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 I maintain that this number is based on data that is now outdated.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

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