National Association of Realtors' strange advice on short sale ethics

short selll ethicsRealtor Magazine, the official publication of the National Association of Realtors, offers up a list of six "ethical short cuts" for its members to avoid when dealing with short sales -- the process where a bank agrees to accept less than the full payoff amount in the sale of a property that is worth less than the amount of the mortgage.

According to NAR, these are "ethical temptations you want to avoid at all costs when working with a client whose property is on the market as a short sale."

Five of the six are good, including don't embellish a hardship letter, stand in the way of efforts to help the seller keep the home, or shop the buyer's offer. But tip number four is downright strange:

4. Selling to a flipper. Unless the investor in a flip is prepared to add substantial value by fixing up a property, don't participate in a flip. Short sale flips benefit only the investor, who's clipping off money that could go to an already bleeding lender.

The intent here makes sense: because flippers are buying low to sell high quickly a little bit later, banks are leaving money on the table by selling to a flipper. But real estate agents have a fiduciary obligation to present all offers and most banks and sellers are looking for a quick sale. And if three offers come in at $120,000, $126,000, and $142,000 from a prospective flipper, what's he supposed to do? Tell the bank to take the $126,000 offer to prevent the highest offer from making a few bucks because he's a flipper?

The bottom line is that the agent's job is to find the best deal for the seller -- and, in the case of a short sale, the bank -- taking into account all the factors: mainly money and time and, in very rare circumstances, personal reasons.

But trust me: banks want to recoup as much money as they can in short sales and bank-owned property situations. And if a flipper steps up with the best offer that represents fair market value, banks will be happy to take it.

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