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I'm in MA. I've notice a lot of SS here offers 6% commission (3% Listing broker / 3% Buyers agent split). Questions are:
- Why so high when compared to other regular sale commissions (4 to 5% typically in this area)?
- Do banks later cut the 6% down as a way to get more Net?
Before you guys answer things like, the Listing Agent does a lot of work to get the SS approval, let me give you what I've observed in my current transaction.
The Listing Agent does nothing other than an 1 hr open house, pass my Offer back and forth to the Sellers for 2 weeks until it's accepted. Actually, I think he even caused a lot of delays since we (Buyer/Sellers) could've agreed on the price, sign the papers in much less time. After this, all the work dealing with the Bank turns out to be done by an Attorney's office.
As for the Buyer Agent, she did the paperwork (Offer), emailed as I requested to ask why we haven't gotten this or that, and basically served as an in-between for communication.
So the 6% ends up being $22000+. Agents from each side pocket $11000 + a piece. I know they split this with their office, etc, but this is for a house under short sell (someone is losing money) and they aren't even the ones doing most the work (the attorney's are).
there is a boatload of work to do to get a ss completed
I know, but in my case, not by the listing agent or by the buyer agent. The work is mostly done by attorneys. Does the listing agent pay the seller's attorney using part of that 3%?
Just from a logical point of view: Short sales, even those handled by attorneys, take a bunch more work, take alot more time, and run far more risk of not going thru than normal sales. So, assuming you start with the premise that a listing contract for a normal transaction is fairly priced at x%, why would you expect that a short sale should not cost more?
And typically the agent gets 50 to 75% of the commission (there are exceptions) and from that they pay MLS fees, internet website fees, E&O insurance fees, education expenses, advertising expenses, car expenses, closing gifts, etc., plus some agents are also charged desk fees, a transaction fee, and charges for copies, faxes, calls...it goes on but I think I've made the point. I get that some people think agents are paid way too much for nothing but real estate is a business like any other with overhead. It's not as easy as it seems and it's not as profitable as it seems. I will say, though, that some deals from beginning to end go very smoothly and those do sometimes feel like the compensation is undeserved but, let me tell you, those are very few and far between.
Many deals are cut to 5% right off the bat but Fannie and Freddie don't require 6%, they just won't cut it. However, they will cut other things and who do you think the parties look to following that?
Don't mis-read my intent here. I'm not saying RE agents don't deserve to get paid, of course they do.
I'm asking why SS is commission % is higher when I observe the agents in the transaction that I'm in aren't doing that much more than regular sale.... maybe more waiting, but not more work.
The NAR has lobbied very hard to ensure that their members get paid the maximum commission, short sales being of particular importance to the NAR the past couple of years. In fact the NAR was one of the primary supporters of the 2007 Mortgage and Debt Relief ACT which essentially started all this short sale craziness by letting short sellers off the hook for the bad debt written off by the banks. Previously, short sellers had to pay federal taxes on the amount shorted to the bank. Thus with this temporary short sale/debt forgivness the short sale explosion and the NAR wants to keep the sales of homes churning in order to keep the realtors getting paid for each home sold.
The banks aren't losing any real money because many of those losses are being kicked back through fannie/freddie's balance sheets. Ultimately the taxpayer are really paying for all of this.
The realtors 6% (Usually 3 and 3 split commissions) are essentially being funded by the US taxpayers. It's sad but really true. Everyone needs to have their piece of the pie. Home sales need to be done, even state/county local government depend on it because many short sellers have stopped paying local real estate taxes on their homes and state/counties need state/county stamp/transfer taxes from the sale of each home to fund their budgets.
Just look at this official press release by the NAR. They lobbied hard to ensure short sales are allotted up to 6% commission. The government could have easily told the NAR to take say 4% (2 and 2) on short sales and the realtors would have still taken it because they really have no choice. Homes still need to be sold. But our government is one of waste so it's no surprise they let the NAR have it's way and command up to 6% on short sales while in private non distress sales, total commission can be negotiated to between 4-5% by the seller. In the case short sales, it's not the seller's money, so the seller doesn't give a crap about negotiating the commission. It's the taxpayers and bank's money.
