Why Do Realtors List Short Sales Instead Of Buying Them?

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  • March 30, 2010

short sale realtorsAre you one of the many new breed of Short Sale Realtors? Can you tell me why you are a Short Sale Realtor? It’s an honest question. One that should not require a whole heck of a lot of thought. So please tell me why?

This isn’t being posed as rhetoric. I really want to know why? You see when we speak to audiences around the Country. Audiences made up of agents and investor alike, the same question keeps popping up over and over.

That question being, “How can we make more money in real estate?”.

The answer, while quite obvious, always leaves me shaking my head. I get everything from wanting to be my own boss, to helping people, to meeting great people. Seldom in the top 3 answers is the statement that they want to make more money.

Buy lately, as we speak to more and more Realtors, a growing and surprising trend is emerging. They want to know how to make more money. I know why they feel this way. After sitting at a couple of closings and watching us and other investors take down checks for 5 figures on just about any deal, they look at their paltry commission checks and wonder why they can’t do the same.

It’s often made me wonder as well. I slum sometimes and visit some of the real estate social networks and I hear agents whining about how this buyer walked away and how this bank is such a pain in the tuckus and how they aren’t making any money and it makes me shake my head. I’m not insane, but I keep asking myself the same thing over and over. If you’re not making the money that you want to make, if the industry has changed too much, if the liquidation business isn’t for you…then why stay in it?

I don’t think that I’m alone in thinking that we’re all here for a short while so we should make the most of life. So why are you complaining about being an agent instead of grabbing life by the horn and controlling your own destiny…and paycheck?

I read a post today on my favorite real estate website of all time, Activerain, 😆 where this agent said she had something like 20 short sale listings and none of them were closing. So of course we all know what the Realtor handbook says, yep, get more listings.

I don’t seek out listings, maybe because I’m not a real estate agent, but I can tell you that if I right now had 20 people who had or needed to sell their homes to avoid foreclosure I would make a shi&load of cash on those deals. I mean so much money that I would take the year off. Maybe even next year too!

A few of us were hoisting some cold ones at a local restaurant here in South Florida and we were celebrating yet another successful, 5 figure check getting deal and we were actually laughing when someone brought up how the Realtor’s face looked when she saw the HUD.

We found this duplex in the hood that had a pretty good cash flow on it and new we had a buyer who would be drooling over the ROI. So we submitted a contract on the duplex for $30,000.00. Right away the Realtor said the immediate response of “the bank will never accept it”.  I told her I wasn’t worried about the bank, as I only needed her Seller to accept it. The bank wouldn’t have much choice.

Yada, yada, yada, we get the approval for $35,000.00 we sell it to our buyer for $60,000.00 and we walk with $25,000.00 at closing. The entire deal took under 3 weeks. Meanwhile the Realtor walked with a little over $900.00 bucks, which she has to split with her broker.

So you tell me why she didn’t buy the duplex herself and then collect $25k at closing?

Next week we have a closing on a home that we got under contract for $160,000.00 and are immediately re-selling it for $200,000.00. We’ll be picking up a check for $40,000.00 while the agent will be picking up a whopping $6,000.00.

So in those two deals alone we will have pocketed $65,000.00 while the Realtor’s involved picked up a measly $7,000.00. We made nearly 10 times what the Realtors made. So why are Short Sale Realtors listing homes instead of buying them?

Now you see why if I had 20 Sellers in my pocket…ummm…I mean listings, we’d be booking a suite at the Venetian for a month!

So why is it that Realtors are not buying these deals instead of hoping for 20% of them to close? In all seriousness, please tell me if this makes sense to anyone. Below is a short poll. You can be completely anonymous but we’d love to hear what you have to say…and if you’re feeling a bit more courageous, leave a comment below.

FYI…you’re allowed to choose more than one answer.

[poll id=”7″]

Banks Foreclose Even When Short Sale Imminent KPHO Phoenix, PHOENIX — Valley Realtors homeowners who are trying to sell their home through a short sale will often still end up in foreclosure.  

