Investors Trump Agents on Short Sales

Should homeowners who need a short sale hire a real estate agent / Realtor® or an investor for their short sale?  After conducting a detailed search online, I was unable to find an article to give a straight answer to this fundamental question, so I decided to write one.  As a long time real estate investor as well as licensed real estate agent and member of the National Association of Realtors®, I have a unique, balanced and unbiased perspective on this subject.  Before we answer this question, let’s start with a brief history lesson.

Just a few short years ago, investors were among the only real estate professionals in the marketplace that homeowners could turn to for help with their no equity short sale situations.  I can so vividly remember asking real estate agents and Realtors® what they did with the potential no equity  listings that came across their desk.  The common response was, “nothing.”   In turn, those no equity leads would then be forwarded to me and other short sale investors across America and we would proceed to help the homeowner avoid foreclosure by purchasing their upside down house through negotiating a short sale with the lender.

Boy, have times have changed.  In just the past few years, short sales have become such common place that the National Association of Realtors® recently noted that “short sales and foreclosures represent the new ‘traditional’ real estate transaction.”  With nearly half of all residential real estate transactions in America either a short sale or a foreclosure, real estate agents have quickly adjusted their positioning.  Now, thousands of Realtors® trumpet themselves as short sale specialists.  But the question remains, are real estate agents the best option for handling homeowners who desperately need a short sale?

Since licensed real estate agents and Realtors® handle the vast majority of real estate needs, one would assume that they are the obvious choice for homeowners to handle their short sale.  Unfortunately for agents, investors are the far better choice for homeowners principally because agents have some massive disadvantages when it comes to short sales.  This is NOT to say that Realtors® are less capable or less knowledgeable or anything of the sort…certainly not.  It’s just that with short sales specifically, agents have their hands tied behind their backs and investors don’t.  Let me explain.

Only Offers Start the Short Sale Process

The short sale process with the lender does not begin until an offer is made on the property.  Homeowners and agents may feel as if they are making progress by sending the bank their financials, a hardship letter or any other hardship package document, but the fact of the matter is that the lender will not recognize the file as a short sale until an actual offer is sent to them for review.  For the homeowner who simply wants to get rid of their property prior to a foreclosure, what they need more than anything is an offer.  Agents do not provide offers, investors do.  Agents provide the service of trying to locate a buyer who can possibly make an offer by marketing the property on the MLS, on the web, in newspapers and in other publications.  Those services are terrific in most situations, but as you are about to see, they are almost always useless when it comes to a short sale.  Investors make offers and therefore provide the EXACT service a short sale homeowner needs.

The Phrase “Short Sale” on a Listing is the Kiss of Death

A story will best illustrate this extremely important point.  I have some close friends from my church small group who asked me to be their Realtor® and help them purchase their first home.  Like most buyers, they have a time limit within which to buy this home.  October 8th to be exact.  The first home they fell in love with was the home next door to their friend’s house.  It had all the characteristics of the perfect home.  They asked me to help them put an offer on it.  Just before starting the process of drawing up the offer, I noticed it was a short sale.  I called them back and said, “N-E-X-T.”  Puzzled, they asked, “why?”  I told them it was a short sale and that they had to be in a home by Oct. 8th and that short sales take several months to complete, sometimes longer.

Still not totally understanding, they took my word for it and moved on.  A less experienced agent may have pressed forward and made an offer on that short sale, only to end up 5 months later with a houseless, devastated buyer who was unable to take advantage of the $8000 tax credit and further, a damaged, if not ruined, friendship.  I’m sure many agents reading this either know of a story similar to this or have experienced it themselves.

You may be thinking, “But Phil, your America’s undisputed #1 short sale expert.  You’ve been a part of as many, if not more, short sales than anyone in this county.  Why would you recommend your clients not make an offer on a short sale listing?”  My answer to that is, short sales are not for most homebuyers.  Most buyers do not have the time, the flexibility or the patience to purchase a short sale.

If me, Phil Pustejovsky, would not embark on a short sale for my close church friends, can you imagine how most buyer’s agents out there feel about showing their clients to short sale listings?  You guessed it…they don’t show them!  Buyer’s agents in this country are not showing short sales to most of their buyers and for very good reason.  It’s irresponsible!  Buyers that need to purchase a home now should not have to wait 3 to 6 months or more before the closing.

They shouldn’t have to be incredibly stressed by the fact that they will have no idea when the closing is, how to alert their landlord when they are moving out, and every other detail in transitioning to a new home.  Smart and responsible buyers' agents avoid short sale listings at all costs for the majority of the buyers they represent.  In fact, in Las Vegas, there is an underground, unspoken rule amongst agents, that short sale listings are to be avoided.

That is why the phrase “short sale” on a listing is the kiss of death.  Nothing will scare a buyer’s agent more than “short sale” on the listing description.  So hiring a listing agent not only requires a buyer to bring forth an offer, they are also handicapped by the fact that buyers' agents are not showing short sale listings.

Hopefully it is now clear why an investor is the best choice for a homeowner who needs to do a short sale.  It’s not that agents are less qualified, it’s that they have two major disadvantages inherent in their role in the real estate industry which block them from being the best option:

# 1 – Listing Agents don’t make offers, investors do and short sales don’t start until an offer is made.

# 2 – Short Sale Listing Agents have a very hard time obtaining offers because buyer’s agents avoid bringing their clients to short sale listings.

For homeowners, I hope this helps you decipher between working with an agent versus using an investor.  Go with an investor…preferably someone I or my staff have personally trained.  For agents, I encourage you to learn the investor side of this business so you can help upside down homeowners.  For investors, if you aren't already making a fortune, it's time to get started…the world is your oyster!