Short Sale Question Misses the Point

avatarthumbnail.jpgShort sales tend to be the bane of the Phoenix real estate market. Many agents still refuse to document these listings correctly, only a small percentage of these short sales actually close and the entire process tends to lead to more questions than answers.

The Arizona Regional MLS has attempted to lend some clarity to the situation with a Q&A link off the main MLS site, but at least one of the questions misses the biggest problem that comes from dealing with short sales?

Isn’t the agent being unethical by listing the property for a price below what they or the lender will accept?

ARMLS gives an equivocating answer that says, in short, ethics issues aren’t really their problem. But that answer, and the question itself, missed the elephant in the room – THE BANKS WON’T TELL SELLERS AND LISTING AGENTS WHAT THEY’RE WILLING TO ACCEPT FOR THE HOME.

There are rare exceptions, but for the most part the only way of learning what a lender will accept for a home is to send them a contract and have them give you an answer. Until that happens, there’s no way of knowing. And that’s why the listing agent will tend to put any price at all on the listing to attract a contract.

As for the ethics side … here’s one man’s two cents.

The listing agreement still is a contract between the seller and the listing brokerage. And before the offer can be sent to the lender, the seller needs to agree to the contract. So as long as the price on the MLS is a price at which the seller will agree to sign the purchase contract, the listing agent ethically has done their job.

Lenders, even though they have to approve the write-down between what the home is worth and what they are owed, are not a party to the contract. Holding an agent ethically responsible for a third agent they can’t force to perform makes no sense whatsoever.

ARMLS could have explained this to some degree rather than washing their hands of the matter entirely. I understand why they didn’t, but still think they could have given a very brief explanation. Like the one above, for example.

[tags]Phoenix real estate, short sales[/tags]

About Jonathan

Jonathan Dalton is a 30-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at allphoenixrealestate.com.

  • JD, I wish that is was required for the agents to indicate the “possible short sale opportunity” on our MLS rather than have an optional field or to bury it in the agent notes. Then, I really wouldn’t care if they were offering the home for next to nothing.

  • It’s effective here to some degree, but would work much better if all the agents marked the short sales appropriately.

  • Jonathan, I understand the frustration with the list price. I have spoken with many others who share the frustration.

    The list price rule in the MLS (also the model NAR rule) simply states: 8.9 Listing Price Specified. The full gross listing price stated in the listing contract will be included in the information published in the MLS compilation of current listings unless the property is subject to auction.

    The owner and the agent can agree to any price on the listing agreement (or price change form) and subsequently the MLS listing regardless of what the bank may accept. The only recourse my department currently has to follow up on seemingly low list prices is to request the ER/EA or any subsequent form that reflects the price on the MLS. Most of time that document will be provided. If they do not provide documentation that shows that listed price we can make them change it. But then all they have to do is sign a change form to change it to that price. It becomes an unenforceable issue under the current rules. That is why it is passed off to the local associations and ethics complaints.

    If a buyer’s agent can show that the bank has rejected offers at a certain price, yet the listing still shows a lower price, is it misrepresentation of the property? It could make a compelling argument in front of the ethics board.

    From the MLS rules end of things the rule could potentially be added to to require the updating of list prices should offers be rejected at the list price level. But even that would have enforcement issues. I will however bring the subject up at the next Board of Director’s meeting.

  • Two issues as I see it, Paul. One is a list price where there’s no guidance from the lender. The second is the one that you mentioned, where the lender’s already rejected an offer at that price (or lower.)

    I can see the second as an ethics violation though it strikes me more as a question of intelligence. If the bank already has said no, what’s the point in trying to solicit additional offers at that price? I suppose they can change their mind, but still …

    On the first, though, I don’t see there being an ethics issue. And that’s where I had the issue with the response on the Q&A because it seems to assume there’s a violation of the COE. If seller and list agent agree, and they’re the only two parties, then I don’t see where there’s a violation.

    Here’s a fun option … take short sales out of the regular Residential listings and place them on their own tab. (Not unlike what’s been suggested by some for timeshares and other bastardized creations.) Enter that tab at your own risk.

  • I agree that if offers have been rejected at a certain price level that it does the client a disservice by continuing to market the property at that same level in the MLS.

    The Q & A was not intended to suggest that it is definitely an ethics issue. But it potentially could be one and since the MLS can’t effectively deal with the pricing issue due the reasons I stated in the earlier post, ethics was provided as an alternative. I will review the language and see if I can’t re-word the section.

    The short sale (or maybe also REO) tab would be a fun solution. I doubt it would gain much traction as timeshares, fractionals, auctions and new builds did not get a separate section. Additionally it would take major programming by FBS to separate them into their own class. But I can relay the message!