What is a Short Sale?
Short sales occur when property values drop or inflated appraisals were obtained, 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.
Generally, short sales are not bargains for a buyer. It doesn't 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 a short sale, and many short sale prices that are advertised are not real prices. They are guesses at what it takes to sell the home.
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 the commission will be divided 50/50 between the agents.
Most lenders discount the commission, paying less than a seller would pay. One listing agent did not include this verbiage. 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 web sites and in MLS feeds. 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. Agents 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
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.