The number one tip on successfully buying a short sale is to find good legal representation. Recently, I was asked why a potential homebuyer should use representation when purchasing a home. The homebuyer asked me what the benefit would be and why he shouldn’t merely approach the listing agent and ask for the listing agent to represent him and thus, give the listing agent incentive to work with the client’s offer over any others. While it might be true that the listing agent would have more of an incentive to push an offer that he is representing both the Seller and the Buyer, that’s where the advantages usually end. I think I can best answer the question by sharing 2 recent inquiries from Buyers, both of which, are in the middle of a transaction and both of which decided to use the listing agent as their agent.
Buyer number one contacted me and told me that he is one week away from closing escrow on a 4 unit rental property. The short sale has been approved and everything had been progressing relatively well. The Buyer stated his agent called him and told him that the Seller would not agree to move forward with short sale unless the Buyer gave the Seller $15,000 outside of escrow. He told me that the Agent was matter of fact about it and told him there was nothing that she could do. The Agent told him that the Seller felt that he was getting a really good deal and he wanted money out of it. He told me that the agent was pushing him to pay the money. I told him that, first of all, this type of transaction is illegal and that, at this point, the Seller had a legally binding contract. If the Seller did not perform, especially based on the reason above, the Seller could leave himself open to potential litigation. I said from a practical standpoint it was pretty audacious of the Agent to approach you with this at the eleventh hour. He told me that he did not feel that she was fighting for him the way that she should. He felt like the Seller and the Agent were working against him and trying to extort money from him knowing that he was getting a really good deal on the property and that he would be unwilling to walk away from such a good deal. To make things worse, the Seller’s son lived in one of the units and was not making any efforts to get his son to move from the property. The Agent told him not to worry about it, that the Buyer’s son would move after the property closed. He said he felt his agent was unwilling to rock the boat and did not have his best interest in mind. I told him that this is a good example of why having a good agent on your side is so important.
Buyer #2 contacted me and told me that he was in the middle of trying to buy a house that was in short sale. He told me that, like Buyer #1, he is using the listing agent as his agent. Buyer #2 told me that he has been waiting for 8 months so far. The listing agent had approval on the first lien but had not received the approval on the 2nd lien yet. He was concerned because the approval for the first lien was expiring on November 1st. The first lien was a Bank of America 1st lien and the Seller had been approved for $30,000 in relocation assistance. The approval allocated $8500 for the 2nd lien release. Buyer #2 was nervous because he was not getting much feedback from the Agent. In fact, Buyer #2 told me that the Agent was not very communicative and he felt lost. Buyer #2 wanted to know what was going to happen to the November 1, 2012 approval deadline; if the 2nd lien holder was going to take the $8500 that the first was allocating; how much more time would it take (it had been over 6 weeks since they had obtained approval on the first lien); and, finally, he wanted to know what was going to happen if the 2nd lien holder did not agree to the $8500. I asked him if he felt like he was being properly represented. He said absolutely not. He told me that he was not even convinced that the Agent knew what he was doing. I told him that these are typically issues that your Agent should be answering for you. I proceeded to tell him what my thoughts were and what should be occurring. The final thing I told him is that if the Agent tells him that the 2nd lien holder wants more money to release the lien and attempts to get him to pay for the difference, he should say no and stand his ground. I told him that the Seller was getting $30k from the 1st lien holder and the Seller could use a portion of that money to satisfy the 2nd lien. If the Seller refused, I told him that the Agent stood to receive over $50k in commissions if the file closed. Worse case scenario is that the Agent could contribute a portion of this commission to help satisfy the 2nd lien.
Both of these examples demonstrate how important it is to find a good buyers agent, or even better attorney to represent you. Representation goes far beyond just getting your offer accepted. Good buyers agents are there for you every step of the way. They are knowledgeable and experienced and are able to predict and trouble shoot problems. I am not saying that you should never use a listing agent as your agent. What I am saying is that you should make sure that the listing agent truly has your best interests in mind.
For a smoother ride and best options for success when buying a short sale, it is in your best interest to have a buyers agent and or legal representation.
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