Seller taking an offer before it hits MLS
We are seeing a lot of agents pre selling their own own listings that are short sales before putting them on MLS. I know we have a fiduciary duty to the seller not to the bank but this act of not exposing the property to the market to try to get the best offer drives me crazy. It not only potentially hurts the seller but drives down the comps in the neighborhood. I know some of you will say "I only had 2 days to get an offer to hold of the foreclosure" and in this case it can make some sense but usually it's a listing agent either representing both sides or trying to sell it to a colleague in their office.
I recently put on a short sale and got 11 offers after waiting the week to expose it to try to get the best offer for the seller. It sold for $43k over asking. I could have recommended that the seller take the first all cash offer at asking price or double ended it over and over for a lot less money but I felt an obligation to the seller to try to get the best one. Not exposing it to the market would have not only hurt the seller but also affect the comps in the neighborhood. I also thinks it's our job to try and get the highest price for the bank.
I am curious if anyone can tell me why banks with short sales don't require agents to expose the property for a period of time like REO's do?
I think we should have a standard of care not only to our clients but to the neighborhood and to the bank in some regards.
What do you think?
Replies to This Discussion
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Permalink Reply by Mike Rosania on
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Sorry to get off topic but I cant understand how properties are priced at market value but receiving offers 40-50k over asking? I am sure if that is the case you probably dont see a whole lot of short sales or REO's anyway and probably have no clue as to how the process even works. To say agents are pretty must just being greedy because we occassionally get both sides of a transaction is almost insulting given the amount of time and effort that is put into each one of these deals. I'm sure I speak for most when I say my number 1 goal is to help my seller client avoid foreclosure and walk away with a deficiency waiver and maybe even a few bucks in their pockets and move on with their lives regardless of who is representing the buyer etc. What makes an agent a "GOOD" agent? I guess one that can unerderprice a property and beat his chest when he gets over asking?
Sorry just my 2 cents.
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Permalink Reply by Stephen Pringle on
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We have a lot of short sales and REO properties here and I have done tons of short sales so I know the process. The property was not under priced to begin with. We are seeing property values here starting to go up because of the low supply and high demand which I know is not like most of the country. It's not about beating my chest but rather doing the best I can for my seller.
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Permalink Reply by Jeff Payne on
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what? Not underpriced? Come on Stephen. If you got 11 offers and ended up 45K over the list price, it was underpriced. What would have happened if you priced it exactly at the 45K over list offer? Do you think you would have gotten 11 offers?
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I know the values here very well and have been selling here for 11 years. I think if I would have overpriced it as you suggested it would have sat on the market and we could have potentially had an issue with the appraisal and it would have sold for less. The comps didn't support that price but since it was an all cash offer it didn't matter. I also think if we would have accepted the first offer at asking price it would have appraised and sold at that price but then I just cheated the bank out of $43k and cheated the neighbors out of a better comp for them to sell or refi. Helping to keep prices low by pre-selling a listing ultimately affects everyone. I had 3 different sets of buyers on this property who wanted me to represent them and put in an early offer. Since I don't do dual agency I told them to contact other ethical agents in my area. I could have double dipped it and made more money but I felt an ethical obligation to my seller, neighbors and the bank.
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Man, this is an interesting discussion. I think people making absolute pronouncements like "there is NO issue" is defensive and unhelpful. There are all sorts of potential issues with agents double ending short sales, especially when they have the buyer in place before giving anyone else a chance. If you are pre-selling a short sale at a "market price" that you as the listing agent have set, and you know other buyers would want a chance to bring an offer if you put it on MLS and waited a week, then by definition your price is likely not the true market price. You are basically giving your buyer client a chance to get the home under market price, and your seller client lets you do it because he trusts you. That brings up all kinds of conflict of interest issues and that behavior could be artificially keeping prices depressed in markets where there are a lot of short sales, with a lot of willing buyers, and a lot of agents doing what we're talking about.
And speaking of market price. What determines the value of a home isn't the listing agent, one in-house buyer, or even an appraiser. It's what a buyer will pay in an open market, which you can't know unless you actually expose the property to that open market. Not to say there is never a situation that calls for a different approach, but you can't say you have the "best" offer unless you give other buyers a chance.
And I'm assuming this discussion pertains to situations where the seller will have no tax consequences or deficiency judgement. In those cases you really are doing your seller a disservice by not making sure you have the best offer.