Business Helps Homeowners Walk Away KPSP Local 2, Homeowners, in foreclosure or short sale, could face thousands of dollars in state taxes. Say you have a $300000 dollar mortgage, your home is short-sold or  

Pace of house flipping picks up San Francisco Chronicle, East Bay Realtor Kerri Naslund specializes in helping buyers with short sales. She is skeptical that banks will become more efficient with the transactions.  

Short sales long on complexity Victorville Daily Press, Realtors expect the number of short sale houses to rise in the Victor Valley over the next year. Meanwhile, they hope for a reduction in the confusion over

About Barry Cunningham

Remember us? was one of the co-hosts of the long-running, truly goundbreaking, and arguably the #1 online radio show about real estate investing. Real Estate Radio USA was on the air 5 times per week before podcasting became cool. But now, we're back as a full multi-media operation and we're aggressively buying houses again! We're back baby!

23 Comments

  • Dustin says:

    Well guess I’m the first to comment on this post Barry. I agree with your logic and also that making money the way you guys are explaining is difficult for some agents to fathom let alone actually attempt. I am an agent working with short sellers too so I know from experience.

    I guess if there was a way agents knew about and felt comfortable with to make this kind of money you’d see a whole lot of this going on, but I could be wrong, just my opinion.

    Great work on the post and everything else you guys do. It’s good to see how far you’ve both come along since 07 :)

  • Hey Dustin,

    Thanks for the comment.

    You mentioned a very hot button…”felt comfortable”. Why do you think there is that sense of feeling uncomfortable? Who is fostering that and why are they fostering it? Is it brokers, is it NAR…that’s very interesting.

    Somehow Realtors are not availing themselves of serious money making opportunities and as I said, I wonder why that attitude is the prevailing thought regarding this.

    I hope more agents take part in the survey and comment. This could be very eye opening.

  • Dustin says:

    Hey again Barry…

    To comment on your last question about “feeling comfortable” I can’t say exactly WHY most other agents feel this way, but from my own perspective and experience I’ve learned 2 things that might help explain. These are just tidbits I’ve gleaned from seminars and the like

    1) “The confused mind always says NO” I heard that in some sales seminar a while ago and it really stuck with me for some reason. I also see there is some truth behind the statement.

    2) “People fear what they don’t understand” I don’t know where I heard that, but when I look at my own life I can say I see this principle at work in my own life.

    On top of this, of course you will hear some brokers and possibly NAR telling of the “liability” issues of doing what you’re saying or how you might get yourself in trouble when most of the time these folks don’t even understand what you are doing, and even less of them have done it themselves.

    Just further thoughts on the subject…

  • Hey Dustin,

    So what you are essentially saying is there is a huge lack of knowledge. If one knew what they were doing then the feeling of being uncomfortable would go away.

    I remember when I first learned to drive. It was on one of my Dad’s job sites. And he told me to go pick up some supplies across the construction site. You know I was sweating bullets and really uncomfortable but after doing it a few times it was a lot of fun.

    Now there is no discomfort getting behind the wheel. So the question that remains is why do Realtors cave to fear? If they learn how to drive now, it only gets easier…not harder.

    So while my mom never wanted me on the highway when I first got my license, once I got up to speed and learned the rules of the road, I got on that highway.

    Sorry for all of the metaphors but what you’re saying is that while Realtors may have gotten their drivers license…most are afraid of actually getting on the highway because of what “might happen”.

    That’s a bit restraining isn’t it?

  • Dustin says:

    Yes it absolutely is restraining. My previous comments about this were simply my opinions and perspective, but NOT meant to be a defense of, or reason for this to continue.

    I personally strive to get past my fears and move toward freedom when possible, but I certainly can’t say I’ve done it consistently or well, just my journey so far.

    Anyway, I think once you reveal the case study you are working on and show people that might take care of some of the “lack of knowledge” issue, but there’s still the fear thing that people have to decide to move past on their own.

