WARNING – What I call “the WRONG way to do short sales,” is a practice that is gaining significant popularity as of late but could land those who do it in some major trouble.  I’m not usually one to be quite so negative and dramatic, but this is a serious matter.  Plus, I’ve even seen a few short sale educators out there actually recommending this strategy and I felt it necessary to send out a warning so that no one gets hurt.

If the person you are taking advice from recommends the following technique I am about to describe…RUN!  You’ll save yourself a whole lot of problems by not participating in this technique.  So here is the WRONG way to do a short sale:

1.   A real estate agent has an active short sale listing with a listing agreement executed between herself and the seller.

2.   An investor, listening to the advice of his short sale educator, contacts the agent and says, “Hey Mrs. Agent, I’m a short sale investor.  I’d like to make a short sale offer on the property.  I’ll agree to pay you your 3% listing commission and then an additional 3% commission if you’ll let me make a short sale offer on the property.  You go ahead and keep it listed and when another buyer comes along, I’ll sell the property to that buyer.”

3.   The agent contemplates that such an arrangement would completely violate her fiduciary responsibility with her seller client but also loves the idea of making 6% for doing practically no work.  With some real salesmanship as well, the investor convinces the agent to move forward and off they go into the WRONG way to do short sales.

To the un-initiated, this may not sound like a big deal.  But in the world of real estate, this is becoming a very hot topic.  In fact, many lenders are beginning to put in their short sale approval letters language to prevent this practice.  In addition, the National Association of Realtors just sent an email to all its members to steer clear of investors who want to employ this technique.  Local brokers are feverishly trying to educate their agents to avoid these situations like the plague.  The walls are crashing in on investors who are doing this and if you’re a part of a short sale program that is advocating this practice, I suggest you find a different short sale education course.  There are plenty of investors and short sale educators out there that are NOT advocating this practice and doing this business the right way.

I can just hear the investors that are practicing this technique fuming from this post and prepared to defend their position.  Let me save them their defensive energy…

When the NAR is blasting an email to 1.2 Million Realtors across America to avoid these arrangements, all the disclosures in the world won’t help you.  Let this strategy go.  It’s over.  Move on.  Besides, you don’t need to use that technique to be successful with short sales anyway.  We’ve never used it, we’ve never advocated it and we’ve been extremely successful with short sales over the past decade.

I hope this got your attention.  It’s important.  Feel free to share your reactions to this post in the comments section below.

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