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Does Owner Financing Mean I Don't Get Paid My Commission?

By Dawn Rickabaugh

Real Estate Broker/Owner with Dawn Rickabaugh (Note Queen) Owner Financing Consultant

December 21, 2010 07:42 AM

Money flying I thought this was a great email addressing concerns that real estate professionals sometimes have when dealing with owner financing situations:

“Hi,

I was just on your page “Dispelling the 5 myths of owner financing“. I am an agent in Chicago currently working on a owner finance deal for the first time. I get the process, but I am not sure about one thing. When do the agents get paid their commission???

We have asked the seller to hold the note for 12 months. Do we (realtors) get paid when the seller and the buyer have agreed on terms and transaction is signed off or do we get paid in 12 months when the buyer’s note comes due and they re-finance into a conventional mortgage and the real closing happens???

My broker says he believes it’s when in 12 months when the real closing happens, yet I have had other agents in the office that have done these type of deals in the office and they have gotten paid once the deal was put together.

Not sure??? Can you shed some light?

Thanks,

Sylvia”

Dear Sylvia,

Glad you found me, and yes, you should get paid at closing out of the down payment that the buyer brings to the table. An owner financed transaction IS a “real closing”. A bank loan does not a “real” transaction make.

If there’s a small down payment, not enough to cover closing costs (including your commissions) then you have to ask yourself 2 things…

Is this a good deal for the seller? Small down payment = greater risk of default
Would I be willing to receive my commission in monthly installments?

A couple other things…

Are you sure the buyer will be able to refinance in 12 months? The short 12-month term could potentially be a problem.
Would your seller like to be able to get more cash at closing? Sometimes if structured properly, the seller can sell a portion of their note, or a small first with the seller holding a larger 2nd. It all depends.

I am frequently a consultant in these types of situations to:

Help mitigate risk for sellers and buyers
Reduce liability for Realtors involved in owner financed transactions
To preserve real and paper assets for the seller
To help more deals come together by properly understanding owner financing and the secondary note market

Hope this helps! Put that deal together and GET PAID!

I hope you’ll stay tuned for my online training that is getting ready to launch at Owner Financing Club. There’s material there aimed specifically at Realtors.

To your success,

Dawn

P.S. If you’re a Realtor, have you even taken your commission on an installment note? Leave a comment below if you’re a real estate professional that has been involved in closing a transaction financed by the seller… would love to get your feedback!

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Bill Pohl

Tetra Homes, Inc. - Loveland, OH

Dawn - As an investor, we always strive for the commission to be paid when title changes hands. On a land contract or lease/option, that means on the subsequent refinance. On a true owner finance, where they take back a second, we feel the commission should be paid at the time of the original closing.

Dec 21, 2010 08:15 AM

Ron Wickes

Keller Williams - Broker Associate - Conroe, TX

I agree with Dawn at the initial closing. The seller becomes the mortgage company so to speak.

Dec 21, 2010 08:26 AM

Dawn Rickabaugh

Dawn Rickabaugh (Note Queen) Owner Financing Consultant - Carson City, NV

Note Queen

Hi Bill,

Yes, I agree that when title is not transferring, then it makes sense for the agents to take at most a leasing commission up front, with the "real" commission coming when the option is exercised, or the land trust is terminated, etc. Are you doing a lot of lease options? I had a recent client put down good option money and then have it yanked out from under him a year later when the seller filed for BK.

Dec 21, 2010 08:29 AM

Hi Ron,

Exactly... sellers become the bank. Just like banks have whole underwriting departments, sellers need an "underwriter" to help them put a strong deal together, especially if they want the option of selling the note on the secondary market!

Dec 21, 2010 08:33 AM

Dawn - Yes, we're doing a lot of these transactions every year. The BK obstacle also hits us sometimes as we are open to do "sandwich leases" and being on both sides. Lost 1 in 2010 that way and it was messy as we had to scramble and find another "like" property for ourtenant to move into. We are slowly moving into more of a "subject-to" model as we would rather deal with the "due on sale clause" instead of the individual's financial status in this economy through a lease option.

Dec 25, 2010 08:24 PM

Hi Bill, Makes a lot of sense to move away from the lease options... do you find that you're wrapping with AITDs or doing true subject-to's? And do you ever use the land trust vehicle to defend the existing financing and protect the title from liens, BKs, etc? When I've got expensive properties with attractive existing jumbos in place, we usually use a trust to protect it. Just wondering if you do as well.

Dec 27, 2010 12:25 PM

Does Owner Financing Mean I Don't Get Paid My Commission?

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Dawn Rickabaugh

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