Posts Tagged ‘short sale commissions’

When a question is asked of me more than once it is a good bet that it is a common one, so I’ll post briefly today on who pays the commission in short sale. The answer is simple: The lender pays the real estate commission.

In a regular sale, real estate commission is paid from the proceeds of the equity. In a short sale, sellers who cannot pay their mortgage and do not have the funds to cover a short fall cannot pay the commission, because there is no equity, no proceeds, and no outside resources. Therefore, as part of their loss, the mortgage company pays the real estate commission. They also wash away the past due payments, pay the back taxes, and anything else needed to pass the home to the new buyer with clear title.

No real estate broker should ever require a short sale client to deposit money in escrow, or take a fee in advance of an approved sale and closing. It is antithetical to the contingent nature of our business. The commission is an incentive to do your job, and I would be suspicious of anyone who asks for money up front.

Again, to be clear: In a short sale, the bank pays the commission. I have closed short sales in Yonkers to Suffern, Chappaqua to Poughkeepsie , and dozens of places in between. I have never taken a dime from sellers.  The bank has always paid the commission.

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Fannie Mae’s recent edict forbidding the cutting down of the broker commission as part of the short sale negotiation is very good for distressed sellers and buyers, not just the agents. I’ll explain.

Naturally, brokers and agents are relieved because it ensures that the considerable time and effort that goes into selling a short sale property will not end with their compensation being raided by the lender in what has always amounted to 11th-hour extortion. In a market like mine in Westchester County, where the typical transaction is 45-60 days, the time to sell a short sale is easily triple that time in some cases.  Sometimes the bank has accepted short sales with the caveat that the brokers get paid less, often with the rationale that something is better than nothing.

This decision is made by an out of state negotiator whose obtuse agenda is to minimnize the loss to the lender, but the consequences are far more damaging than a little pinch, because many brokers and agents are now refusing to show short sales to their buyers. While it may not amount to a blatant boycott, the agents will discourage their buyers with a variety of reasons, such as the long wait, the uncertain nature of the time invested, and the condition of the house. The real reason, however, is that they want to get paid. In this economic climate, that rationale is understandable.

I don’t agree with it, but it is understandable.

The ecology of the agent’s unwillingness to sell short sales is disastrous. Fewer showings mean fewer sales, and that hurts not only the sellers in the short term, it hurts everyone.

  • More unsold short sales mean the market will take longer to adjust.
  • Toxic assets remain on the books longer. Non-performing loans do no one any good.
  • Tax bills are not paid, hurting municipalities.
  • Buyers may be discouraged from buying what may be the perfect home for them.
  • Brokers who take longer to sell a buyer the right home may eventually lose that buyer to another broker, a for sale by owner, or inertia.
  • People who might otherwise benefot from selling their home in a short sale face foreclosure.
  • More foreclosures are the last thing this economy needs.

While Fannie Mae does not hold all loans, it holds enough to influence other entities. My local market of Westchester County has lots of Fannie Mae borrowers who are in negative equity. If brokers have confidence that they will get paid in full for selling a short sale, it will expedite the wringing out of bad loans, helping sellers and lenders alike, and speed an economic recovery.

J. Philip Faranda is Westchester & the Hudson Valleys’s Premier Short Sale REALTOR. He has listed and sold successful short sales in Westchester, Rockland, Putnam, Dutchess, and Orange County, as well as the boroughs of New York City. Find out more at www.NYShortSaleTeam.com

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