    I know you guys might be looked at as “Realtor bashers” or “anti NAR” or whatever, but I’ve listened to you for a while now and I believe I’m accurate in stating that you are NOT so, but just against what wrong with both agents and large associations when it comes to stifling the ability to earn income and act professionally in the best interest of those they represent. Correct me if I’m wrong somehow…

  • Thanks Dustin,

    Case in point, we got a contract signed last week and called the agent to follow up and he said “I think the bank took the house back…” Then he asked us if we knew how to check.

    So we did, and the house got auctioned off on the 25th. The agent never knew and obviously never cared, yet he took a short sale listing when he obvuously had no business doing so. So he’s off to the next listing and his client is left wondering when the knock on the door is coming.

    We see this over and over again. It’s an epidemic. Remember less that 15-20% of short sales close so you can plainly see that something is really…really wrong, and it can not be 100% blamed upon the banks.

  • Dustin says:

    Don’t want to take up all your bandwidth, but I deal with the same thing.

    I try to put offers on properties and either short sale (or REO) agents never call back to give me showing instructions, already have several offers and keep the property “Active”, have several offers then send ALL of them to the bank, or some other stupid thing that either kills deals or never gets them together in the first place.

    Many of the people I’ve helped with a short sale have been with other agents or attorneys who couldn’t get the job done or didn’t care enough to in the first place. It’s really sad.

    One more thing I thought I’d mention about the fear and liability thing…

    I’ve heard brokers and other attorneys talk about the liability of Realtors acting as investors of their own lisitngs. They say that if the Realtor buys a home, let’s say, for $150,000 as a short sale and then flips it for $200,000 the same day, and the seller’s lender gets a deficiency for the larger amount you could be liable.

    Basically, I think they are looking at it like if you had a buyer for the $200,000 price then you should’ve sold it for that amount instead of lining your own pockets and costing the seller to have a higher judgment amount.

    I’m not saying I agree with this, but this is what I’ve heard around the proverbial water cooler…

  • aaah my friend Dustin…that which you speak is not true..remember,. with a successful short sale, there is no deficiency judgment..check out the video we did on that post about Deficiency judgments.

    Again, we speak of the unknowledgeable. Since they do not know, they fear. They are taking the opinion of those who more than likely know less than they do.

    Here’s an easy response to the water cooler type. Can you please quote me a law..not an opinion, a law that says that I can’t flip a property the same day? And please, let’s not go into any Code of Ethics garbage it’s useless beyond the preamble. Remember what we showed you in class?

    Stay away from the water cooler, it’s costing you money ! :)

  • Dustin says:

    I did watch the video and found it very interesting. From what I gathered from the video, with the proper wording on the Satisfaction of Mortgage there may be no deficiency, but how do you know the wording BEFORE you close the short sale?
    Also if the 1099 is a larger amount could that also make the seller liable for more taxes if the are not able to file form 982 claiming insolvency?

    I’ve always fought to get the “deficiency language” removed from the approval letter and have been successful many of the times. Love to hear your response so it can help me in future dealings :)

  • Hey Dustin,

    You asked…how do you know the wording BEFORE you close the short sale?” Simple, you ask and make the Satisfaction a part of your short Sale package, or you ask to see a draft of what they will be providing. It’s all in the negotiation. Sometimes we even ask for it to be in place at closing.

    Does it happen all of the time? Of course not, but it happens most of the time as we let them know that we know what were doing and it’s part of the overall package. You remember our package don’t you?

    As for the 1099, you know about the deal with the primary residence don’t you…as for investment property, we cover the liability for taxes, in any amount with the disclosure right up front. Then it is explained in detail and they sign an acknowledgement.

    It’s all about CYA and besides…what happens if it goes to foreclosure auction. What’s wors, a tax liability of a judgment which at that point is a deficiency judgment. Realtors only look at one side for the most part and forget the ramifications for the Seller.

  • Dustin says:

    True, true…so you ask for a copy up front. That’s a good idea and now I see. I guess in the event that the lender doesn’t provide it upfront how do you CYA then?

