainly does.  Yeah, once or twice a year I have a buyer refuse to put an offer in because of the agreement, but that's OK because the agreement weeds out tire kickers and others non committed.  If they refuse to agree, they will find another way not to close later.  Bottom line, I make it worthwhile to the buyer to agree.  I start by lowering the offer.  The thought of a discount cures most ills on the buyer side. For example, I just closed one where the buyers offer was originally 500K, but was willing, after I smoked it out, to pay a max dollar of 540K, which was FMV.  After reviewing comps (and who second lien was) I told him to lower the offer to 475K. They were shocked, and agreed to go along.  Long story short, after a BPO and counter by lender of 730K and a subsequent value dispute, I countered and received a full release approval for 502K.  Even after paying me and a small cash contribution to the second, the buyer closed at a number well below their max and the seller was able toget a full deficiency release on first and second.

Now, tell me this strategy doesn't work.

www.ssprocessors.com

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