The Liability of a Preferred Short Sale Agent.
I had a conversation with a friend and colleague today that I want to share with you. As always, all of my conversations are confidential so, the names and vital details will be changed in order to protect the identity of everyone involved....except myself, of course.
So, she calls me up to tell me that she has been speaking with executives from the top banks, GSE's and largest default real estate portfolios holders in the country and as a result of those conversations, she had some questions for me. Flattered of course, I obliged and let her know I would answer any questions she had to the best of my knowledge and experience.
She starts by telling me what she was doing and why she was talking with these executives and as I am following along, I begin to understand why she is calling and realize, flattery is far from her mind and she needs real answers. She begins telling me that out of these conversations she was having, she has gotten the impression that many banks, GSE's and holders of default real estate portfolios are not only have trepidations about developing a "preferred short sale agent" list, much like how they have a "preferred or REO agent" list....they have outright hostility to the idea.
In order to further my understanding and get a better sense of the fear they have, I asked some probing questions and fortunately, I got some good answers...of which, I want to share with you. In no specific order, here is what I go....
Question 1: Why wouldn't the bank want a preferred short sale agent they can recommend to their default occupants / homeowners?
Answer 1: Liability.....too much liability.
Well, as you can imagine this answer wasn't good enough for me so, I had to break it down a little. Now, our conversation was nearly 2 hours long and I didn't record it so, I am going to summarize here for you.
The banks issues of liability revolves around some key problems that they can't seem to correct, fix or better yet, feel that they want to even be involved in fixing, those are...
1. Lack of Quality Agent Training:
From what I took away, I was impressed that many banks (let's use the word "bank" to refer to all of them....banks, GSE's and Default Real estate Holders, alike) know our industry has developed good education however, they have a few problems and they are...
A. OUTDATED: Current education always seems to be outdated or not updated timely enough to positively impact the quality of the actual work completed by the agents.
B. NO RETENTION: Even though the education may be good on paper, the retention of the agent is poor and by the time they need to use what they learned...they lost it.
C. NO QUALITY ASSURANCE: You may have an agent who took the course, passed the exam but, has such poor operating processes and procedures that they fail to implement the best practices they were taught.
2. Severe Inexperience:
Now, for many of us who do short sales regularly, this was a bit of a surprise but, after I really thought about I came to accept that sure, a lot of agents out there just don't know how to do a short sale. What got me thinking was how this breaks down from a banks point of view.
A. INCREASED PROCESSINGTIME: Due to lack of experience errors like, documents that aren't fully executed or not doing a preliminary title report, it ends up creating increased processing times, waiting for corrections.
B. UNECESSARY ESCALATIONS: Because the agent hasn't completed enough short sales, they haven't worked through the common practices, procedures and processes of the bank or the short sale in general and end up getting frustrated and escalating which creates a back log for the bank.
C. LACK OF PROMPT AND OR ACCURATE COMMUNICATION: Agents who don't understand the jargon or worse, set unrealistic expectations due to simply not communicating or not knowing how to effectively communicate cause delays and end up resulting in lost deals.
3. Fraud - Nepotism:
Sometimes it's not what you know or how well you work but, who you know and what they can do for you. Sad but, its true and yes, the banks see this as a problem they want to conquer however, not as easy as you may think.
A. SAME DAY / SHORT SALE FLIPS: Regardless of how you come down on the same day short sale flip, the reality is the bank know this is happening and consider this a fraudulent act. I am not going to get into the details just why this is fraud however, its a problem for the banks and they are afraid that having a preferred agent list, they may open themselves up to this happening more often.
B. UNQUALIFIED AGENTS: Have you ever wondered how that agent got that REO when you now beyond a shadow of a doubt they never worked a REO in their life? Well, it's likely because they made a great connection through a friend or at a conference and BAM, fast tracked to becoming a REO agent. This wouldn't be allowed but, not exactly sure how to stop it or prevent it seems to be the issue.
4. Severe Incompetence:
You can be the most trained and you can even be experienced but, we have all met those agents who just simply don't get it, completely, utterly incompetent and we are left scratching our heads and asking ourselves, "Who did they pay off?"
