CASE STUDY: REALTOR hires agent to sell his house as short sale, then asks for referral fee

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Real Estate Agent with Alain Pinel BRE 01367196
http://actvra.in/nx6

 

CASE STUDY: REALTOR hires another agent to sell his house as a short sale, then asks for referral fee.

Huh?

 

This REALTOR is going through tough times and needs to sell his house as a short sale

He knows enough about the arms-length nature of short sales, so he asks another agent from another real estate brokerage to list his house for him because he can't and he shouldn't represent himself in this sale.

But he wants a referral fee from the other agent.

Other agent balks, doesn’t agree to the referral. This agent tries to explain that in a short sale, the seller shouldn’t get any proceeds from the sale of his property except for negotiated funds such as HAFA relocation funds approved by the short sale negotiator.

A referral fee paid to the agent/seller would constitute sales proceeds after all, it's part of earned commissions from the sale.

 

Who’s right?

close

Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Kathleen Daniels 11/22/2011 10:27 PM
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Rainmaker
259,160
Pam Graham
All Real Estate Options - Jacksonville, FL
Jacksonville, Clay & St Johns Counties

Now I'm wondering why the owner can't list his own house as a short sale and not get a commission if his broker allows it? He will pay a commission to the selling agent, but not to himself. That eliminates getting another agent involved and he won't receive any proceeds.

Nov 23, 2011 05:07 PM #39
Rainmaker
661,677
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Karen -- bottom line, if it makes one uncomfortable, one shouldn't do it. There are more important things in life.

Cynthia -- there is no standard arms length letter, no standard approval letter. Every lender is different so we'll have to be extra-careful.

Lyn -- this does make an interesting case discussion, though, doesn't it?

Bruce -- I also welcome all the thoughts and comments. Always good to see others' points of vieew

Pam -- I don't know that the lenders will allow the seller to list the property himself. That's another question to ask the short sale lenders who may all have different policies

 

Nov 23, 2011 05:35 PM #40
Rainer
277,283
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA
- Pierce, King, Kitsap, Thurston, Mason Counties

Pacita -- You have provided a very thought provoking case study.  I would have thought this might have worked better on a Monday, rather than the day before a holiday - but you did get good responses.  As a lender, we wouldn't be getting involved in that part of the transaction, but I would think it would be something that might be brought up for discussion in a continuing education course for real estate agents discussing ethics.

Nov 23, 2011 08:47 PM #41
Rainmaker
249,935
John M. Scott
BRE # 01442690, Scott Keys Properties - San Francisco, CA
Broker / Owner San Francisco Bay Area

Pacita, A referral fee to the seller in a short sale? No way. The law may be vague, but more and more I see the Arms Length requirement set by the bank. I'm not gonna get myself in hot water....

Nov 23, 2011 09:00 PM #42
Rainmaker
1,224,353
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

I would say probably not but not simply because of the Arm's Length. Because of the profit angle. I think it would depend on how the real estate license was held as well -- whether it is a corporation, for example. As Katerina points out, every situation is different. As for Freddie Mac, that was settled in conjunction with NAR last Friday.

Nov 23, 2011 09:39 PM #43
Rainmaker
682,187
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Although I am not involved in short sales so I am no expert at all - I would have to think that the bank would not look favorably on a referral fee.  I think that is pretty much common sense.. ...Of course the banks don't always have common sense...Oh forget it!

Nov 23, 2011 09:42 PM #44
Rainmaker
261,231
Steve Warrene
Keller Williams Realty - Cranberry Township, PA
The Warrene Team - Your Pittsburgh Professionals

Pacita, It is unethical for the seller to ask for a referral fee in his own short sale.  Also its your ass on the line if he gets caught receiving money form the sale.  Is your reputation worth putting ton the line in an unethical situation?  I don;'t think so.

Nov 23, 2011 10:01 PM #45
Rainmaker
472,700
John Elwell
CENTURY 21 Bill Nye Realty, Inc. - Zephyrhills, FL

From what I thought, this less the moral agent should not get a cent of profit. My understanding is that the seller is not supposed to profit from the sale of a short sale home. If he is trying to get around this rule, it says a lot about that agent. Personally, I would refuse the listing on moral and ethical grounds. Is is legal? Who knows? But I personally could not get involved with this type of smoke and mirrors deal. Let the jerk work with someone who has less scruples.

Nov 23, 2011 10:19 PM #46
Rainmaker
661,677
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Steven --- that's the beauty of Active Rain....lots of topics for discourse

John --- I'd also be very leery and wary of working for a client like this.

Elizabeth --- When it comes to my license, I'd probably err on the side of caution.

Ruthmarie --- rules change, so we just have to stay on top of it

Steve W --- I think that's where most of the hesitation comes from. It's not a question of legality, but a question of ethics and morality

John --- the majority of respondents seem to agree.

Nov 23, 2011 11:34 PM #47
Rainmaker
654,962
Evelyn Kennedy
Gallagher & Lindsey, Alameda, California - Alameda, CA
Alameda, Real Estate, Alameda, CA

Pacita:

What a topic.  You can't blame the seller/owner for asking.  If the seller/owner is ethical, but just trying to gain something from the sale, then why not ask?  Just musing.  Happy Thanksgiving.  Hope your turkey day is fun.  Can you eat regular food now?  Hope so.  Take care.

