Red flags in short-sale counteroffer

Home Sale Hindsight

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Aug. 20, 2010

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Home Sale Hindsight

Tara-Nicholle Nelson
Inman News

Q: I'm an independent investor unhappy with my agent. I made an offer on a short sale in April. In June, my agent (who rarely contacts me) said she was unable to get a response to my offer, and the property was scheduled for auction!

My loan officer (who coincidentally works for the bank involved) postponed the auction. Last week, my agent said the bank countered and asked if I would accept. Because the price was the same and only the closing date was different, I accepted the bank's counter.

Later, the agent said the bank wants the seller to contribute more money, and because the seller can't the deal may not go through. Also, the counter included a commission increase from 5 percent to 6 percent even though my agent appears to be the only Realtor involved.

What is really going on here? Am I wasting my time? --Mike, California

A: Mike, I'm not exactly sure what's going on there, but I am sure that you're right to be concerned. Until the last sentence of your question, I was inclined to think that you were just another (rightfully) disgruntled short-sale buyer, disillusioned by the molasses-slow pace and seeming nonsensical twists and turns these transactions often take, due to no fault of the agents involved.

Your April-to-August wait might sound bizarrely long to the uninitiated, but is actually right in line with the six-month-plus normal escrow period for short-sale approval at some of the larger banks, in particular.

The short-sale property coming within a few days, weeks or months of going to auction, even while your agent is trying to get an answer on the short-sale application from the bank, is also not bizarre.

Contrary to popular belief, homes in contract and even in escrow to be sold via short sale can be (and are) foreclosed upon. The bank has zero obligation to stop a foreclosure proceeding while a short sale is considered (although it sometimes will).

The bank is unresponsive to your offer? Not bizarre. A last-minute postponement of the foreclosure auction? Not bizarre. Even a last-minute counteroffer from the bank? Not bizarre at all.

However, if it is truly the case that the bank issued the initial counteroffer extending the closing date, it is a bit strange that it wouldn't have requested the additional seller contribution at that time. Once the bank has issued a short-sale approval letter, it is quite unusual for it to come back and seek to make such a significant change to the terms of the transaction then.

To be clear, it's not strange that it would request a seller contribution, just that it would wait until so late in the transaction to request it, mostly because it is such a deal-killer in the instance that the seller doesn't have the cash. Most often it's included in the initial counter or approval letter from the bank, so everyone involved can know how feasible the transaction is (or is not) at that point.

But even through all those facts, nothing quite set off the alarm bells for me until your last sentence -- and it set off several. You wrote: "Also, the counter included a commission increase from 5 percent to 6 percent even though my agent appears to be the only Realtor involved."

Here's why this gives me pause. First off, you should have known with 100 percent certainty from the very beginning of this transaction whether your agent is the only one involved or not. Every state requires extremely clear disclosure of dual-agency representation (when one agent is representing both buyer and seller) at the very beginning of the transaction.

Secondly, if it is the case that your agent is representing the seller, also, then he or she would have had much greater access to the facts and developments of the transaction than a buyer's agent who did not also represent the seller.

The listing agent in a short sale is the key point of contact with the bank. So, if the bank wasn't being responsive, or there were delays in getting materials to or from the bank, your agent was the only person in your transaction who would have been able to know or do anything about this.

Accordingly, the lack of communication to you was much less excusable than it might have been if your agent were a buyer's broker with no greater access to information about the seller's side of the transaction than you have, since, as the listing agent, too, she has all the information and cards in her hands.

Third, no bank will issue a counteroffer that increases an agent's commission. And, frankly, no short-sale agent who desires to actually close the transaction would request an increase at this phase of the deal, either. Banks pay 2.5 percent per side for short-sale commissions at their most generous; many short-sale agents I know say the standard is closer to 2 percent, or 4 percent total.

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