Good news! Banks can’t negotiate REALTOR Commissions in Short Sales

In the world of preforeclosure sales-often referred to as short sales-banks have put REALTORS® into a difficult dilemma: either cut commissions they’ll be willing to pay to approve a sale as THE third party to a transaction, or walk away from the deal. Let’s start at the beginning…

A completed short sale is a real estate transaction where the lender(s) are compensated less than what is owed on the property. They accept an amount “short” of a full pay off. In past practice, REALTORS® have had to choose to work on or not service preforeclosure sales-which take MUCH more time and effort to close. Many clients who have financial, job-related, health-related, or other issues which prevent them from being to make their mortgage payments need professional services that a trained, competent REALTOR® can offer in navigating the short sale.

In a word: third-party negotiators (REALTORS®/agents) make it happen!

Here’s the dilemma: a REALTOR® takes a listing which is likely to be a short sale. His or her primary objective is to assist the seller through the sales process and get their home sold. He or she has a fiduciary responsibility to their client. The listing agreement is between the REALTOR® and his seller client. The problem is quite often, a bank which must approve a short payoff on a sale (e.g. short sale) will come back and tell the agent that they are only willing to pay a total of 4% or 5% on the offer presented to them. The listing REALTOR® can stick to his or her guns and insist on agreed upon commissions with his seller at the risk of the bank’s rejecting the offer, or he or she will stand down and take the lesser compensation to bless the life of the seller and get the property sold.

Because most short sales in the past have paid a buyer’s agent less than a typical 3%, preforeclosure homes don’t get shown as often. In a competitive market, sellers may list the home at 7%, 8%, or 9% just to get other agents to show the home. (I think it should NOT make a difference what an agent gets paid…as long as their buyer client gets what THEY want! That’s an ethical question for another blog entry…). This new rule from Fannie Mae will ensure that REALTORS® don’t have to choose between feeding their families and keeping their fiduciary duties to their clients. The banks won’t have the “take it or leave it” bargaining chip to play any more.

Here’s how the rule/guideline from Fannie Mae reads:

No Negotiation of Preforeclosure Sales Commission

Servicing Guide, Part VII, Section 504.02:
Contacting Selected Borrowers Effective March 1, 2009, closing of preforeclosure sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6 percent of the sales price of the property in aggregate. Servicers are reminded that they must continue to obtain any approvals that may be required by interested third parties in connection with preforeclosure sales.

You may reference the whole guide at the link below:
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0903.pdf

Bottom line: this will level the negotiation playing field of short sales. If the numbers don’t work for the banks, they will have to come back and ask buyers to pay more for the home-which will still be a screaming value because they’re buying at a discount usually in the 20%-30% range. REALTORS® on the list side won’t have to choose between shutting down a deal v settling for less than what they’re worth. (No one should do this on his or her own. A professional who’s experienced in short sales is worth every penny in helping avoid a foreclosure.) REALTORS® on the buy side won’t have to worry about NOT getting paid for assisting their clients in purchasing the right home, even if it’s a short sale.

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Dean Crandall is a licensed REALTOR with Keller Williams Westfield Real Estate based in beautiful Utah County. He has six successful years of helping clients and friends find and sell homes, land and investment properties.

If you are looking for free advice or have questions, please contact Dean directly:

Dean Crandall
801-836-3112

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Copyright® 2009, DeanoDean, Inc. “Good news! Banks can’t negotiate REALTOR Commissions in Short Sales”

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