Just read the press release. It explains the answer to the OP's question.
If I read your post correctly, you have misunderstood what the 6% thing was about. First, the commission percentage that a listing customer agrees to pay a broker is a matter of negotiation although most brokers do have a minimum they'll allow because of all of the things I mentioned earlier (i.e. overhead.) It does not matter whether we are discussing a normal sale or a short sale, the commission rate is negotiated. Short sale commissions have not been fixed by NAR or the government as you seem to suggest. As a matter of course, lenders/investors began to refuse to approve short sales unless the brokers involved would reduce their agreed upon commission to the percentage the lender wanted, ignoring the commission rate agreed upon by the seller and the listing broker. In essence, the lenders were offsetting their losses by cutting the commissions. This meant that I and every other agent in the country was having to invest more time and energy, jump thru way more hoops, and deal with issues that we never had to deal with before only to have our compensation cut because someone else (the lender) screwed up. Do you regularly give up income while working harder because a third party doesn't like your previously agreed upon pay? Not many folks would be willing to do that and NAR (who I don't happen to agree with often---I don't like the practice of lobbying) stepped in and helped limit the bloodletting. This protection of comission, by the way, is not across the board and often doesn't even apply.
The public isn't paying the short sale commission...the seller is. And, the lender is receiving less money because the seller has to pay that money out of the sale proceeds. That's a fact. You can twist it any way you like but that doesn't change the facts.
The NAR has lobbied very hard to ensure that their members get paid the maximum commission, short sales being of particular importance to the NAR the past couple of years. In fact the NAR was one of the primary supporters of the 2007 Mortgage and Debt Relief ACT which essentially started all this short sale craziness by letting short sellers off the hook for the bad debt written off by the banks. Previously, short sellers had to pay federal taxes on the amount shorted to the bank. Thus with this temporary short sale/debt forgivness the short sale explosion and the NAR wants to keep the sales of homes churning in order to keep the realtors getting paid for each home sold.
The banks aren't losing any real money because many of those losses are being kicked back through fannie/freddie's balance sheets. Ultimately the taxpayer are really paying for all of this.
The realtors 6% (Usually 3 and 3 split commissions) are essentially being funded by the US taxpayers. It's sad but really true. Everyone needs to have their piece of the pie. Home sales need to be done, even state/county local government depend on it because many short sellers have stopped paying local real estate taxes on their homes and state/counties need state/county stamp/transfer taxes from the sale of each home to fund their budgets.
Just look at this official press release by the NAR. They lobbied hard to ensure short sales are allotted up to 6% commission. The government could have easily told the NAR to take say 4% (2 and 2) on short sales and the realtors would have still taken it because they really have no choice. Homes still need to be sold. But our government is one of waste so it's no surprise they let the NAR have it's way and command up to 6% on short sales while in private non distress sales, total commission can be negotiated to between 4-5% by the seller. In the case short sales, it's not the seller's money, so the seller doesn't give a crap about negotiating the commission. It's the taxpayers and bank's money.
Just read the press release. It explains the answer to the OP's question.
You aren't quite grasping what the press release says and what the reality is. If an agent signs a listing agreement for 5%, the commission is 5% in the short sale. If an agent does a short sale for a flat rate, then that is the rate in the short sale. What was starting to happen is that agents were refusing to do short sales because the lenders were refusing the short unless they cut their agreed upon fee. Despite that you think that agents were willing to take what they could get because they didn't have a choice, that dynamic wasn't happening. Many buyer agents were refusing to show short sales because they had no idea what they were going to get paid. Fannie stepped in and made this policy with yes..lobbying from the NAR, because in order to move short sales they need buyer agents to show the houses. This gave buyer agents some peace of mind that they would get paid what they were legallypromised without worry.
If you want to show up for work and have no idea what you are getting paid you are welcome to do so, but agents weren't keen on that idea. As such, there was lobbying to create a policy to get houses shown and moved off the market.
Yes, since the government is propping up Fannie and taxpayers prop up the government, they are indirectly paying these fees. It's either that or homes won't get sold.