    I usually explain to possibility to my sellers that I cannot guarantee a short sale closing or what a lender will do as a result of a short sale although I always let them know they will be the one to make the decision when the short sale approval comes since I want them to understand the possible implications. I also have them get their attorney’s advice.

    I just never thought about asking for the Satisfaction upfront. Good idea. BTW I still have the SS package from the seminar :)

  • Hey Dustin, you could always go Ninja and check the public records to see what kind of Sat that the bank has been issuing and download it. Then when you submit, you may not have to change it as they recognize it. Nothing is a guarantee which is the reason for bunches and gobs of disclosures and written Seller acknowledgements. Our CYA form has something like 30 clauses in it and covers just about anything that comes up or could come up. Perfectly legal and tidies up the whole transaction and is recorded with the contract on the Public records..No one could ever come back and say they didn’t know. We have even gone as far as videotaping everything. This stuff is really simple if your paperwork is in order.

  • Dustin says:

    Awesome! I know things have changed since the SS class I attended in 07 and sounds like interesting stuff to know…can’t wait to see the case study!

  • Brad Colean says:

    Barry,

    I think a lot of agents don’t have the capital right now, and many do not understand “hard money” and simultaneous closings, or dry closings. Without the capital to close, if they cannot find an investor prior to closing, they fear loss of reputation with the other agent for lack of ability to close. They look at the small commission as a guarantee, or low risk loss, but buying a short sale as a huge risk. If they are comfortable with short sales, the risk factor should not exist. As far as capital, there are ways around that, of course.

    Just my opinion talking with a few others about it, not my practice, or beliefs.

  • Hey Brad, Thanks for the comment and for stopping by!

    I’m kind of surprised about realtors not knowing how easy it is to obtain funding for short sale deals. I would have thought that the funding hurdle would be the smallest impediment for a deal. As an investor, we know if the numbers work you can get money for just about anything.

    So your comment and the numbers from the poll are very enlightening to say the least.

  • Brad Colean says:

    Hey Barry,

    Mention hard money and you usually get a blank stare. Keeping an investor list of ready and able buyers is also important. If all else fails, you’re out the deposit in rare cases.

  • Brad Colean says:

    One last thing. I remember when I took your course in West Palm four, or five years ago, the topic that was questioned the most was simultaneous closings. Out of the 100-150 people there, it seems like 50 were stuck on that issue. They kept saying it was illegal, or unethical. After you explained it twenty times, then had an attorney speak on the topic, I think most left the course completely confused on that subject, or just plain refused to accept it.

  • Hey Brad,

    Yes, the blank stares still are prevalent. While simultaneous closings in the old sense have pretty much have gone the way of the dodo bird, the new way is even more efficient and more profitable. We love it, the title companies love it and the funders love it. No exposure, no risk, easy, clean deals. Yet most Realtors who were lost before, are even further behind the 8ball. No deal, if structured correctly, should ever fail because of funding. Funding is now the EASIEST part of the transaction.

    We know it’s surely not illegal and the ethical argument holds no water. I think people hide behind ethics because it’s warm, fuzzy and comfortable. It gives one a security blanket and reason to tell others why they aren’t making any money. It also gives them reason to NOT learn how to do things.

    We’ll be talking more about this in the next few weeks as we release the case study we have been referring to. Stay tuned.

  • Just wanted to know how you did the turnaround so quick, was it a cash sale? Back to back closings with conventional financing and the seasoning issue is big deal.

  • Hi Barabara,

    Thanks for the comment and for stopping by.

    Every deal we do is purchased as cash and sold to a cash buyer. It’s the only way we do business. We won’t look at a deal that doesn’t work within those parameters. (most do!) In today’s heavily burdened distressed market it’s easy finding inventory And even easier to find cash buyers to sell to. Believe it or not the hardest part in the transaction is finding Realtors who know what they are doing and understand how to correctly liquidate a property.

