Is cost of short sale negotiator kosher?

Question

Hi all,

I'm not that familiar with the short sale process as I haven't done one yet.  However, my father-in-law is moving and he is interested in buying a short sale in Albany, New York as his primary residence.

The home is owned by a friend of a friend and the mortgage isn't underwater yet, but the friend's friend lost his job and will not be able to afford to make payments so the bank has let him put the house up as a short sale before going through the foreclosure process.

In any event, I'm not entirely impressed with the real estate agent my father-in-law is using.  Among other things, she recently sent him a short sale contract to sign (I'm not sure on specifics as I haven't seen the contract yet) + a bill for $4K for the negotiator.  That bill seems a little steep to me.  That's a little over 3% of the cost of the home ($125K).

And I'm wondering if that amount is normal?  I've seen some mixed reviews elsewhere on the internet saying that I might not even need a negotiator.  I'm also wondering if it's not a normal cost but I do need a negotiator, can I go out and find and use my own negotiator?  I'd greatly appreciate any advice on this, especially from those of you who do short sales on the regular.  Thanks!

Elizabeth Nourse · Answer

@Dannielle Spencer

This fee is pretty typical, but it can be billed differently (and perhaps more cheaply for your father).  Here's how I do it....

I work short sales (as the agent/broker) with an attorney partner, in Maryland and Virginia.  I charge 3.5% for the listing representation (paid by the bank) and I give .5% of that commission to the attorney (the negotiator). Then the attorney has the buyer sign an addendum that they will pay the negotiator's fee, up to the amount of the buyer's closing costs, if the attorney can get the equivalent buyer's costs covered by the bank. The bank is much more likely to sign off on covering the closing costs for the buyer, than they are paying a negotiation fee.

It works very well and everyone gets paid in the end.   Hope that gives you a good idea how some of these are structured and maybe gives you an idea for how you might be able to possibly approach this.

As for the credentials, I'd try to get someone that can actually show you what deals they have negotiated successfully and ask about their close rate.  The good ones close and are worth the money.... the bad ones give everyone nightmares. It pays to interview a few in the beginning and not just go with someone without getting more details/ references.  They can make or break your deal.

Also- I'm not licensed in your jurisdiction, so you'll have to see if this could work in NY. But it might be worth a try! If you have any other questions, let me know. Happy to help.

Account Closed · Answer

The fee is paid for by the buyer( not your Dad) yes they can be that high not uncommon. The chance of an agent closing a short sale is slim and this fee gives some compensation for that.

Jorge Vega · Answer

If the property is not yet underwater than it would not be considered a short sale. The bank may not even realize that through the sale they could get a full payoff, you should find out if they have ordered a value and also get the loan payoff.

that bill does seem very high, I have seen that most short sale processing company's charge closer to 1% of the sales price. Do you know exactly what the negotiators services will be?

Is the agent representing your father in law the same agent listing the property for the friend of the friend with the potential short sale?

usually these companies are paid from the agents commissions, which are paid from the proceeds of the sale. The Listing agent would have to be the one who okays the use of a short sale processing company. Your father in law shouldn't have to pay for it unless the listing agent refuses to give up a portion of the commissions.

Dannielle Spencer · Answer

@Wayne Brooks I too thought it was a little odd, but it's listed as a short sale.  I'm sure there will be more paper work and whatnot going forward with the bank, but so far everything is good.

Wayne Brooks · Answer

@Dannielle Spencer Just a heads up.....it is highly unlikely the bank gave a firm agreement, only 3 days in, on a new buyer.  It's possible, but not likely, if there was already an agreed price from the bank which means the owner has has already been thru the process...submitted all his paper work, the bank had ordered a BPO, etc.  It's still odd this is being called a short sale if the "seller isn't under water yet".  There should be some written correspondence of this "preliminary approval", by either an email or a communication thru Equator if that is being used.  Keep us informed.

Dannielle Spencer · Answer

So I just wanted to give all of you on here an update -- everything went very well.  The agent came over the other day.  My fiance Ray has been helping out my soon to be father-in-law and was at the meeting with the real estate agent.

She kind of acts more like a used car salesman than someone who is helping people buy homes, but that being said we had them drop the listing price a little bit as @Elizabeth Nourse suggested, the bank accepted, and my father-in-law is really happy to be saving several grand.  So thanks everyone for your suggestions and advice!

Pamela DeLorenzo · Answer

So for those of you who are in NYS, can someone tell us if who is allowed to negotiate a short sale?  I know NYS has a kajillion regulations so I wouldn't be surprised to hear only negotiators (or only RE brokers, etc) can do this verses your attorney or the interested party or investor.

My second question would be if the interested party or investor cannot negotiate with the bank, then how do you go about finding the right person for the job?

Dannielle Spencer · Answer

@Elizabeth Nourse thanks so much that was super helpful.

Dawn Brenengen · Answer

@Dannielle Spencer I bought a short sale a few months ago, and the negotiator was paid by the closing cost assistance I asked for.  So, I asked for 3% in seller paid closing costs as part of my offer, and the negotiator got 6250 at closing (4k sounds like a good deal)  :)

The negotiator was able to get the sale approved in four weeks, and we closed in two months from the time I wrote the contract. I've worked with agents trying to do short sales themselves, and we are lucky to hear from the bank for months, if ever.  It's a world of difference.

I was thrilled to "pay" the fee.  I got the house for $215k a year ago, and the most recent sale was for $260k.  I'm keeping it as a rental, and so far I'm seeing a small amount of cash flow and some nice appreciation.  Happy camper.

Wayne Brooks · Answer

It is typically paid by the buyer, as the lender will Not pay it.  Not sure we have the whole picture here, since if it's not "under water" it's not a "short sale". The bank will of course make their own determination of value, after they reive the purchase contract and completed short sale package. $4k might be a little high, but common, I used to charge $2500.  We also don't know for sure if there are any other mortgages or liens.

Is cost of short sale negotiator kosher?

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