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Short Sales and MLS Guarantees

In a very interesting meeting today, members of the Columbus Ohio (CBR) MLS Committee and some REO / Short Sale Specialists met to discuss how to properly disclose real estate commissions thorough MLS. The issue is that in many short sale transactions, a listing agent will offer one compensation only to have the lender "knock down" the gross fees in order to accept the short sale deal. In some cases, the total fee ends up being less for one side than is expected for the entire transaction. Another issue is that the listing agent probably does not know what the short sale lender is going to do when the MLS compensation is presented by that brokerage.

The solution discussed is to notice agents up front in the agent comments section that the transaction is a short sale where compensation MAY be reduced by the lender as a condition to close. Not great, but what are we to do? Some agents may not show property if they risk getting less than their "full fee".

Anyone have any suggestions on this? What is being done in other areas?

Richard F. Kruse is the President of Columbus, Ohio based Gryphon USA, Ltd. (www.gryphonusa.com). The Gryphon Organization includes Gryphon Asset Management providing receivership and consulting services in the distressed marketplace, United Country Ohio Realty & Auction Group (www.ucohiorealty.com & www.ucohioauctions.com) providing real estate brokerage and auction services throughout Ohio and OnlineAuctionUSA.com (www.onlineauctionusa.com) providing commercial asset liquidations from the Midwest to East Coast.

United Country Ohio Realty & Auction Career Opportunities Available. Call 614-885-0020 x 17

Posted by Rich Kruse on 07/02/2007 06:19 PM

Comments (21)

commission, cbr, columbus oh, short sale, reo

Originally posted at: Asset Management & Recovery: Short Sales and MLS Guarantees

Post is included in group: The National REO Brokers Association

21 Comments on Short Sales and MLS Guarantees

JUL

2007

I've had two short sales. In each case, the counter tried to reduce the commission. Fine, I said, I don't care what the commission is, I only care what the co-op is and if this sale is settled, the listing office will pay the co-op in the MLS.

Any reduction of the commission does't affect the offer of compensation in the MLS. The integrity of the MLS co-op MUST be preserved.

If a listing states that anyone or anything cn affect the co-op, I wouldn't show the listing.

We are not pawns of lenders unless we permit ourselves to be.

Rcih when I am representing the seller in a short sale I fully expect the lender to beat up my commission. BUT the co-broke that I have offered in the MLS will stay the same regardless. I don't taketh away what I have already offered. That's bad for business. Also, just because the lender says they won't pay it doesn't mean we can't negotiate with them.

This was just emailed to every member of one of our MLS boards, copied and pasted without alteration except to take out the board MLS name:

Short Sales:

Any listings in the MLS that are SHort Sales must have the following Statement in the top line of the Property Information Box - THIS IS A SHORT SALES SUBJECT TO CURRENT MORTGAGE HOLDERS'S APPROVAL AND MAY HAVE TIME CONSTRAINTS.

XXXX will be adding it to the SPECIAL INFO field in the near future & these listings will not be made Publicly Viewable.

Our MLS, here in Southwest Florida, is being taken over by short sale listings. Our board has decided that all short sale listings must have specific verbage as the first line in the property description. They are also going to have a specific category that all short sales must be placed in and those listings will not be viewable by the public. These listings are currently driving prices down as other sellers try to compete for buyers. As far as commission is concerned, I have only had 1 close and received the full commission.

Jay, we must have posted that at the same time!

Parked. I'm interested in this debate.

Great start here. Let me clarify a question:

If the offer of co-op for the buyer agent is (for discussion purposes) 15% and the lender comes in and says that the total fee paid will not exceed 10%, is the listing broker expected to work for free AND make up the 5% out of pocket??? This is the slippery slope we are on.

Ok, what the heck is a guajilote?

Rich in my experience they will usually allow 5%. I've never had one go lower. If they did I wouldn't accept it. They can't just arbitrarily change the terms of my listing agreement. The seller and I have to agree to it. I usually start out at a higher percentage to leave room for negotiating. If the REALTOR(R) brought a buyer willing to give us the time to go through the process then that REALTOR(R) deserves to be paid and the lender will understand that. If not? Well then they don't really want to accept a short. Just stand firm.

B - You are pretty much right. This is a lot of what if though. The meeting today was to suggest policy. We don't know what tomorrow will bring, so the what if conversation is being had.

The more the lenders loose, the more we are going to get hit. It is the nature of the beast.

There are brokerages out there that have over 70% of their listings in a short sale situation. That is a lot of money to loose.....

I think it's a good idea to put some kind of warning like you suggest. I think everything has to be flexible in short sales or they just won't work out. A buyer's agent should steer clear of these short sale listings if they want a certain commission guaranteed. It would be different if the bank was actually part of the listing agreement, but they aren't. They are the ones taking a hit to make the deal happen, so I think they should have a say in how much in commissions are paid.

R-

Fascinating conversation you have going. So nice to see you do have a serious side : )

I've only overheard one conversation in my office, about a short-sale. Other than that, I've had no exposure to this at all. I do know that our MLS rules state that the compensation offered in the MLS, must be paid. No exceptions.

This is what I find ironic about short sales - these properties need to be sold and they need to be sold quickly. If the buyer's agent's commission is at stake, then the property has limited exposure from the get go. IMHO, they should offer more commission to the BA's not less.

"love-in-a-mist"???

JUL

2007

What we do here is require a disclaimer in the commission notes making it clear that in a short sale situation the lender sets the fees and the co-op will be split 50/50 whatever it ends up being - our MLS has a "Variable rate" commission option that should be used for cases like this.

