How Can I Find Short Sales?
Question: How Can I Find Short Sales?
A reader asks: "How can I find short sales online from MLS listings? Some of the listings say it's a short sale but some do not yet they are definitely short sales. I know my agent can figure out which ones are short sales. Is this information not available to the public?"
When agents fight over money, systems are often immediately put in place to keep disputes from happening. Agents often fight with other agents over money. It's a common battle.
What Is a Short Sale?
Short sales tend to occur when property values drop or inflated appraisals were obtained to purchase, making the property worth less than the amount of its mortgage. This means when a seller enters into a purchase contract to sell for an amount that is less than the home's present mortgage balance, if the seller isn't bringing in money to close, the lender must approve the short sale. That's because the lender is taking a loss to allow a payoff for less than the amount owed.
A short sale can also occur if there is simply not enough money to pay all the costs of the sale and the mortgage. It is possible to sell a home for more than the mortgage and yet the sale will be short because there is not enough money from the proceeds to pay all of the costs the seller must bear to sell.
Generally, short sales are not bargains for a buyer. It doesn't always mean the buyer is purchasing the property under market, and it can take a long time to close, if it closes at all, among a host of other reasons. Not all lenders will approve every short sale, and many short sale prices that are advertised are not a real price.
They are educated guesses at what it takes to sell the home.
The more experience an agent possess for doing short sales, the more likely the price is reasonable and acceptable to a lender. Some agents just make up prices and then are disappointed when their short sale is denied.
Short Sale Commission Disputes
The problem arises when an agent takes a listing on a home that is not yet in default, meaning the seller is still making payments to the lender. During the listing agreement term, if a Notice of Default is filed, this could change the terms of the listing. It now becomes a short sale listing, subject to commission negotiation by the lender.
In the Sacramento MLS, our rules state that agent comments -- those that the public cannot see -- must contain verbiage that specifically spells out the sale is subject to lender approval and how a variance, if any, in the commission will be divided. This is because the listing could specify one amount and the lender could approve a different amount.
A few lenders discount the commission, paying less than a seller would pay. One listing agent did not include verbiage regarding a reduced commission. While in escrow, the buyer's agent insisted that his brokerage was entitled to the fee originally listed in MLS.
The listing agent ended up giving a big chunk of his commission to the buyer's agent.
Finding Short Sale Listings
Most short sales are listed by real estate agents. You will find these listings on local websites and in MLS feeds to various sites. Some lenders have complained about advertising that identifies the home as a short sale, because the lenders feel it puts them at a disadvantage when it comes to home pricing. They are right. A buyer generally offers less when it's advertised as a short sale.
If you have access to search terms, first look where the term short sale appears. It might be under "status modifier" or it might be contained in the marketing comments. Choose that field as your search term.
Read the listing carefully. You might be looking at a contingent short sale, which would mean the home is not for sale or that only a back-up offer will be considered.
If you see the word "contingent," that would be your clue. Also, be aware that certain popular websites might contain listings identified as a preforeclosure. These are not short sales and they are not for sale.
Agents generally slip in words that identify the listing as a short sale. Look for the following terms:
- Subject to bank approval.
- Notice of Default
- Give the bank time to respond.
- Preapproved by bank.
- Headed for auction
Above all, hire an agent who is well versed in handling short sales and can advise you of the procedures, including local customs in your area. If you have legal questions, please ask a lawyer for advice and guidance.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.