Do Commissions Offered on REO and Short Sales Put Pressure on Non-distressed Listings?

By
Real Estate Broker/Owner with WEICHERT, REALTORS® - Synergy

RealtorNote:  There is no such thing as a "standard commission."  The commission charged by a listing agent may only be established as part of the overall negotiation to obtain the listing and may be based on several factors, including costs to market the property.  Similarly, the commission offered to a buyer's agent by the listing agent is not a pre-established fixed percentage of the total and will vary depending upon the local market conditions.  The discussion of commissions contained in this blog post is not meant to infer or suggest any specific commission amount that should be paid by a seller to his agent or to a co-broker.  To do otherwise would be unlawful.

It is an established fact that most lenders, servicers, asset managers, including the government-sponsored entities of FNMA and FHLMC, and guidelines established under the Making Home Affordable legislation incorporate language related to the maximum commission that they will allow a Realtor to charge when handling a short sale or foreclosure listing on their behalf.  While certain Realtors may charge less or more than the stated 6% maximum fee, the guidelines generally state that as long as a commission is equal to or less than 6%, the selling party (lender, servicer, asset manager, GSE) will not re-negotiate the fee.

Which brings me to a question.  In areas where there is a high concentration of short sale and REO (foreclosure) listings, is a non-distressed seller at a disadvantage if they wish to negotiate a lower commission rate to the listing agent?  In other words, will a Realtor work harder for you if you pay them a higher commission?

I am going to suggest that the answer is an unequivocal "no."  I get asked this question often, so I am going to repeat my answer.  The answer is "no - a real estate agent's commission should be based on the effort that they are going to expend to market and sell the property."

Another question that I am often asked is "if the broker on property A is offering 3 apples to the buyer's agent and the broker on property B is offering 2 apples to the buyer's agent, won't property A sell faster because more buyer's agents will want to show that property?"  The correct answer is the better priced and marketed property will be the one that sells first, however I would be lying if I didn't say that I know of instances where Realtors are more inclined to show properties that will compensate them the most.  Exclusive buyer's agency agreements often establish a set fee for the services of the agent, so the issue of showing a client listings that offer a lower fee from the seller is really the decision of the buyer, not the Realtor, and will negate the possible appearance of "greed" by the buyer's agent.

So what happens when more likely than not, a 6% commission is paid by the "seller" in a short sale or REO transaction, and the compensation to the buyer's agent is less than what other comparable listings may offer?  Should the buyer request that the listing agent share more of his commission with the buyer's agent?  Well again, there is no standard answer.

Representing a foreclosed property often requires that the listing broker also become a property manager.  If the asset manager requires that the property be maintained during the listing period, the listing agent must pay for these expenses and be reimbursed later.  Sometimes the cost of errors and omissions insurance is escalated for REO and short sale transactions.  Usually the paperwork, follow up and follow through on a short sale or REO listing is quite time consuming and uses up minutes on the agent's cell phone or long distance bill.  Some brokerages also have legal counsel, negotiators (in-house or external), and extra administrative staff to handle the additional responsibilities of these types of listings.  Therefore, it is safe to assume that the listing agent may, after all his expenses, come out with less income than the buyer's agent - no matter what you think the total commission may be. 

One thing that I do disagree with is listing agents that require the buyer's agent to "share" in any referral fee that the listing agent may have to pay to a third party who introduced the property to the listing agent.  In my own personal opinion, the fact that the listing agent has to pay a referral fee should in no way interfere with the compensation that is due a buyer's agent, and buyers or their agents should not have to indirectly subsidize this referral fee.

So, where do we stand?  The fact that the government has established a maximum commission rate of 6% payable on short sales and foreclosures should NOT impact the private negotiations of a non-distressed seller and his agent with regard to commission.  Similarly, the commission offered by a listing agent to a buyer's agent should be reflective of market conditions in order to attract the most agents and their clients.

Posted by

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 

BORED WITH YOUR CURRENT JOB? 