You aren't quite grasping what the press release says and what the reality is. If an agent signs a listing agreement for 5%, the commission is 5% in the short sale. If an agent does a short sale for a flat rate, then that is the rate in the short sale. What was starting to happen is that agents were refusing to do short sales because the lenders were refusing the short unless they cut their agreed upon fee. Despite that you think that agents were willing to take what they could get because they didn't have a choice, that dynamic wasn't happening. Many buyer agents were refusing to show short sales because they had no idea what they were going to get paid. Fannie stepped in and made this policy with yes..lobbying from the NAR, because in order to move short sales they need buyer agents to show the houses. This gave buyer agents some peace of mind that they would get paid what they were legallypromised without worry.
If you want to show up for work and have no idea what you are getting paid you are welcome to do so, but agents weren't keen on that idea. As such, there was lobbying to create a policy to get houses shown and moved off the market.
Yes, since the government is propping up Fannie and taxpayers prop up the government, they are indirectly paying these fees. It's either that or homes won't get sold.
All good points.
Additionally, many buyer agency agreements provide that the Buyer will pay their agent directly if the co-broke commission is nil or less than mentioned in the BA agreement.
When the fact of a low advertised co-broke amount (or none at all) is conveyed to the Buyer, then many Buyers will decide to not view the property.
When the Buyers were told that there was no way to know if there was a co-broke, or how much, many declined to view short sales.
Clarity was needed to encourage Buyers to want to see short sales.
I understand what silverfall and mikjaquish are saying about short sale commissions and direction needed from freddie/fannie.
But the point is that freddie/fannie are essentially government entities these days. Government has it's hands so deep in housing policy these days, they could easily have stated 4% total commission to be had from short sales involving their government backed loans. Take it or leave it.
Let's just say with a choice of take it or leave it, the majority of realtors would take the 2% selling/buying commission to move a short sale. Because income is income in this market. No matter how much work is needed to complete the sale.
This is like how medicare sets physician rates. My friend is a general surgeon. He has about 20-25% medicare population. For a gallbladder removal on a medicare patient he gets around $500 for the case (yes that $15K hospital bill for a gallbladder and the surgeon gets $500).
Medicare patients are sicker and require more work than healthier patients. That's like a short sale (it requires more work to do). But my friend still takes medicare patients because it's income. Obviously he can't survive if he's doing strictly medicare patient. But private insurance pays him $800-1000 for a gallbladder removal and those patients are a lot healthier than medicare patients.
But he has to take what the government dictates. If he doesn't do it, some other physician will do the work. It could take him as little as 45 minutes to do the gallbladder or up to 3 hours to do it and he still gets paid $500 from the government. Whereas private insurance pays him much more and he gets even more if he runs into pre existing complications.
But in the case of freddie/fannie allowing up realtors to get par what regular sales get. That's where the government has no clue how much money they are costing the US taxpayer and the banks. They should set the rate at 4%. Take it or leave it.
Short sales (while obviously taking a lot longer than regular sales) are getting approved much quicker these days. And the success rate is much higher than say 2 years ago. With government (once again dictating terms) in programs like HAFA which I mentioned in a previous post. Now short sellers don't even have to verify income (they just need to sign an attestation saying they have financial hardship). Who knows if they lie or now. But short sales will get approved even faster and realtors will keep on demanding as much as they can get and the government should have at least tried to save some money on this.
In Florida, (especially in my area), realtors get the full 6% and split it especially with programs like HAFA. That's a fact. Because our good friend is a long time realtors. Her last 10 sales in the past 4 months have all been short sales. All 6% total commission.
Personally I'm not a big fan of short sales. Especially the 2007 mortgage and forgiveness act. When it's all said and done, history will prove government interventions like these temp laws just contributed to the lingering housing mess and prolonged it's bottoming out.
Either people get foreclosed on or try to save their homes. There should be no middle ground. 7 year penalty to rebuy another home. Pretty simple. The bottom should have hit in 2009/early 2010.
Now we are probably looking at a 2012 bottom (because drums roll, the 2007 law is set to expire on Dec 31 2012). We will see how many "short sales" specialists are left when short sellers find out they will owe taxes on the shorted amount.
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