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?

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  1. Kathleen Daniels 11/22/2011 10:27 PM
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Topic:
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Location:
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Groups:
Bartender, Make it a Double
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Short Sale REALTORS®
The Lounge at Active Rain
"Whacked"!!!
Tags:
referral fee
short sale referral fee
realtor referral fees in a short sale

Comments 58 New Comment

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Rainmaker
258,360
Pam Graham
Jacksonville, Clay & St Johns Counties
All Real Estate Options

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.

November 23, 2011 05:07 PM
Rainmaker
660,729
Pacita Dimacali
Alameda/Contra Costa Counties CA
Alain Pinel

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

 

November 23, 2011 05:35 PM
Rainer
277,179
Steven Cook
- Pierce, King, Kitsap, Thurston, Mason Counties
No Longer Processing Mortgages.

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.

November 23, 2011 08:47 PM
Rainmaker
245,615
John M. Scott
Broker / Owner San Francisco Bay Area
BRE # 01442690, Scott Keys Properties

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....

November 23, 2011 09:00 PM
Rainmaker
1,197,003
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Put 40 years of experience to work for you
Lyon Real Estate

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.

November 23, 2011 09:39 PM
Rainmaker
680,225
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605

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!

November 23, 2011 09:42 PM
Rainmaker
254,734
Steve Warrene
The Warrene Team - Your Pittsburgh Professionals
Keller Williams Realty

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.

November 23, 2011 10:01 PM
Rainmaker
468,100
John Elwell
CENTURY 21 Bill Nye Realty, Inc.

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.

November 23, 2011 10:19 PM
Rainmaker
660,729
Pacita Dimacali
Alameda/Contra Costa Counties CA
Alain Pinel

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.

November 23, 2011 11:34 PM
Rainmaker
647,735
Evelyn Kennedy
Alameda, Real Estate, Alameda, CA
Gallagher & Lindsey, Alameda, California

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.

November 23, 2011 11:57 PM
Rainmaker
521,520
Maria Morton
Kansas City Real Estate 816-560-3758
BHG Real Estate - Kansas City Homes

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.

November 24, 2011 12:05 AM
Rainmaker
660,729
Pacita Dimacali
Alameda/Contra Costa Counties CA
Alain Pinel

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

 

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

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!

November 24, 2011 01:11 AM
Rainer
10,887
Luis C. Munoz
International City Mortgage

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!

November 24, 2011 02:57 AM
Rainmaker
77,276
Manny Rosa
New Construction - Union & Essex Counties, NJ
Rosa Agency

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.

November 24, 2011 07:27 AM
Rainmaker
330,572
Andrew Monaghan
CRS, GRI, EPro Associate Broker
Your Phoenix Home Source

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

November 24, 2011 08:05 AM
Rainmaker
775,582
Mike Cooper
Your Winchester, VA Real Estate Pro
Winchester Real Estate Sales, Cornerstone Business Group Inc

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.

November 24, 2011 09:30 AM
Rainer
181,355
Keith Lawrence
ABR, CDPE, SFR, 203K Specialist
RE/MAX Properties

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.

November 24, 2011 10:02 AM
Rainmaker
1,050,818
Scott Godzyk
One of Manchester NH's Leading Agents
Godzyk Real Estate Services

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.

November 24, 2011 10:05 AM
Rainmaker
660,729
Pacita Dimacali
Alameda/Contra Costa Counties CA
Alain Pinel

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?

November 24, 2011 01:10 PM
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Rainmaker
660,729

Pacita Dimacali

Alameda/Contra Costa Counties CA
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