Realtors Should Not Let Short Sale Investors Negotiate With Lenders

by Bill Gassett on September 1, 2010 · 25 comments

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Realtors Should Not Let Short Sale Investors Negotiate With Lenders

Short sales in Massachusetts

The reason why Realtors handling short sales should not let a short sale investor take over negotiations with a lender may not be fairly obvious.

If you are a Realtor who works  short sales or are thinking about doing them here is where you really need to pay attention. Without a doubt we live in a very litigious society today. There are undoubtedly going to be lawsuits that come out of many of the short sale transactions that are taking place or should I say don’t take place.

When you sign a listing contract to represent a seller they are YOUR client. YOU are THEIR trusted adviser and advocate. You need to be thinking about doing everything possible that benefits THEM. To put it more bluntly a Realtor owes a seller undivided loyalty, reasonable care, disclosure, confidentiality, accountability and obedience to lawful instruction.

The same holds true when it is a short sale transaction. The rules of the game don’t change!

I have found through reading various Real Estate forums that investors don’t understand that we are held to different legal standards than they are.

What do you mean by that Bill? Simple…when a person needs to short sell their home and they hire me they can expect that I am going to do everything that I normally do for every other seller. My goal is to get my client the best terms and conditions.

Once I get a good offer from a buyer that has a strong probability of closing, an attorney, who is part of my team, takes over the negotiations with the lender. The attorney I use is very good at what he does. This is part of the reason why a seller would hire me to complete their short sale. Most Massachusetts home owners in need of short selling their property have done their research and selected me because of my track record with closing short sales.

When an investor approaches you about making an offer they will undoubtedly want to negotiate the deal for the seller. Well guess what the seller didn’t hire an investor to get them out of the financial mess they are in… they hired YOU!

If you go along with this arrangement and the transaction goes sour for any reason causing the seller to be foreclosed on guess where the fingers are going to be pointed. Do you have a mirror handy? This is akin to letting a buyer’s agent negotiate for the seller!

I can already hear the seller’s attorney in court:

The Realtor said this was a good idea and told you should let the investor take over the short
sale negotiations Mrs. Jones”. Is this correct? Yes sir it is.

“Didn’t you hire this Realtor and his team to help you with the short sale mam”? Yes sir I did.

“Did the Realtor advise you to work with this investor mam”? Yes sir they did.

Do you know this short sale investor Mr. Gassett?” No sir I do not.

“Mr. Gassett do you think the investor was working on behalf of the interests of your client”

Well Um Err they told me they were going to do everything in the best interests of Mrs. Jones.

NO THANKS! I certainly don’t want to find myself in court and neither should you. Do yourself a favor and don’t end up looking like the dude below.

Inexperienced short sale Realtor

If you are a consumer and thinking about doing a short sale and have NOT listed your home with a Real Estate agent I want to make something perfectly clear…There are lots of very good short sale investors that know what they are doing and can accomplish the same thing a qualified Realtor or attorney can in getting a short sale approved.

Like any other financial decision you make in life you should be doing your due diligence when deciding whether or not to work with an investor and their company. Checking out their track record and getting a list of references probably would be a very good idea.

If something sounds fishy or too good to be true it probably is. You want to be careful you do not get caught in short sale fraud. There have been cases recently where both investors and Realtors have been caught in shady deals that are both illegal and immoral.

An investor of course is going to be looking to buy your home as cheaply as possible as their goal will be to turn around and re-sell it for a profit. While getting the best price for an investor is going to be key for them moving forward, a reputable one should also be looking out for getting the best deal for YOU which includes negotiating the lowest deficiency possible.

In many short sales today the lender is going to ask you to pay back something. It will more than likely be pennies on the dollar but the chances of a seller walking away Scott free have grown slimmer.

If you hire a short sale investor to negotiate your deal the debt removal part of the transaction becomes essential. Short sale debt removal becomes critical because the last thing you want is a someone chasing you down years later for a deficiency.  A number of lenders are selling unpaid mortgages to collection agencies which in some states have years to come after you for a collection of this unpaid debt!

There are some differences in working with a short sale investor vs a short sale Realtor. A Realtor is going to be far more concerned about getting an offer that makes financial sense to a lender. In other words is the offer presented to the lender going to be accepted because it is close enough to market value. As previously mentioned, an investor is going to want to buy the home as cheaply as possible.

One of the biggest reasons why many short sales never reach the closing table is because the seller accepts an offer that is too far under market value and the lender rejects the contract denying the short sale.