Do you feel like your office is holding you back from your true potential?  Is your broker competing with you for new business?  Do you sometimes wish that you could work with an energetic and fun team of seasoned and new agents that enjoy the benefits of being affiliated with an office that provides superior technology; a lucrative compensation package, including profit sharing; company generated buyer and relocation leads; and office management that does not compete with agents for new business?

Come see what WEICHERT, REALTORS®-Synergy has to offer. 

Interested? Contact us now or call us at 617-751-4001

  Weichert Realtors Synergy - Your trusted neighborhood specialistWeichert REO Network

 

http://www.synergy-metrowest.com

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
ActiveRain Community
Location:
Massachusetts
Groups:
ABR/REBAC
ETHICS and the REALTOR
Mentors: Agents Helping Agents
REO
Short Sale Specialists & Pre-Foreclosure Education
Tags:
commissions
commission schemes
cobrokerage
short sale education
foreclosure education
selling a home
exclusive buyers agents

Anonymous
Post a Comment
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the cloud to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the sunglasses to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Show All Comments
Rainmaker
115,999
Jason Burkholder
Weichert, Realtors - Engle and Hambright - Lancaster, PA
Sales Manager, Assoc. Broker, Realtor, e-Pro

Good post, I agree, it really shouldn't matter but it does.  I don't think the listing agents decision should affect buyer agent compensation, but I guess that's the purpose of a Buyer Representation agreement, so that they don't have to!

Dec 16, 2009 09:14 PM #1
Rainmaker
331,082
Andrew Monaghan
Your Phoenix Home Source - Glendale, AZ
CRS, GRI, EPro Associate Broker

Commission should not matter but in the real world it does, a higher commission on a home causes it to sell quicker

Dec 16, 2009 10:28 PM #2
Rainmaker
648,439
William James Walton Sr.
WEICHERT, REALTORS® - Briotti Group - Waterbury, CT
Greater Waterbury Real Estate

Gotta echo Andrew on that. We know that the buyer's agent should be representing the buyer's best interest, but at times the agent will determine what's in the buyer's best interest by looking at what's in their own best interest. Some listing agents even use that scenario to negotiate even higher than usual commisions from their clients.

Dec 16, 2009 11:06 PM #3
Rainmaker
337,989
Agent Aaron Vaughn, REALTOR® Listing Specialist
Capitol Home Team | Austin TX - Buda, TX
The $500 Million Marketing Advantage

Your points are money, baby! Oh yeah. Wait a minute, what was I talking about? Oh yeah. Commissions. Yeas, they can vary, and yes some agents put their wallets ahead of their clients.

Dec 17, 2009 01:15 AM #4
Rainmaker
156,510
Wendy Rich-Soto Team At Keller Williams Realty, LA Harbor
Keller Williams Realty, LA Harbor - San Pedro, CA
"Because IT IS all about YOU!"

All I can say is that while we may want what is best for our clients, we have to walk a fine line on this subject.  If we are going to take a 5% listing...we better be willing to pony up 3% of it to the listing agent or our seller may take a hit on their price because you know there are agents that refuse to show listings that aren't offering 3%.  While in my 8+ years as a Realtor I have always been personally offended by that practice it is out there and it can really hurt a seller if the commission to the selling side is 2.5% or less.

Dec 17, 2009 01:34 AM #5
Rainmaker
198,270
Mary Strang
Viroqua, WI
Real Estate

The very last part rang a bell with me, the fact that the listing agent has to pay a referral fee should in no way interfere with the compensation that is due a buyer's agent

If you wish to list REO pay your own referral fee as required by the listing agreement. The last REO closing I had the Listing agent attempted to split the commission 50/50 after deducting that fee. The closing statement prepared by the REO & their lender client had the buyers agent pay without that deducted. I may not never have an opportunity to fairly cooperate with that agent because that listing agent was very mad at me for my insisting I was not taking less, because nothing was referred to me. It was a very unpleasant experience. Since I have had my share of Listing from REO's I do understand how it all works.

Dec 17, 2009 07:18 AM #6
Anonymous
Anonymous
Anonymous

Martin,

Commission posts always get us riled up! What can I add here? Get all listings at 6%!

