Realtor FAQs

AGENTS ASK:

When listing a short sale, is my client the seller or the bank?

The listing contract is between broker and seller.

Who signed your contract? Who asked you to sell their home?

Do I have a fiduciary duty to the bank when I list a short sale?

There are certain types of relationships that create a fiduciary relationship. Listing a short sale creates a fiduciary relationship between the seller and the broker. Though the short sale lender exerts almost total control over the outcome, the lender is not your client and therefore the broker does not have a fiduciary relationship with the lender.

In a real estate transaction many parties are involved such as pest inspectors, home inspectors, roof inspectors, appraisers, title companies, and lenders as well as the clients (buyers or sellers).
All parties are required to act fairly and honestly with one another but the fiduciary relationship goes beyond the basic duty of care. This extra duty which is called fiduciary duty is only owed to the clients and not all the third parties in the transaction.

In a short sale, the listing agent has a duty to find a willing and able buyer that can purchase on terms acceptable to the bank. In order to find out what is acceptable most lenders still require an offer to be submitted before they will disclose what is acceptable to them. Therefore an offer to purchase a short sale is contingent upon the lender’s approval.

No contract exists until the settlement agreement is handed down by the bank and ratified by buyer and seller.. Prior to short sale lender approval, the offer essentially acts as a letter of intent and binds no one. That is why deposits are usually not cashed, time periods do not begin to run and either party can withdraw without liability prior to ratifying the settlement agreement from the short sale lender.

So remember, when you list a short sale your first job is to get to the position of being able to obtain lender approval. This means completing your short sale package, hiring a skilled negotiator, listing the property and obtaining an offer. Once you have received a response to these items from the lender the real offer-counter offer process begins.

A contract, in order to be valid, requires a meeting of the minds. There can be no meeting of the minds without specific terms that are agreed to by both buyer and seller. Even though the lender is not a party to the transaction the terms will come from them and until then there is no enforceable contract.

As a listing agent, how many offers do I need to submit to the short sale lender?

The seller decides who to invite to the party but the bank decides who gets to come in.

We advise all of our sellers to pick one offer at a time and not sign any others until there is a failure/withdrawal of the first offer. The others may be kept on a list in order to notify the agents if the first offer fails but accepting multiple offers or sending multiple unsigned offers to the bank is rarely useful.

Again this question goes to the policy of the lender. Most do not ask for more than one at a time and to give them more than one at a time often causes the process to reset and start from the beginning. This is a lender policy that is in flux right now and the lenders that are in front of the curve are making it easier to send in terms of multiple offers so we expect this to change in the next several months as the lenders catch on and begin to become more efficient.

The seller has the absolute right to choose which offer, if any, to accept and send to the bank. Sellers are the owners of the property and do not lose the right to sell by being in arrears on one or more payments.
In a short sale the bank is not being paid in full so they have the power to refuse any offer but the seller is still the owner and decision maker as to what to send to the short sale lender for consideration.

What is a pre-approved short sale?

A pre-approved short sale is only a sale that has substantial work done on the short sale process at that point in time and in no way is a guarantee that any offer, on any terms, will be accepted by the lender once tendered.

This is a listed property that has some kind of acknowledgement from the short sale lender(s) of what terms will be acceptable. It is in no way “actually’ approved any more than a preapproved loan is ‘actually” approved. Lenders only give conditional commitments which give them the ability to back out at any time. In other words, the language being used is highly technical in nature and since the process is undergoing constant revision the meaning changes as the policies of lenders and government change.

What if a buyer client wants to make an offer that the agent has reason to believe will be rejected out of hand by the lender?

Don’t write it. It’s that simple.

If you bring in offers that have no chance of being taken seriously you are wasting everyone’s time including the client’s. When I have a client that wants to do something crazy I tell them “I would rather let you go than let you down.” Fiduciary duty means you must look out for the client’s interests which include advising them when a course of action is unwise.

How do you know if the offer has no chance of success if we don’t know what the bank will accept?

By carefully researching the property you will have a good idea of what it is worth.

Whether or not the lender accepts it is another story. If you decide the property is worth from 150k-165k and the client wants to offer 120k-140k there is a chance the bank will accept or counter. If the client wants to offer 50k and there is no data to support that value then there are only two chances of getting it accepted “Slim and None”.

The key to success in short sale negotiations is to use credible arguments to assert your position. Reasonable minds can differ but if you can support your argument with valid data and explain it calmly and clearly then you have a good chance of success.

As you do more and more short sales you will deal with the same lenders and the same negotiators time and again. Arguments without facts are just whining and they are not appreciated by the overworked and very busy people trying to handle short sale transactions. Making unsupportable demands will cost you credibility. Remember most short sale negotiations are oral in nature and the players expect to be treated fairly and respectfully. Don’t be the one that falls short on manners.

Is there any breach of fiduciary responsibility in accepting an offer 15-20% under market value?

The seller is the only party with the authority to accept an offer from a buyer. The seller has no fiduciary duty owed to himself. In fact the contrary is true. If the seller accepts the offer the agent is duty bound to tender it.

Once an offer is accepted by the seller and submitted to the short sale lender that is when the short sale lender will determine market value by approving the contract for a certain price. Market value is the sales price and the lender picks the sale price.

Remember that the proper process of using the INVESDOOR(™) Short Sale Program is to inform the sellers about the program and have them contact INVESDOOR. INVESDOOR Corp. offers a skilled negotiator, a cash buyer and a broker referal to the seller as a complete team. If seller agrees to use the team then they have already signed a negotiator’s agreement and accepted a cash offer before you are referred the deal. Following the process is additional insurance that you are meeting your required duty of care to your client.