Rejected short sale offer

Most short sale investors are not going to make their 1st offer to the lender the best one. They are going to be looking to negotiate for the best deal for themselves.

As a seller you need to be confident in the fact that an investor will raise their offer to a point that the lender will accept it.

Despite what all investors claim there is a greater chance when a profit margin is involved that a lender will not accept their offer. Do you think lenders like leaving money on the table?

Realtors should also be doing the same. If the seller accepts a low ball offer and submits it to the lender for approval and the buyer is not willing to come up you have wasted a lot of time and possible condemned the seller to a foreclosure.

Just because an investor tells you they will increase their offer if necessary does not mean they will come to an agreement with the lender. After all they are looking to make a profit which creates a gap between the market value and where they are trying to purchase the property at.

I guess you really need to ask yourself if you want a buyer negotiating for you?  My advice of course  would be to work a qualified Realtor or attorney when doing a Massachusetts short sale.

If you are needing to complete a  short sale of your home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holliston, Hopedale,  Medway, Mendon, Milford, Hopkinton, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, Worcester, or Douglas Get in touch! I would love to interview for the chance to represent your best interests.

I am successfully completing short sales through out the Metrowest Massachusetts area. So far over the last three years, knock on wood, I have a 100% success rate for short sale approval! I work hand in hand with a local short sale Real Estate attorney who knows how to get short sales done!

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About the author: The above Real Estate information on Realtors should not let short sale investors negotiate with lenders was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.

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{ 25 comments… read them below or add one }

Renee Burrows September 1, 2010 at 6:21 pm

Way to clarify the last article too! The investors are NOT looking out for the sellers. I can’t imagine them going over items with a fine toothed comb like “you may be dealing with a deficiency over this lowball offer in :insert your state laws here: years.

It is ILLEGAL now for unlicensed people or entities to negotiate short sales or loan modifications in Nevada. IE: ONLY attorneys, licensed mortgage or licensed broker/agents can negotiate.

This has helped bring down the number of phone calls to me from these “investors”.

Renee Burrows September 1, 2010 at 6:23 pm

I should also add that I had an instance where buyer’s agents wanted to assist me on short sale negotiations about this time last year. They were pressuring me and I asked my brokers and they said NO WAY NO HOW!

Jeffrey September 2, 2010 at 3:48 am

I am just now completing my first short sale here in the Madison, Ms. There was an investor that wanted to take over for me, but declined thankfully! I’m using a system called Equator, have you heard of that?

Jeffrey Dillon
Herrington Realty

Bill Gassett September 2, 2010 at 1:33 pm

Hi Jeff – Yes if you are an agent doing short sales you would have to know what Equator is:) Equator is used by Bank of America and GMAC for their short sale processing.

Bill Gassett September 2, 2010 at 1:41 pm

Renee – An investor is not going to care about about a seller and negotiating anything on their behalf unless they get the terms they desire as well. Big difference in that respect when comparing a short sale Realtor to a short sale investor.

Pam September 2, 2010 at 8:15 pm

Bill it the agents fiduciary responsibility to negotiate on sellers best interest including making the deficiency as small as possible. There are some lenders not willing to wave their right to sue for the deficiency. If the seller decides to continue forward the smallest deficiency is in the sellers best interest. Great article.

Renee Burrows September 3, 2010 at 4:30 am

Where are did all of your investor friends go? I am looking forward to their comments on this one!

Bill Gassett September 3, 2010 at 7:45 pm

Renee – I wish they would join us for the party but unfortunately they don’t have a leg to stand on. Short sale Realtors should not let short sale investors negotiate for the seller!

Sam September 7, 2010 at 12:16 am

Don’t have a leg to stand on hey Bill?

Despite what you all may believe there are actually people who care about their reputation and will look out for the seller even when they have no duty to do so like you do. You are bound by law that requires you to look out for the seller or you can be sued. It keeps you sales people honest……or at least that is the intention. Just read through the Federal indictments and you will see how well it works.

Bill Gassett September 7, 2010 at 12:29 pm

Sam I am quite sure there are investors like yourself that do care. In the same breath I am also just as sure that there are plenty that don’t unless they are getting what they want out of the deal.

Sam September 10, 2010 at 4:49 am

Renee – An investor is not going to care about a seller and negotiating anything on their behalf unless they get the terms they desire as well. Big difference in that respect when comparing a short sale Realtor to a short sale investor.

Bill, I am curious how many times you have given up your commission just to make a deal happen and save a seller from foreclosure????? Is it REALLY all that different? Besides, I have read short sale listing addenda from many states and all of them have the same basic disclaimers and recommendations for the seller to obtain legal counsel and or counsel from a CPA.

