Getting Paid Fairly as a Realtor

Comments (5)
August 14, 2008

One of the biggest problems in the Bank Negotiation field today is the commission cuts to Realtors. Realtors are the #1 source of short sale applications because they are the ones that come in contact with troubled seller the most. This episode of The Short Sale Show is for them.

Most Realtors are frustrated at extra work that goes into getting a short sale closed while taking a significant pay cut (by as much as 50%) on each of these deals. Most agents do not take the time to charge separately for their negotiation work vs. their traditional Realtor responsibilities, instead taking on the extra responsibility and allowing the commission to cover their efforts for both tasks.

Unfortunately, commission is highly subject to cuts by banks that won’t allow realtors to make a fair wage. Their feeling is that if commission is cut back by X% on every deal, the bank will lose X number of dollars less per year.

This video shows my method for working around this obstacle to help both buyer agents and seller’s agents who are negotiation the sale to get paid a “traditional” fair rate for their effort…which in my area is 3% per side.

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5 Comments, Comment or Ping

  1. Shawn

    Great information. It’s unfortunate that we have to be so creative just to be paid a fair wage for the service provided. Thanks Brian!!!!

  2. Good Information! Thank you for doing these videos. I have subscribed to the feed. Also I am following you on Twitter. Could you follow me? kathcouch
    I need your support. It seems every time short sale is mentioned, a fire storm follows.

  3. I’d love to see it in a more clear form - it appears that the division of commission on the HUD would then be inaccurately disclosed and thus a violation - please explain. If the 5% is split 3% to listing agent on line 701 and 702 has 2% to buyer agent - the total should match that section 703/704 totals of funds taken from buyer or seller… if it does not match, then is it not reasonable to expect a lender to get peeved and declare that it was not properly disclosed how much each brokerage was receiving?

    I see your theory and I am sure you can get it to pass by not presenting the buyer side hud to the seller’s lender for approval - however the buyer’s lender should catch it upon a new mortgage… plus I think it would be the fault of the person responsible for the settlement statement - be it an agent or title office or bank preapring it - for misrepresenting the fees earned on those lines… Somewhere on those lines it should state the total of 3% going to the buyer’s agent - even if it is from commissions paid from sellers funds and contributions from buyer for services rendered…

    I guess what I am saying is that 700 section should have an additional line for funds received from buyer for brokerage services/commissions and on that line show the fee to the buyer in addition to the other 2 lines from the split of the listing commission (5% split) - for a total of at least 3 lines worth of commission disclosures…

    right?

  4. Eric,

    I’ll try to explain this more clearly:

    1) When submitting the est HUD to the bank approving the short sale it is VERY RARE (as in I have NEVER had them ask) for them to require a HUD with both the buyer’s side and seller’s side figures. Here’s why:

    a) It’s none of the bank’s business what the buyer’s side figures are. How much the buyer has to pay for his closing fee, tax prorations, mortgage costs (if any), and other closing costs do not impact the seller’s side at all. After all, the bank is ONLY concerned with costs that come out of their side. The title company could charge the buyer $10,000 to close the deal, the mortgage broker could charge 5 points, and everyone else could charge the buyer whatever they want and it’s none of the seller’s (or the seller’s bank’s) business because it’s not a seller-side issue.

    This does NOT apply to the BUYER’S bank. The buyer’s bank MUST review both sides of the HUD before lending the money.

    b) The buyer’s side figures are NOT available for the estimated HUD anyway - the final figures for the buyers loan and other fees are usually not condensed and submitted to the title company until just a day or two before closing when they are used to build the final HUD. They certainly are not going to be there when you submit the estimated HUD early in the game and the buyer’s figures are subject to change at any time anyway.

    Again, it doesn’t matter to the bank taking the short because they don’t CARE about the buyer’s side because it’s none of their business. Only the Seller’s side costs impacts their bottom line…and they DO care about that…a lot.

    c) There may be no HUD at all - in Michigan, if a buyer is paying cash then there is no requirement for an actual “HUD” statement to be prepared at all. A separate buyer’s statement and seller’s statement is prepared in cash transactions. The HUD is required by the bank taking the short because MOST transactions are NOT cash, and it’s an easy way to be consistent in reviewing deals. Every title company prepares HUD statements, they all look the same, and thus are the required doc for banks to review the figures when doing a short sale review.