Dec 17, 2009 08:03 AM #7
Anonymous
Anonymous
Anonymous

Martin,

Commission posts always get us riled up! What can I add here? Get all listings at 6%!

Dec 17, 2009 08:04 AM #8
Rainmaker
113,828
Perrin Cornell
Century 21 Exclusively, Wenatchee, WA - Wenatchee, WA
Broker, ABR

You ask/state "So what happens when more likely than not, a 6% commission is paid by the "seller" in a short sale or REO transaction, and the compensation to the buyer's agent is less than what other comparable listings may offer?  Should the buyer request that the listing agent share more of his commission with the buyer's agent?  Well again, there is no standard answer."

To try and negotiate the commission in the contract is a violation under ethics for NAR members plus it may also pose a tortuous (hope I spelled that correctly) violation at law and be grounds for a suit... in short you don't get between a seller and his/her client nor a buyer and his/her client.

You also state/imply the commission is based upon the effort the agent is going to apply... is that in the agreement someplace? I think not... it is based upon the skill of the agent or perceived skill and the agents ability to negotiate. HOPEFULLY the higher priced commissions are for a reason and not hot air or wishful thinking... and generally the better agents will command better rates of pay... at least on the listing side. (at least in those instance where negotiating a commission actually occurs).

Dec 17, 2009 09:01 AM #9
Rainmaker
292,396
Martin Kalisker
WEICHERT, REALTORS® - Synergy - Brookline, MA
Weichert, REALTORS - Synergy: MA Real Estate & Mor

Perrin - I'm not an attorney, so I really can't comment on what is a "tortuous violation at law" - but I do hope that you are also not suggesting that the NAR Code of Conduct is a legal document!

In states where designated agency is mandated, it is very openly discussed with our buyer clients that an exclusive buyer's agent fee is x% of the sales price.  We can usually obtain this from the compensation offered by the listing agent.  however in instances where the compensation offered by the listing agent is less than our stated fee - the buyer client has two options: a) request that the seller make up the difference as a condition of the purchase and sale or b) to compensate the buyer's agent directly.  We do this up front.  It is not interfering with another broker's listing or relationship with his client.

Although I don't want to go too far off tangent, it is my experience that many listing agents fail to discuss how the marketing of the listing can be affected by not offering enough compensation to the buyer's side.  I am also aware of many instances where the listing agent amends the MLS for compensation to the buyer's side that has not been discussed or agreed to by the seller (in an effort for the listing agent to retain more of the commission).  Is that ethical?  To me, this is more harmful to the seller because (as others have also commented) - buyer agents want to be compensated for their efforts too.

I tell my agents that if we agree to a certain commission level with a seller client, they still must offer an attractive level of compensation to the buyer's agent.  If we wish to "discount" the fee for the listing side, that is our business decision.  Since we do not allow dual agency or direct deals, our job is to find a co-broker to bring us the buyer.  Money talks in this business and not all agencies require exclusive buyers agency agreements.  Therefore, (sadly), certain agents will not show a property unless the compensation offered is deemed sufficient.

To make this point clearer, do you see the so-called "discount brokers" reduce the level of commission offered to the buyer side just because they return 20% of their side of the commission to their client?  Do companies that participate in UPromise reduce the buyer's side commsision because they pay 20% of their commission to their client's UPromise account?  The answer is no, in both cases.

Dec 17, 2009 09:48 AM #10
Ambassador
328,865
Karen Hurst
STONEHURSTREALTY.COM - Warwick, RI
Rhode Island Waterfront!

In Rhode Island I have yet to see where a buyers' agent gets less of a commission than the listing Agent. In fact, the Buyers Agent actually gets more.

Couple of examples...Hud homes, the listing agent gets 1% and the Buyers Agent gets up to 5%. 

 I have personally listed many REO homes and after all was said and done (fees, percentages back to Asset Companies) I have many times ended up with 1% and the Buyers Agent ended up with 3% PLUS a $2,000 BONUS!