How exactly are you taking responsibility to “look out for the seller” with all this jazz?

Sam September 10, 2010 at 5:02 am

Realtors are in the business because they get a check at the end of a deal. It is no different than an investor other than the supposed “public servant” status so many unjustly claim.

Bill Gassett September 11, 2010 at 6:39 pm

Sam there is a huge difference because you have no desire to help a seller in anyway unless you get the terms you are looking for as an investor. That is surely not the case with a Realtor. I am in the business of selling a clients home whether it takes me a month or a year. To answer your question I have cut my commission many times over the years to make deals happen. At times that is just good business. This discussion has nothing to do with the article Sam.

The fact of the matter is a Realtor should never ever let an investor negotiate for a seller. Frankly, it is Asinine to let any buyer negotiate for the seller.

As I have already stated, you and every other investor does not like it when a Realtor publishes an article of truth like this because it cuts into your business.

Sam September 12, 2010 at 4:58 am

If someone has a better track record for negotiation it matters not who they represent. By principle you are saying that even if I as a realtor suck at negotiation and only have a 13% closing rate I should still not allow someone to step in (as long as the owner is FULLY on board) who has a 85% closing rate negotiate the deal just on principle?

Frankly I find it asinine that these realtors not only continue to take short sale listings but also will not work with someone who has success in short sales simply because of articles like yours. They all talk about everyone who is getting in trouble for “short sale fraud” but haven’t a clue what “short sale fraud” really is.

I am not talking about working with anyone who comes along. But I am saying there is defiantly a place for short sale investors even if you believe otherwise. You speak of “truth” like as if you wrote the bible on short payoff (speaking of a short sale from the bank’s perspective) and understand the economic perspective of an investor who holds the note on a property that is not worth what is invested.

Remember, this in not just about selling the property. It is about foreclosure law, foreclosure dynamics (including seller frustration), foreclosure economics, time value of money, the fact that the lender’s only enforceable recourse is foreclosure and the borrower can make their life a living hell for a while and take the risk numbers off the charts or even cause destruction to the property so the lender can never recover what they invested in the property.
But what sales person would take the time to study all that if they can just take some short sale classes?

Bill Gassett September 12, 2010 at 1:30 pm

Sam I never said that there are not Realtors that shouldn’t be representing consumers needing to short sale their home. In fact quite the opposite. Just as a Realtor should not let an investor take over the negotiations with the lender, the seller should do their research and hire the right Realtor who knows the complete short sale process.

There are so many people that just hire any ole Real Estate agent thinking there is no difference when needing to short sell. So my friend I agree with you on this point. So I will disagree with your 1st statement saying two wrongs do not make it right.

Whatha? January 9, 2011 at 1:07 pm

Nice discusion, I have to support Sam. Afterall, the NAR spends bookoo bucks on national ad campaigns to get consumers to “Trust” the Realtor. As if someone who flies the Realtor flag is somehow more quantifed on matters of real estate. I’m a licensed California Real Estate Broker/Investor with about a decade as a retail loan officer working with top national mortgage banking firms. Therefore, I possess relevent financial background, as well as the sales and marketing of real estate. I find myself as a short sale investor “uniquely” quantified and certainly much more qualifed then the “Realtor” who happens to fly the “designation of the day” in attempts to instill some sort of creditablity factor in the marketplace. As far as allowing me as an investor to negotiate directly with the lenders, the fact is the Seller is not entitled to recieve any proceeds from the sale as a condition of SS approval, and the current administration has made it much easier to deal with those two things that Realtors are sworn NOT to give; “Legal or Tax” advice. And, if you are receiving some sort of referral fee from this quote “100 %” Attorney, (questionable), as a Seller, I would be very concerned. Especially if this hotshot blows the deal. And, in som cases that I’ve seen, Attorney negotiator contracts disclose that they are NOT in fact working for the Seller. And do not guarantee anything. The fact that a Realtor is inferring a 100% success rate is just another example of the “puffery” that Realtors are known to engage in.

Bill Gassett January 9, 2011 at 7:38 pm

Joe do your really think I would publish something like a 100% success rate if it wasn’t true? If you are really a Realtor then you would know that what I am saying could be easily verified through MLS. I don’t claim to be a “hot shot” as you mention. I do know that there is a certain amount of luck involved especially with a short sale. I do however, know what I am doing.

The fact that the seller is not receiving any proceeds has nothing to do with a Realtor not allowing an investor to do the negotiations for the seller. The considerations for the seller include far more than the sale price.