Nov 23, 2011 11:57 PM #48
Rainmaker
529,993
Maria Morton
BHG Real Estate - Kansas City Homes - Kansas City, MO
Kansas City Real Estate 816-560-3758

Pacita, I can understand how someone who is about to lose their home through a Short Sale would be looking for every penny they can find. However, I would not choose to be involved in this transaction at any level. An attorney might have a more concrete opinion; I'm sure the bank would have an opinion; and the agents; broker definitely is going to have to come up with an opinion. I would still not want to take that listing.

Nov 24, 2011 12:05 AM #49
Rainmaker
661,677
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Evelyn --- the agent probably didn't think there was no harm in asking. But this is still a very gray area. And the impression that others would have is, how totally un-cool!

Maria --- it would make me nervous to take the listing if there is any ambiguity in what the banks would allow, and what they would perceive as fraud

 

Nov 24, 2011 12:44 AM #50
Rainer
177,469
Rosalie Evans
Meritus Group Real Estate - Sioux Falls, SD
The Evans Group, Sioux Falls, SD Homes For Sale

If I were inclined to guess I would say he should not get the referal. I would say if he did get a referal that the bank would somehow have claim to it! I do agree that he shouldn't be handling this on his own though! I need to know how this pans out!  Happy Thanksgiving!

Nov 24, 2011 01:11 AM #51
Rainer
10,887
Luis C. Munoz
International City Mortgage - Oakland, CA

Pacita,

To through one more thing in a very complicated issue there is the issue of the lender who issues the buyer the loan. Normally banks are very strict about arms-lenght, but even if they are not consider this.

Any time a loan goes bad (Aprox 2008 forward) the investor who holds the note is going to whant to be made whole. To make a long story short, if a lender get's wind of an arms lenght issue they will go after everyone they can get their hands on. That would included the Brokers party to the transactions, even if at the end they are found inocent, the money and time to determine it is just not worth it.

Very complex issue, ethics, legal, compasion, morality, etc, etc, etc, At the end, some times you make more money by saying NO. Referral request aside, the listing agent may be better of walking away from a client willing to put he's agent in harms way.   FOOD FOR THOUGHT!

Nov 24, 2011 02:57 AM #52
Rainmaker
78,401
Manny Rosa
Rosa Agency - Belleville, NJ
New Construction - Union & Essex Counties, NJ

This is a tough one.  A referral fee would not be on the HUD; it would typically be paid from the listing agency to the other agent's brokerage firm after closing.  So to be more specific, the seller would not be paid any fee directly; it would go to his broker, and then it would be up to that broker how to pay out the seller through a co-brokerage fee.  Also, it would be a deductible line item expense on the HUD, rolled into the brokerage commission, so technically it would not be paid through proceeds of sale.  Understandably this could cause some debate, because the intent of the regulation is for the seller to not receive any funds other than a relocation/borrower incentive fee.  But it is a gray area.

Nov 24, 2011 07:27 AM #53
Rainmaker
331,062
Andrew Monaghan
Your Phoenix Home Source - Glendale, AZ
CRS, GRI, EPro Associate Broker

Both and Neither, the seller should not receive any funds but the referral fee is paid to the brokerage not the agent so ...

Nov 24, 2011 08:05 AM #54
Rainmaker
795,099
Mike Cooper
Winchester Real Estate Sales, Cornerstone Business Group Inc - Winchester, VA
Your Winchester, VA Real Estate Pro

Pacita, I can see why would think he deserves one, but I can't imagine it would be considered ethical when all is said and done.  Proceeds are proceeds.

Nov 24, 2011 09:30 AM #55
Rainer
186,867
Keith Lawrence
RE/MAX Properties - Mahwah, NJ
ABR, CDPE, SFR, 203K Specialist

This is a good one and the lawyers will have to decide what to do.  The fact is that agents cannot do their own short sales since it has to be an arms length transaction.  If the person is not the broker then his office can receive the referral fee.

Nov 24, 2011 10:02 AM #56
Rainmaker
1,101,449
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of Manchester NH's Leading Agents

The seller should not receive any proceeeds but the referral is actually paid to the agents brokerage. if it is one of those cases where if it was stated up front you can have the listing if a referral is paid to my brokerage, then you have to choose if you want to take it. You as the listing agent are not paying the seller direct so would be within the banks guidelines.  If teh agent said it has an after the fact thing, i would not pay it.

Nov 24, 2011 10:05 AM #57
Rainmaker
661,677
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Rosalie ---- such a gray area, and brings up the question of what is right.

Luis --- yes, it is a complex issue and should be explored.

Manuel --- true, the referral fee won't be on the HUD. But how does one address that part on a typical arms length document about not having any business interest in the transaction?

Andrew --- If the brokerage gets the fee, but doesn't share with the agent, will that really be acceptable?

Mike --- all I can think of is that the seller is not to receive any proceeds from the sale Maybe that makes it black and white. But others see a gray area.

Keith --- in time, we may run into this since many of our peers are finding themselves in the same unhappy situation.

Scott --- but how can one be assured that the brokerage receiving the referral won't share the fee with the seller/agent?

Nov 24, 2011 01:10 PM #58
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Rainmaker
661,677

Pacita Dimacali

Alameda/Contra Costa Counties CA
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