    2) How the Money Flows - a total of 5% is charged to the SELLER (i.e. the bank in a short sale) with 3% staying on the listing side and 2% being shared via broker co-op to the buyer’s agent side.

    (To be clear, it’s really the SELLER paying their broker and their broker sharing commission…the bank taking the short is NOT paying it…they are only approving the seller’s payment to the seller’s broker. It LOOKS like the bank is paying both the seller’s agent and the buyer’s agent on the HUD, but this is NOT actually how money flows in real estate transactions. The bank does not own the home yet, thus they don’t “pay” anything to anyone, they just approve or deny the seller’s payments and reduce their final net proceeds accordingly. It appears as six of one, half a dozen of another, but it’s really a significant difference)

    So…5% and ONLY 5% in commission is being charged to the seller and approved by the bank.

    The Buyer’s Agent, however, has their buyer tied to a 3% fee! If only 2% is coming from the seller’s side (i.e. from the bank taking the short) then that means 1% is left over for which they as a buyer are contracturally responsible.

    That 1% is charged DIRECTLY to the buyer as an additional cost. It’s just like mortgage points, or tax prorations, or whatever. It’s an additional cost billed to the buyer directly by their buyer’s agent. It has NO connection to the seller’s side whatsoever.

    (just to make it clear, the buyer’s agent could sign the buyer to a 12% commission contract…in which case if 2% was coming from the seller’s side, the buyer would be responsible for a whopping 10% fee added to their closing costs. Commissions are negotiable and are NOT governed by any laws like “Section 32″ that limit the number of points a mortgage broker can charge a client…a Realtor can charge as much as they can negotiate and get the buyer to contract to. If this DID happen, it would again not be any business of the bank taking the short as to the fact that the Buyer’s Agent was charging the Buyer so much directly)

    Moving on…the money to “cover” this 1% comes from the seller’s side in the form of sellers concessions. A buyer can write the offer with an addendum that states:

    “Seller to contribute 1% of the purchase price toward’s buyer’s prepaids, escrows, prorations, lender discount points, buyer’s agent fee, and odd days’ interest”

    If the bank taking the short sale approves the deal with this clause then they are saying “Hey, it’s fine with us if you take some seller’s concessions from our side and use it to pay any of those fees you listed, INCLUDING a buyer’s agency fee…if there is one. We don’t know if there will be one or not because it’s not on the EST HUD, but if it DOES show up, then we are cool with it.” That’s why there’s full disclosure. It’s in their face.

    They got a copy of the contract when reviewing the short sale, it’s out in the open what that fee can be used to cover. If they are cool with it, then in essence additional monies are coming off the seller’s side and being transferred to the buyer’s side to cover ANY of those listed fees. It just so happens that one is the buyer’s agent’s fee.

    So, to be clear, in my example…ONLY 2% in COMMISSION is being transferred to the buyer’s agent. 1% is charged the buyer directly, separate from the seller’s involvement. 1% is charged to the seller in the form of concessions in order to cover the buyer’s agent fee (or any of the other costs if you want to look at it that way) the 1% in concessions is on the HUD sent to the bank taking the short and that 1% must be reviewed and approved by the bank before the settlement demand letter is issued by them authorizing the title company to close the transaction.

    3) The Buyer’s Bank - if the buyer is getting a mortgage, then THEIR bank will want/need to see a FINALIZED HUD with figures from BOTH sides before they issue the clear to close.

    The buyer’s bank can pretty much kill their financing approval for whatever reason they want to come up with these days. The underwriter could be upset because his pot bellied pig didn’t grow wings and fly into his office with lunch today and feel that it was a sign from God that any particular file was due for denial and he could nuke it.

    If the buyer doesn’t like the fact that the buyer’s agent is charging a fee directly to the buyer they can step out. And the buyer will find a DIFFERENT lender who won’t be stupid about it.

    This type of thing happens all the time…but mostly on bank owned properties, not short sales. The banks are cutting commissions to buyer’s agents in the MLS co-ops down to 2% which is ticking the buyer’s agents off. So they are charging the difference between what the MLS shows and what they want to earn directly to the buyer using this same method I’ve outlined more and more. See I didn’t come up with this little method myself…but let’s keep that our little secret.

    In a bank-owned situation or a short sale situation, nobody from the seller’s side has any power/authority/right to inspect or approve the fee agreed upon in contract between a buyer and his/her buyer’s agent.

    Hope this over-long explanation cleared the details up for you.

  5. steve towe

    how do you get paid when you do a short refinance?

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