A Realtor has a fiduciary responsibility to the seller. Letting a buyer negotiate for the seller does not fall under that definition. There is a big difference when an investor meets a seller before a Realtor does. Once a Realtor is hired by a seller to help them with a short sale there should be no reason what so ever that they would need to allow a buyer to take over the process.

Mark Brian January 28, 2011 at 8:11 pm

Another important consideration for a REALTOR is if the law in their state requires short sale negotiators to be licensed as my state does.

Bill Gassett January 28, 2011 at 8:37 pm

Absolutely Brian. I don’t think it is a bad idea at all. A short sale negotiator should be extremely educated on the subject and getting a license would certainly help in that regard!

Sam March 12, 2011 at 5:38 pm

Having a license means one thing, you were smart enough to pass the test. There is a reason that on average Realtors make $25,000 – $30,000 per year. Realtors are lazy and typically don’t do much for the client and are just looking for a paycheck. It’s easy listing a house and sitting back waiting for people to call and then running an open house which has been proven to only build your buyer’s list and not really helping the client. Our company, investors, have closed more short sales than any one realtor in Sourthern California. Our team has also closed more Short Sales in Columbus, OH than any realtor that we know. Instead of you guys bashing Investors you should try to work together. As the reports states realtors are having a hard time selling short sales and if you knew anythng about the market, we Investors are keeping it a float as we have for years. We give people loans when banks want and amongst other things. Do we make a profit, we sure do. Do you make a comission? You sure do. The fact is Realtors are upset because well they just don’t make as much money as investors.

Bill Gassett March 15, 2011 at 7:32 pm

Where should I send your plaque Sam? You obviously did not read the whole article. I have nothing against investors buying property as I agree they certainly help the Real Estate economy. There is however no reason that an investor NEEDS to take over the short sale from a Realtor who was already hired to do the same job.

Lets call a spade a spade – the only reason you want to have complete control is so you can put in a low ball offer to the lender and see if it sticks. A Realtor who knows what they are doing doesn’t need a middle man like yourself. There is no point in a home owner taking a chance of having the deal go sour because you need to make X amount of dollars. Selling to an end buyer is far more prudent on the sellers part.

honey erwin December 29, 2011 at 2:22 am

Hi Bill,

A few days back I conversed with you about a short sale that we wrote a contract on. There was already a contract in place, but when our offer was presented to the seller he did accept our offer. The real estate agent never turned our offer over to the bank that was holding the short sale mortgage so our cash offer never was submitted so therefore we lost the property and our contract was $20,000. over the sale price of the property. Is the real estate agent responsible for turning our contract over to the bank when the seller accepts it?

Bill Gassett December 29, 2011 at 2:15 pm

Honey – Do you have a signed contract that has the seller’s signature on it? If not how do you know it was accepted? A verbal acceptance is meaningless. To answer your question if the offer was fully executed the agent needed to submit it to the lender. This is after all the purpose of the seller trying to short sale the property.

Jennifer March 9, 2012 at 5:54 pm

I am trying to figure out when and how Realtors get involved in “negotiating” with lenders on behalf of sellers in the first place. We are paid to buy and sell houses…we do not get paid any additional compensation for wrangling with a bank for months on end, gathering financial documents from a seller, etc.etc.etc. I feel we have been duped by the banks to do their job. What should happen is a seller goes to their bank and lets them know they are underwater.The bank then does a BPO and approves a real estate sale within a price range. The seller gives the Realtor the approval letter and the Realtor secures a buyer in that price range and the sale moves forward. It is stupid we have been duped into doing the banks work for them and in fact we are not licensed, trained or certified to be “NEGOTIATORS” for a seller or a bank.

Bill Gassett March 10, 2012 at 8:28 pm

Jennifer the problem with what you are suggesting is that every Realtor that works short sales would be at the mercy of the Realtor that is sent to the property to do a broker price opinion. I can tell you from experience that would be a huge mistake! What I have found it most lenders now are relying on BPO’s instead of sending an actual appraiser. They send out some inexperienced agent for $30-$50 to evaluate the property instead of spending $400 on an appraiser. In the process of trying to save money the lender relies on information from an agent that has no business providing value. Do you know how frustrating it is when you wait months for an approval only to find out the back counters the buyer’s offer because of some foolish evaluation they have received? It happens far too often.

I do agree that Realtors should not be negotiating with lenders on the seller’s behalf. That should be left to a competent attorney. All of my short sale negotiations are handled by an attorney.

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