Saturday, January 21, 2012

3rd Party Short Sale negotiations, Part III

3rd Party Short Sale negotiations, Part III. Today, I wanted to discuss the reasons in favor of utilizing in- house 3rd party negotiators. The first reason for an in-house negotiator is that the agent already has established a relationship with the seller and there is a high level of trust. The seller will be comfortable discussing finances with the agent. The agent will also be diligent in pursuit of the approval since they are a professional and their compensation will dependent upon a successful outcome.
Agents also have the experience and depth of knowledge to complete a successful approval. Keeping the negotiations in-house also simplifies the process since there is not another person or firm engaged in the process. This simplifies the process and avoids the all-to-frequent occurrence of “too many chefs in the kitchen”. I have been involved in many short sales during the last six months in which too many people get involved and call the lender and title. Title in particular will be disturbed by too many calls and people involved in the process. The situation was analogous to the telephone game that we played as a child. As the message was whispered from pupil to pupil, the message is completely distorted. The more individuals involved in the short sale negotiation (even if they are from the same firm, broker, etc.), the higher the possibility that some information may be distorted.
All in all, I do not believe that there is a definite answer to which method is best. There are great 3rd party negotiators and there are no so great negotiators. This is also true of agent negotiators too. So, there is no definitive answer. Even though there is no definitive answer, the issue is a very important one. The success (or failure) of a short sale negotiation is the single biggest issue in obtaining approval. Such an important decision must be made with great care.

Padraic Deighan

Thursday, January 19, 2012

3rd party Negotiations in Short Sales, Part 2

Yesterday, I wrote about whether it is prudent to utilize a 3rd party negotiating firm or perform the services in-house. I presented two legal considerations for the utilization of a 3rd party negotiation firm. Today, I will discuss the practical reasons why it may be prudent to employ a 3td party negotiating firm.
According to NAR, the average short sale negotiation takes 27 hours to consummate. I maintain that this number is based on data that is now outdated. I believe that it takes at least 40 hours on average to complete a short sale. In any event, it takes a lot of time and effort to get a short sale approved (or denied). It is arguably not the best use of an agent’s time to negotiate the short sale. The time can be utilized in better business development or direct client services. The compensation is not commensurate with the amount of time spent (if there is additional compensation at all).
One of the other troublesome aspects of (listing) agents performing the short sale negotiations is that most buyers want the lowest approvable price. They are bidding on a short sale because they either truly love a particular home or they are shopping for the best price. It is in the agent’s financial best interest to obtain the highest approvable price because it will yield higher compensation for them and make the approval process easier for them. It is not difficult to get a short sale approved when the offer is close to fair market value.
A point can be made that the listing agent is in a difficult position with respect to their duty to their client. Their duty to the client in a short sale is to get the home approved and closed. The easiest way to ensure that this happens is to obtain the lowest approvable price because this will increase the likelihood of approval and close. It is a bit counter-intuitive that the best price may be the lowest price, but short sales are a different dynamic. This is especially true in the case of investor-buyers.
Tomorrow, I will present the considerations in favor of in-house negotiations.
Paddy Deighan

3rd Party Short Sale Negotiation or In-House??

3rd Party Short Sale Negotiation or In-House?? This has certainly become a contemptuous issue…so much so that it is almost political!! LOL I participated in a blog discussion about this last week and the opinions were strong on both sides. Soooo, I thought that we could have a discussion on here to view each other’s opinions. I will present the pros and cons and hopefully others will comment so that we can have a discussion.
I personally feel that neither the listing agent nor buyer agent should negotiate the short sale. There are two legal reasons and two practical reasons for this. I will discuss the legal issues today and the practical issues tomorrow.
The first legal reason is that despite what many have heard, lenders prefer negotiations from a 3rd party. Think about this logically. Would you rather see an offer and negotiations (as a lender) from someone which has a vested interest in the outcome negotiate the sale, or a neutral third party. I work for lenders and I can tell you that they prefer the third party negotiations. I work with investors and home owners on foreclosure defense and my experience is that many third party firms are really good at this and utilizing them strips all emotion and appearance of impropriety from the transaction. Virtually all of the fraud that we have read about comes from too many people with too much financial interest in a property – all working together in a fraudulent manner.
The second legal reason is that negotiating a short sale is outside the scope of your real estate license. Few attorneys or regulators will argue with this. One of the reasons is that when licensure was established in all states, short sales were unheard of and not even considered. The issue was not part of the established guidelines. Perhaps this will change, but for now, it is outside the scope of your license.
One of the problems with this is that your Errors and Omissions policies can void coverage!! Virtually all such policies contain provision that enable a carrier to deny coverage. There are catch-all phrases such as complying with all laws, rules and regulations and if the carrier can illustrate that you acted outside of your licensure, you will be personally liable for the claim defense and any loss associated with it. This is happening today!! I am in Orlando on a foreclosure defense hearing for a client and I saw an ad on television last night that stated what I have said is coming for years…”did you lose your home in a foreclosure auction?? Did you have a real estate professional negotiate your short sale?? You may have a claim for damages.”
Also, realize that your broker will not be pleased either as he or she will be a named defendant as well. The irony is that their liability insurance coverage may protect them but you may have no coverage as discussed above.

Paddy Deighan