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Permalink Reply by Smitty on
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George, short sales SELL under market price. So a home that has a market value of $350,000 can feasibly sell for 80% of FMV (of course it depends on who the investor is) But I've had sales where the lenders would NET exactly $280,000 in a situation like this. I think agents STILL think of short sales as traditional value and they AREN'T - in a distressed situation, you don't have the luxury of TIME and that is the biggest factor in pricing. If I have a seller that comes to me and has an auction 30 days from now, how do you think I'm going to list their property?? LOW LOW LOW...even a low offer can stop an auction. Short sale sellers don't have the luxury of time on their hands that a traditional sale counterpart does, so good agents do their research on market value and likely know what the lender will accept long before they list it.
There should be no issue with dual agency so long as everything is properly disclosed. How do you deal with "ethical" issues??? DISCLOSE DISCLOSE DISCLOSE. (again a totally different debate) - If I've had a discussion with my client and said, "I have a buyer that this house would be perfect for, but if we submit their offer, then your home goes contingent so no other buyers can put in offers, is that acceptable to you?" Where did the issue occur?
Again, this is not a traditional sale. The BEST offer is the one that gets to closing with a deficiency release and no tax ramifications in the shortest time possible.
You are making assumptions, that you know the best interests of the seller. Only the seller knows what is in their best interest.
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Permalink Reply by Joseph Alfe on
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according to seceral market surveys, the average short sale sell 27% less than the average undistressed listing.
It is what it is.
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And one of the reasons besides that they are more difficult, take more time and don't show as well is because there are agents out there who just want to make a quick buck and don't really try their best to get the best price/terms for the property which ultimately affects the final price. Not only should dual agency be illegal, especially in a short sale, but agents should try their best to get the best offer/terms for their seller. Typically the reason why your buyer in your pocket is interested in writing an offer on your own listing is because they know they are getting a deal, probably under market value, and that they don't have to compete with others for the house. This should not only be concerning for your seller but banks should really crack down on this practice. I would guess to say that banks are probably losing multi-millions of dollars because of this. I think in the long run this affects all of us and is a bad practice.
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Stephen, the banks are losing millions of dollars but it is not from short sales. Short sales in Florida save the bank money over REO listings. Banks foreclose, spend the money to foreclose and then price way under market to get fast offers, that is what is losing the money.
I would tend to disagree with your statement that a "pocket buyer" knows they are getting a good deal. The know that they are getting the house they want and know that I can get the short sale done for them. The bank does their due diligence and if the offer is some low offer or some "great deal" then the short sale will probably get denied or get counteroffered. It all depends on what the bank thinks it is worth.
In the end, my seller is happy and can move on with a deficiency or foreclosure hanging over their heads. That is why they hired me in the first place.
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My area is about 10% below market value but that gap is shrinking as our market decline slows up. I think it was 10% when the market was dropping that buyers made offers based on the market in 6 months. At any rate, they are selling for less than equity sales, what little there are.
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When we are talking about market price regarding a short sale I'm assuming we're talking about the market price for that home, not a similar home that isn't a short sale. Of course homes that are short sales sell for less than non distressed sales. The question is, are you getting less for the house than you would if you exposed it to the market? You can't know if you don't try, and in cases where there's a lot of demand for homes like the one you're selling, if you take an offer from your own buyer rather than giving other buyers a chance to make offers, you are very possibly selling the house for less than its market value.
Let's say you have this "perfect" client waiting in your pocket who is willing to buy the house for 300K, with 20% down. Obviously if the auction date is just days away that's one thing, but otherwise what does the seller have to lose by putting it on MLS for a week before accepting an offer? Will your buyer client not want the house a week later? And what if by exposing the listing you get a 300K offer from an all cash buyer, and one from another buyer for 330K?
I'm saying that a listing agent's determination of value isn't infallible. No matter how much everyone discloses, that isn't the only issue in single agent dual agency. There is a conflict of interest you can't deny, and you can't be an advocate for both sides in a transaction. You can try to act as a mediator, but that's not really fulfilling your fiduciary duty. I guess a lot of agents see it as everyone (buyer, seller, listing agent) vs. the bank, but that's kind of acting in bad faith.
Who knows, maybe short sales would sell for an average of 17% below the average non-distressed listing rather than the 27% that Joseph is quoting if agents actually exposed them to the open market instead of double ending them with buyers already in place.
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To be clear, I am not against dual agency, just on short sales. There is too much liability. Also, I do not encourage pocket listings or prelist buyers, but if I get one, and it's a legit offer, then there is no reason to continue the market time. There is a line that we tread that has to do with time vs delinquency and price. If the seller is in danger of foreclosure, the primary responsibility is not to wait for the highest price that MIGHT come, but to get a legit offer as quickly as possible.
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