    And everything we did in the deals could have been done by the Realtor. She just didn’t have any idea as to what even happened. I bet if she was asked today she would tell you that she did not know what happened. In fact the property has changed hands AGAIN as the group we sold it to had enough spread to sell it again…man I love this business!

  • […] have to sell their home. How do we know they need and have to sell their homes? Because they are already listed! Told ya it was […]

  • Louie Frias says:

    Because Barry, and Barry, there’s a law in EVERY state which licensees are bound by and it’s called “Secret Profit”. We are REQUIRED to disclose any profit expected by our involvement in a transaction as a principal.

    Having said that, YOU, Mr. Saavy investor will NOT be so excited about closing once this profit is discovered as YOU, MR. Saavy Investor will grind me hard to get a “better deal”.

    THAT’S why agents most likely do not purchase and flip. As well as the 90 day flip rule in the event of a buyer electing to use minimum down payment programs like FHA…anything else I can illuminate for you, please ask.

  • Hi Louie and thanks for visiting and thanks for commenting. I wish we could have met under better circumstances. Please allow me to respond with clarity.

    Before I begin to respond, please indulge me. I guess I’m not as smart as I think that I am. Could you please quote me the Florida State Statute that governs what you deem as “Secret Profit”. While you’re at it, can you quote me the Federal Statute or the Statute in the other 50 States as well? It would be most appreciated. Once we receive your information we will GLADLY publish the Statutes so all who visit here can make sure that they are in compliance. You will be doing a great service to the realtor brethren by kindly supplying all of us with the laws in the various states that you say exists.

    The Realtor Code Of Ethics is not by any way shape or means a law. In fact, the preamble of the COE states as follows. “While the Code of Ethics establishes obligations that may be higher than those mandated by law, in any instance where the Code of Ethics and the law conflict, the obligations of the law must take precedence.”

    Seems pretty clear to me that what we do does not violate the law and agents who want to flip houses surely can. As for disclosure…sure no problem…If I was a Realtor involved in a transaction, All I would have to say is that I have a financial interest in the transaction. Or that I have a financial interest in the entity of the transaction. That’s all that’s required by the COE. However there is no such requirement under State law.

    So while you as a Realtor may feel the need to do so, and it is most assuredly honorable and ethical under the COE, it is not a law to do so.

    That being said, ANY realtor can buy and sell any property. As for grinding you hard to get a better deal…hmmm..ya got me on that one. You have me on two parts. One, how would you as the Realtor have ANY idea as to my profit on a deal and secondly you must assume that I’m new at this. Because for some reason you think that my paperwork wouldn’t be bulletproof so that my deal..and my profit therein..wouldn’t be completely secure. I don’t renegotiate. I don’t have to. I make sure that the deal, once accepted, is based upon the terms that I want and if I don’t get my terms..then I walk.

    So once my deal is signed, it’s money in the bank. You see we’re in “business” and it’s our obligation to make sure that we don’t have hiccups after the fact. So excuse me if I have no idea what the heck you are talking about.

    Hey Louie…with all due respect, it’s painfully obvious that you really don’t understand the concept of wholesaling or re-selling real estate. You guys call it flipping because it somehow makes you feel better thinking that it’s some kind of “scheme” investors play but in reality you have no idea.

    If you had any idea, you would be able to read some of the many articles or watch some of the videos or maybe even listen to some of the radio shows and learn before you speak and make yourself look like the ignoramus you seem to be.

    Obviously you don’t know how to structure a wholesale deal or you would know how the FHA rule doesn’t apply. Not that you understand that either based upon your comment.

    However, your comment has definitely illuminated me on one thing. I certainly now know why more agents do not purchase and flip homes. If you are representative of how they think (thank God you’re not), then it would be completely understandable.

    Don’t worry, I will NEVER be asking you for any further illumination…except of course for the aforementioned State statutes that you refer to. When you have those please feel free to post that information. Many of us will be waiting with baited breath.

    Maybe they do things different in Vegas…either that or the desert air is getting to you. Stay out of the heat bro!

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