Short Sale Practices and Professionalism
AAR was contacted about how a real estate agent had written a short sale contract for a buyer. The story was described as follows: a buyer and seller agreed to a purchase price on a short sale property of $150,000. Approval was received from the seller’s creditor for a sales price of $153,500. The buyer’s agent was asked to write a new contract or addendum showing the creditors approved purchase price of $153,500. The agent said he was not changing the sales price, instead he was writing an addendum, stating that the seller was contributing $500 towards the payoff and the buyer would contribute $3,000 toward the payoff at COE.
Representing the sale in this manner raised concerns that there could potentially be valuation fraud. Reviewing the issues:
- the agent was refusing to increase the sales price to $153,500 and there was no mention of an increased sales price in the addendum
- the addendum might not be known to the appraiser – a valuation issue
- the sales price would be recorded and reported as $150,000, not $153,500, for future comps
The buyer’s agent said the way he was handling the transaction was “common practice” in short sales.
When asked to review this scenario, Kelly Hand, with Tierra Antigua Realty in Tucson, responded: “Anytime a real estate agent uses deceptive practices, they could potentially be committing fraud. If the seller/listing agent disagrees with the creditor’s approval, they need to either continue negotiating with the creditor to convince them otherwise by offering a new CMA/BPO, or the seller should cancel per the AAR short sale addendum to the residential resale contract, lines 47-49, and find another buyer willing to pay the amount requested by the creditor. Just remember, this decision to cancel or not is the seller’s decision, not the listing agent’s.”
Another question to consider: If the agents asked the buyer to come in with a “buyer contribution” to pay off the seller’s lien, could this potentially eliminate the buyer’s ability to purchase the home? If the buyer was willing to “increase the purchase price” by contributing an additional $3,000 to the transaction, the $3,000 could have been financed into the purchase rather than the buyer contributing “cash” to the transaction. It may be worth an additional $500 [$3,500 total] to finance it into the purchase price, rather than having the buyer add more cash to the sale, or be cash strapped at COE.
- would a listing agent ask a seller having financial hardship to “find” another $500 to contribute to the sale, when, in today’s market, another buyer could be found to purchase the home for the “approved” sales price of $153,500?
- if the affidavit of value shows a sales price of $150,000 not $153,500, what effect does that have on the neighborhood comps?
Hand advises increasing the sales price to what the creditor wants, rather than creating a scheme to do otherwise. We are REALTORS®, held to a higher standards,” says Hand. If we are helping troubled homeowners sell their homes, we need to be our professional best when listing the home and when negotiating the short sale. If we do our job, we will not run into these [questionable] situations; it is when we try to take short cuts that we start to omit or trim our ethics and fiduciary duties.”Tags: professional standards, risk management, short sales