I've been buying property this year using short sales on property that is in foreclosure. All of the banks I have been successful with have been happy to know that no Realtor fees were involved (saved them money). Today I ran into my first FHA loan. The FHA requires that the property be listed with a Realtor for at least 90 days. This presents a couple of problems for the seller.
First, by the time the seller decides to act, there is often less than 90 days left before the foreclosure auction on the home. People in foreclosure are in a great deal of denial about their ability to save their home. Until they get the lis pendens they often feel that somehow they can catch up on back payments (and the bank is encouraging them to do so). The reason they act at all is that I tell them I can stop the foreclosure process and they do not have to pay anything at closing. So they are not thinking at all about listing their homes for sale.
Second, the seller owes more than the house is worth. I'm not a Realtor and don't know the ethical obligations, but I assume that if you list your property for $X and someone brings you an offer for $X, the Realtor might get upset if you don't sell it. And why wouldn't you sell? Unless you (the seller) are familiar with a short sale process, you probably don't want to sell at a price at which you have to come up with a lot of out of pocket dollars to close. After all, if you had the money, you would just catch up on your mortgage payments and avoid foreclosure. And even if the seller were familiar with short sales and accepted an offer for less than they owed, there is no guarantee that the bank will accept it. Will a normal buyer even make an offer under these conditions?
This an other government rule that makes sense from the governments perspective (and probably to the Realtors association) but makes no sense to a seller. Sellers in foreclosure that owe 100% or more of what their house is worth are not going to list their homes. Closing costs plus the Realtor commission will add to their costs to sell. By the time a seller is in foreclosure interest plus fees that the bank has added to the amount due increase the financial obligation by 10% over the loan principal, so altogether the seller must get an offer about 20% over the homes value to break even.
Putting together a short sale package for the FHA is the most complicated of any that I have dealt with. Are Realtors familiar with short sales? If so, are they will to put in the effort to put together the short sale package and negotiate with the bank? I know the government is trying to protect the public from us dishonest business people, but in the end creates a situation in which the property will go to auction and the seller will have a foreclosure on their record.