Kevin Lisota of Findwell sent me a heads up about a rule clarification sent out today by the NWMLS to all their members:
Short Sales: Status Change Required after Mutual Acceptance
Rule 120 (b) requires the listing office to timely report the mutual acceptance of a purchase and sale agreement for a short sale as Pending (e.g. Pending, Pending Inspection, Pending Back-Up). A Short Sale property shall not remain in the Active status if the buyer and seller have reached mutual acceptance and are waiting for the lender’s consent to the transaction. The only Short Sale properties that should remain in the Active status are those properties where the buyer and seller have not reached mutual acceptance.
In other words, properties that have any offer approved by the seller and awaiting bank approval must be marked as “pending,” regardless of the known fact that many banks are taking 2-3 months just to respond to such offers, many of which are then rejected by the bank.
This rule is not new, but according to Kevin, there is “zero consistency for this practice right now.” One would assume that many agents are already doing this, causing some of the growing discrepancy between “pending” and closed sales. Of course, if there are a non-trivial number of agents out there not doing this already that begin to do so now, this will definitely artificially inflate the pending sales data even further.
Kevin points out two problems with this rule (and the NWMLS’ newly-found fondness for enforcing it):
- Your pending numbers are going to be even more messed up. Often the distressed home seller will sign anything they receive, no matter how crazy, and then submit it to the bank. (Many banks won’t even look at it without a signed contract.) If typical wait times are a 2-3 months for a response, you’ll see all of those properties marked as pending, yet they are not pending until the bank approves the transaction. To give you an example, we have a short sale buyer that is in contract with the seller. They signed an agreement for a sales price close to $300k off the list price and more than $300k being owed to the mortgagor. I believe that this price has zero chance of success, yet the seller signed it just to move things along at the bank.
- This policy is not in the best interests of short sellers. Since there is limited success getting buyer’s offers approved, particularly lowball offers, it is in the seller’s best interests to continue marketing the property to try to attract better buyer offers while they wait for bank approval. The moment you change it to pending, it disappears from websites and no one will seriously look at the property any more.
At this point, I’ll continue to report “pending” sales in our monthly summaries, but will be converting our regularly scheduled graphs to closed sales, since that is a statistic that has had a consistent definition since 2000 (as far back as my data goes).