Charlottesville Short Sales and Listing Agents’ Responsibilities – Part 1

A question for Jim Duncan…regarding the possibility of a short sale, does the listing agent have any responsibility in determining if a listing could be REASONABLY be a short sale? Like asking the sellers about how much is owed on current liens, etc? If so, and it is determined that this may become a short sale, it should be noted in an MLS listing. If I were a buyer and saw potential short sale/foreclosure, I would probably move on to some other property given the amount of time I hear it takes to complete a short sale. Way too much interest rate risk the longer the process takes.

The short answer is, “yes” listing agents should be doing due diligence in order to try to determine whether a property could reasonably be in a short sale position. Additionally,

Some of the best advice for sellers: be honest. With your Realtor, bank & most importantly, yourselves.

The Charlottesville MLS now has a required field from which Realtors much choose one of the following when inputting a listing:

– Standard

– Lender Owned

– Short Sale (of 2323 active listings, 53 are noted as being short sales … this seems ridiculously low)

Short sales take longer – in everything, they take longer. Banks don’t know what they are doing. Neither does the market, thanks to the US Government’s constant intervention/meddling / interference … inability to let the market work:

Perhaps another solution is in order. A novel idea not yet tried would be to do what other industries do to rid themselves of unsold merchandise. They hold a sale. Let prices fall until the goods find a buyer.

The question in the first paragraph was posted on a conversation at the Charlottesville Bubble Blog, and it is very pertinent question, particularly as short sales are becoming more and more a part of the Charlottesville* real estate market.

I asked for some insight over on my posterous site (archived: 2021) – and received some useful feedback from friends around the state and country.

The Virginia Association of Realtors has a fairly comprehensive page dedicated to short sales (archived: 2015); we’re all learning as we go … that’s not a comforting thought, but it’s true.

But what about Sellers’ rights to confidentiality?

The Ethics Dialogue Group (archived: 2011) – a consortium of Virginia Realtor Associations – has put together a very informative site covering short sales in Virginia. Of particular note to today’s subject is the Confidentiality page (archived: 2011): (bolding mine)

A Short Sale transaction presents different confidentiality issues from a regular transaction. The most important one is whether the Seller discloses the fact that the transaction could be a Short Sale.

It’s important to note that in accordance with the REALTOR® Code of Ethics and Virginia law, a Seller pursuing a Short Sale is considered confidential financial information. The Listing Agent MUST have the Seller’s permission to disclose such information and the permission should be obtained in writing.

A Short Sales situation may present an appealing financial opportunity to the Buyer, but there are some concerns. Consider the following:

• Military or executive relocations buyers usually have a limited time to find a home and go through the negotiation process. A Short Sale may not be realistic for that type of buyer. Very few practitioners and even fewer Sellers are proficient enough in the process to have everything in order for a quick decision by the Lender. In the case where a Lender withdraws the approval, precious time is lost for both the Seller and the Buyer.
• Short Sale Buyers should be diligent in uncovering liens. Sellers who can not make the mortgage payment may not be paying other debt obligations.
• Remember that in most cases, contracts are ratified when there is a meeting of the minds. The “Third Party Approval” of a Lender is a contingency. It typically takes awhile for Lenders to approve such a sale. Buyer Agents would be wise to put language in the contract that ensures the Buyer’s contingencies (such as home inspections) do not begin until approval from the Lender to proceed at the current price. Otherwise they may be liable for settlement services, home inspector fees, etc…

* Charlottesville, Albemarle, Fluvanna, Greene, Nelson, Louisa