Because I also am an ABR and work with lots of first time buyers, I enjoy the commissions I receive on the Buyer side and probably expend a lot less work than on the listing side.

All in all, I believe that a "good" Realtor will do their very best irregardless of what the commission may be. However, that does not mean they should not negotiate the highest commsissions they can for both themselves and the Buyer Agent.

Don't know about you, but, as a Realtor, I work "for free" quite a bit and need to actually live on commissions.

Dec 17, 2009 11:41 AM #11
Ambassador
1,258,185
Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

I won't comment on the commission rate, but I want to emphasize something you brought up: There is NO promised/must have split to a LA/BA. The LA negotiates his commission with the seller, and tells the seller how much (percentage or flat fee) he will co-broke to a BA.

Many times it's split 50/50. Sometimes, not.

I see agents who showed a property and were happy to take a co-broke.... until they realized the LA is getting more than 50%. Suddenly they are not so happy.

Why not? If you're happy with x, and don't know the LA's total fee, why are you so unhappy later?

There is no 50/50 law.

Dec 17, 2009 02:17 PM #12
Rainer
32,617
Scott Taylor
Taylor Group Realty International - Orlando - Orlando, FL
REALTOR

Interesting post. I often don't bother to look at the co-broke offering in the listing, but lately there are some here who are offering compensation for $1 or just a couple hundred dollars. Excuse me for thinking of my own livelyhood, but I gotta check for those.

Dec 18, 2009 11:50 AM #13
Rainmaker
160,681
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

This statement is wrong:

"the maximum commission that they will allow a Realtor to charge when handling a short sale or foreclosure listing on their behalf."

 

It's the maximum that they are willing to pay. As a broker, you can charge more.

Dec 18, 2009 07:28 PM #14
Rainmaker
292,396
Martin Kalisker
WEICHERT, REALTORS® - Synergy - Brookline, MA
Weichert, REALTORS - Synergy: MA Real Estate & Mor

Satar -

My intention was to state that the 6% is the maximum that they will allow the listing broker to charge them.  Thank your for pointing this out since it may not have been clear to others.

Dec 19, 2009 08:30 AM #15
Rainmaker
113,828
Perrin Cornell
Century 21 Exclusively, Wenatchee, WA - Wenatchee, WA
Broker, ABR

NAR side, no I am not saying it is a legal doc. And yes you can have a brokerage agreement with your client the buyer in the form of an agency agreement. That is between you two and yes it can say if you don't make x then they will pay you x+ or whatever. BUT as an ethics issue you cannot negotiate your side of the commission, when you represent the buyer, in the purchase and sale and in my read you seemed to imply you could. You can also get a co-brokerage agreement at 50% but that is a different issue.

The legal theory...and it is just that... comes in if a seller had a contract with you (listing agreement) and an outside person...(selling agent)... tries to interfere with that agreement in any form...i.e. negotiate the commission with the seller...

 

 

Dec 19, 2009 10:13 AM #16
Ambassador
2,412,565
Patricia Kennedy
Evers & Company Real Estate, Inc. - Washington, DC
For Your Home in the Capital

Martin, the buyer broker also has to work a whole lot harder if the property is a short sale or foreclosure.  And one way to shoot a reputation to pieces is to offer the buyer broker less than half of what you are being paid.  And it all shows up on the HUD-1 at settlement.  And I think I would prefer to sell a non-distressed property at a lower commission than a distressed one at a higher rate.

Dec 21, 2009 11:49 AM #17
Rainmaker
913,374
Tony Marriott
Haven Express @ Keller Williams Arizona Realty - Scottsdale, AZ
Associate Broker, REALTOR

 

This is a very tricky area.  No guarantees that the split between Listing and Buyer Broker will be 50/50 of the total commission.

 

Jul 14, 2010 02:55 PM #18
Anonymous
Post a Comment
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the cloud to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Show All Comments
Rainmaker
292,396

Martin Kalisker

Weichert, REALTORS - Synergy: MA Real Estate & Mor
Ask me a question
*
*
*
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the computer to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Additional Information