Q: I'm hearing a lot about "short sales." I'm thinking about trying to find a good residential real estate investment but I don't know enough about these sales. I also wonder about the implications for the real estate agent. Do they know when a listing is a short sale? Is their commission reduced?
A: Short sales are defined as "a transaction where title transfers but the sale price is insufficient to pay the total of all liens and costs of sale. The seller does not bring sufficient liquid assets to the closing to cure all deficiencies." In more than a few market areas short sales may represent more than 25 percent of the listing inventory.
The National Association of Realtors Board of Directors has a policy regarding the disclosure of short sale listings in a multiple listing service database. These MLS rules enable agents to alert one another to potential short sales and put the on notice about the sharing of any reduction in gross listing commission required by a lender. MLSs have the authority to decide whether or not their participants have to disclose reasonably-known short sales.
All MLSs must provide their members with the means to disclose that a given listing is a short sale. MLSs, at their discretion, may require that such disclosure be made. Why?
Taking the short sale deal from beginning to closing can be difficult. They are frequently frustrating and time-consuming. Some have little prospect of closing and it is not uncommon for a property to go to foreclosure while a short sale application is being processed.
As a result, many competent and experienced agents just don't want to become involved with the process of making an offer on a short sale. Others, while willing to take on the task, at least want to be given notice upfront. They want to be able to counsel their buyers. They need not only to be able to advise them of the process, but also of the fact that a sale price accepted by the seller might not ultimately be approved by the lender.
Not everyone agrees that short sale situations should be disclosed through the MLS. Some sellers may feel that the fact that they are "upside down" is a private matter that they would prefer to keep confidential. They might be fine with telling someone who has actually made an offer; but it might not be something that they want to be widely known. The NAR rule would seem to favor the informed interests of potential buyers over the possible privacy desires of unfortunate sellers.
If you do become involved in a short sale, it would be wise to seek the advice of a real estate attorney who is familiar with the advantages and disadvantages of making an offer on a short sale.
Attorney Sylvia Heldreth is a Certified Specialist in Real Estate Law. Her office is located at 1215 Miramar St. in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.