A. BEST INTERSEST OF THE CLIENT: The banks have found that many agents just don't know what is truly in the best interest of the client or better yet, they don't know the law requirement or risk management strategy that will protect their client from any future liability.
All in all, my conversation was a good one however, it seemed to me to be a little late because for those of us who have been doing short sales for at least 4-5 years now, we have had these issues ourselves dealing with other Realtors or the banks themselves.
I don't really know what has spurred the action by many of these banks to finally look a little closer however, I am all for it. The reality is, this business is all about change and the moment you can't or don't change, you die. Truth is, I thrive in the changing environment because I have built my business around conservative fundamentals that have kept me nimble and flexible while others have retired early or simply gone bankrupt. Granted, I do believe competition is good and in a free market necessary but, I also believe a free market competitive environment gets rid of the wasteful, lazy, and propels the hungry and innovative to the top.....so, let's bring it.
Not sure what the result of my conversation will be but, I have a feeling you may end up seeing a survey from me shortly and if that is the case...please respond, let's us know your thoughts because, we may be able to effect some change.
Comments
Not just agents who aren't qualified or educated to do short sales. The folks working for the banks sometimes (usually) don't have a clue. I think sometimes the receptionist tries to act as an authority. Really! I will not work with B of A again as a Listing agent. Truly clueless. Agents, if you don't need to do Short Sales to make a living, put your time, money and effort into the Fair Market. Save your sanity. Just my 2 cents.
I agree with Steve.
Banks will not give out any leads to agents or recommend any agent. I did asked a Short Sale representive from BofA. They will not do this.
In 2007 I assisted a purchaser in one of the first shortsales in our area. From the beginning I found that the listing agent had made so many "missteps" that they wouldn't be around very long. The home was way under priced and they were using the low pricing to capture buyers. I happened to be very aware of the true appraisals for the community. My buyers offer was higher than the list price and we closed the transaction. Today that realtor still uses the same low listing pricing tactic. I cannot believe to this day they get away with this practice. Our job is to help protect property values. Lets do the job right. We're here to help the industry.
Hey Steve,
You bring up a very solid point and in my conversation this didn't come up because we weren't focusing on any one state as mush as we were focusing on industry as a whole. None the less, if and that is a big "IF" the banks decide to create a preferred short sale agent list, you are absolutely correct in the fact that this list would have to be considered on a State by State basis and even then, it's likely not going to fly because of the very point you make.
None the less, the banks are ready, willing and able to work with agent / Realtors who see short sales as a big part of their business. I myself started moving my business to short sales a little over 2 years ago....well, maybe actually 3 because I saw and had heard that REO's were dying and the golden age of REO was over.
Now, I am hearing more and more chatter, if you will, that REO is very much "over", in the sense it won't be like it ways just a year or two ago and short sales are coming however, these banks are truly struggling with how to get homeowners connected with Realtors who know what they are doing.
Yes, I am working on another blog, today in fact, about that.
One thing you didn't bring up here is the "Free Trade Act". Most homeowners (in my area at least) usually have already started working with an agent prior to beginning the short sale process. Listing agreements are already in place. And in GA., agents cannot negotiate a short sale with the seller's lender. The seller must used a licensed loan officer or an attorney, this became state law about 2 years ago I think. So now the seller also has an attorney involved before the short sale process starts.
Having a preferred list of agents would require breaking a listing agreement and most likely finding a new attorney. This will result in multiple law suits to the seller and their lender. This could also lead to the federal courts getting involved, something the "banks" want to avoid at all costs.
Just another reason "banks" will not or cannot use a "preferred agents list" for a short sale. REO's are a whole other story and since they "own" the property, they have the freedom to use who they want.
You speak of more change coming to the industry, I would like to hear your thoughts on where you see things changing. Maybe in another blog? I'm at a crossroads now and about to make some big changes, not sure which direction I'm going yet. With inventory dropping to record lows in my area, there is not a lot of options if there is no inventory.