The thing that ticks me off is when the listing agents advertise a co-op of 4% or more to get the property shown more when anyone that's done short sales knows that 4-5% is the norm and even then the commission tends to get cut even more to cover unexpected fees just to get the deal done.

Most agents in this area have no clue as to how short sales work or how frustrating and time consuming they are and then to walk away with about 52 cents after you're done ... do 10 of 'em and you can buy a burger and small coke. Lovely niche.

- James

Rich,

I can't comment on MLS rules, but I can question the logic.

The complaint seems to be that when you list a property (a contract for professional services between the Owner and the REALTOR®) for less than what is owed on it, that the lender, who's not a party to the listing, wants to limit his loss.

How dare the lender think they can dictate your fees! They should be required to take what ever loss, you and the seller agree to! The arrogance of some lenders!

Then along comes Lenn, stating:

"Any reduction of the commission does't affect the offer of compensation in the MLS. The integrity of the MLS co-op MUST be preserved."

What MLS integrity? If you allow listing for less than the known balance, requiring a third party concession without prior agreement, how can you claim to have any integrity? If your intention is to stick it to the other office for things they can't control, where is the morality?

"We are not pawns of lenders unless we permit ourselves to be." Interesting addatude, since the lender is not a party to the listing. Perhaps you should receive a bonus, for all the extra work and time involved.

Everyone seems to forget that the lender is the only one tacking a loss! The seller's loss occurred before the short sale it's the reason for the short sale, not caused by the short sale. In fact the seller is a winner since the short sale is a forgiveness of the "shortage" at closing which could have resulted in a deffincie balance for an even higher amount if the property had gone to sheriff's sale.

Maybe like those discount coupons retailers use, that have a small note saying: "cash value 1/10 of one cent" you should tell the MLS the co-op commission is !/10 of one percent, and offer a bonus depending on the offer finally accepted.

The real solution is of course to lobby the mortgage industry to recognized true buyers brokers and include the buyers payment to his agent as part of the purchase price. I agree that the buyer's agent earn their full fee, if the buyer was paying it, it would be no problem.

Until we can fully separate the listing and buyer's brokers, perhaps integrity should included acceptance of the possible problems and good intentioned co-operation. It wouldn't hurt to remember that in most short sales your entire fee represents a loss to the lender.

Bill

JUL

2007

I think that as the market grows more competitive for lenders they will be more willing to negotiate. We aren't there yet, here. But, we are heading that way.

JUL

2007

Rich, We use the comment section to disclose whether it is a short sale or not.

I would like to think that "Some agents may not show property if they risk getting less than their "full fee". is a violation of Realtor Ethics.

Great dialogue! Ok, after 5 years of intense short sale transaction experience and after intercepting "approval" or "acceptance" correspondence from over 40 lending institutions (including their hardship package requirements), we have seen one thing in common. Since there are so many different MLS rules and regulations nationwide, most loss mitigation departments and representatives simply require you to place "All terms are Subject to Lender Approval" in your listing agreement, MLS listing on-line, and in a offer to purchase. They obviously feel this is sufficient enough to protect them or to help prevent any unnecessary buyer or listing agent drama that could occur throughout the course of the transaction. We are aware that some states have a "Lender Approval" option in the "How to Sell" section of the MLS listing criteria. This phrase or something similar should be used.

Regarding the concern for commissions being reduced, we have found that most agents are unfamiliar with the lender thresholds associated with each type of loan and what the bottom-line net to the bank should be. Consequently, many agents are unknowingly entertaining offers that will inherently cause commissions to be cut at the closing table. We know because we started out in the business 5 years always having our commissions cut at the closing table. It wasn't pretty! Finally, after studying lender thresholds for FHA, VA, Conventional, and Home Equity lenders, we documented over a 100 short sale closings and were able to determine what percentages of the current market appraised value were being used when considering an offer to purchase. We haven't had a commission reduced in the past 2 years, unless, of course, the conventional lender was only paying up to 5% to begin with. FHA, in our experience, has always paid a total of 6%. VA fluctuated between 5-6%, but it was 6% most of the time.

As a side note, our company America's Home Rescue is about to release our Short Sale Calculator software for Windows 2000, XP, Vista, and Mac's. It has all the lender thresholds built into it and will produce all the necessary figures for each of your short sale transactions depending on the type of loan. I would encourage you to please check it out. We have a waiting list that is growing and the software will probably be released in the next couple weeks. You can find out more at our website. www.ShortSaleSolutions.biz

Hope this helped!

Michael Spickes

America's Home Rescue

JUL

2007

What it really boils down to is how bad the agents want to get paid? Are you willing to settle for less? I have found that by staying firm the banks have paid us our full commissions..let's face it..they have BIGGER pockets then we do and I always remind them..it took us several weeks to put this offer together, do you really want to jeopordize waiting another month or 2 for another deal to get approved for a measley $2000? (Or whatever the shortage is). I like this debate and I think I'll give Rich a star! Our MLS has a special place for us to ad comments about commission conditions.

JUL

2007

Our MLS allows us to indicate if a commission is variable or non-variable. If I took a listing that was a short sale, I have my Short Sale Standards of Practice sheet that I fax to the selling agent. It does indicate that the bank may want to reduce commissions of BOTH agents to make the deal come together. It's only happened once and we both gave up $500.

JUL

2007

What a terrific blog! I am just starting to do this and have one on the table that I am working on. I was looking at the commission which is 6% but wanted to indicate that the terms are negotiable as per the lender. This answered a number of my questions. I am going to call my MLS directly and see what they are doing. I want to CYA myself and also look out for the buyers agent as we all end up crossing paths (even with 10K of us here in Palm Beach County).

www.michelebee.com

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