RISMEDIA, March 17, 2010—Distressed homes are still accounting for more than a third of all sales nationwide, providing evidence that real estate recovery is still fragile at best. While there is no magic bullet for understanding or navigating the short sale process, Realtors who excel at managing these transactions will find success in today’s market. In this month’s Power Broker Roundtable, industry leaders Terry Hankner, Helen Hanna Casey and Larry Hibler discuss how to take advantage of the distressed market.
Steve Brown, Special Liaison for Large Firm Relations, NAR
Terry Hankner, President Comey & Shepherd REALTORS®, Cincinnati, Ohio
Helen Hanna Casey, President, Howard Hanna Real Estate Services, Pittsburgh, Pennsylvania
Larry Hibler, Broker, RE/MAX Achievers, Phoenix, Arizona
Steve Brown: While sales dropped slightly in December of 2009, the overall rate of existing home sales at the close of the fourth quarter was 15% higher than it was in the year-ago period. The price median rose a bit to post the first year-over-year gain since 2007, as inventory continues to shrink. That is reason for optimism as we move into the spring sales season. But since distressed homes are still accounting for more than a third of all sales nationwide, it is safe to say that recovery is fragile at best—and that until the jobless rate improves, the success rate will be highest for those REALTORS® who excel at managing short sales.
But therein lies the rub. The truth is there is no magic bullet for understanding, much less navigating the muddy waters of the short sale process…although there is now some hope on the horizon thanks to the upcoming Home Affordable Foreclosure Alternatives Program (HAFA) developed by the Treasury Department. Designed to simplify and streamline the use of short sales, the expected benefits of HAFA include: allowing borrowers to receive pre-approved short sale terms before listing the property; requiring borrowers to be fully released from future liability for their first mortgage debt; and the use of standard processes, documents and deadlines in the short sale process. For more details, visit www.REALTOR.org/shortsales and remember that NAR also provides a dynamic Short Sales and Foreclosure Resource Certification (SFR) course to help educate members on this growing issue. More information can be found at www.realtorsfr.org.
Terry Hankner: Well, I don’t think there is any doubt that the problem begins with the lenders, who by and large have never clearly defined the issues or offered any reliable guidelines. What’s worse, their communication, in my opinion, has been lacking—excruciatingly slow and inconsistent.
Helen Hanna Casey: Yes, it’s been tough to even get a call back with any kind of timeliness, and that wears on everybody’s patience, agents, sellers and buyers. We try to get around that by relying on our most experienced agents—REO specialists who have long-time lender contacts and tend to have the best success rate.
Larry Hibler: The good news, at least in Arizona, is that we’re beginning to see some progress with that. Some lenders seem to be finally gearing up. We actually got one approval in seven days last month.
HHC: Amazing! How did that happen?
LH: Well, for one thing, we place a lot of importance on impressing the lender with the buyer’s strength and commitment. We submit only one contract at a time and the buyer has to put down non-refundable earnest money for a period of 60-90 days.
SB: What about seller issues?
HHC: We have high unemployment in Ohio, but I don’t think we had as much subprime lending or zero-down buying going on during the peak, so the problems may not be as dire here as in some areas. But all our agents are well trained in the financial alternatives so they can work with sellers who may be in trouble.
TH: The issues for us are disclosure, disclosure, disclosure, to be sure the sellers understand their options, whether short sale, foreclosure, loan modification or whatever. We use a program we call “Fresh Start,” which we present upfront as a for-profit entity designed to educate the seller, negotiate with the lender and handle any eventual sale of property. It took us two-and-a-half years to come up with the process, but we did do over 100 transactions last year, and our agents are not shy about referring business to this more experienced group.
LH: We’ve had good results using third party negotiators, who handle short sales for a flat fee. I’m comfortable with that from a liability point of view, and it takes responsibility off our agents.
HHC: It also takes the pressure off of having to deal with the banks ourselves. I don’t know whether some banks are just lagging in getting systems in place—like when there is a merger or acquisition—or whether they are deliberately stonewalling. Either way, it is exasperating.
SB: What needs to happen in order to see an improvement?
TH: Basically, the industry needs to do two things: the first is to reduce our risk in negotiating short sales, which is why disclosure is so important. The second is to hold lenders accountable for clarifying and articulating the ground rules. My worst nightmare is that, a year from now, some lender will come back after a seller and say, “we never really let you off the hook.”
HHC: I don’t think that’s going to happen unless there’s been fraud or collusion of some kind, but I do agree that disclosure is paramount, and that sellers would do well to seek legal counsel before they make a decision.
LH: I do think, though, that the banks are beginning to catch up with us and that the process shows signs of improving. I hope so, especially now that there is some stirring in the higher end of the market. Now we need to hope for continued improvement in the economy.