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Short Sales: A Revised Strategy: Commission

By
Services for Real Estate Pros with AZ Veteran Notary Services CA BRE 01444168

The big drawback to working short sales is that the agents typically receive a reduced commission, from the loss mitigation department, for more work than what is normally required.

So, how do we stop the banks from fighting us for what is rightfully ours?  How do we give in to something that one REALTOR® will never even ask another REALTOR® - a cut in commission?

Well, I don't know if we can stop the lender from asking, but why not turn the tides to our favor.  Lets ask for more to start with!

When I take a short sale listing today, instead of the typical 6% commission I now insist on 8%.  That's right and the seller will give it to me every time.

Now I can ethically post in the MLS that the buyers' agent will receive 4% - of course I do have my normal disclaimer that the transaction is "Subject to 3rd Party Approval".

I let the seller know that this is a bargaining chip.  Every negotiation is about give and take and in most cases the bank wants to dominate the structure.  It is a given that they will lower the commission that is asked for - so now I let the homeowner know that I am willing to give up to 2% back to the bank as a point to negotiate and still end up earning a fair commission.

Now, I have not yet personally closed a 8% commission for a short sale, but a friend of mine claims he just did last month - he got the full 8% with an offer that was approximately 85% purchase price to current fair-market value.  Other than this one instance, I have seen 6% awarded on numerous occasions.

What I really do not want to see is an agent taking a 5% listing, offering the buyers agent 2.5% and then have then bank cut that down to 4%.  You have to admit, that really bites.

I hope this little tid-bit will be found to be useful to some.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Allison James Estates and Homes


Author of "What You Need to Know...About Foreclosure and How You Can Stop It!" - If you are a Hemet or San Jacinto Homeowner please call (951-443-6259) for your free copy.

 This blog and the contents written here is the intellectual property of John Occhi, Hemet California REALTOR®.  The views and opinions expressed are just that - views and opinions of John Occhi and those who comment.  Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance. 

This blog is part of the ActiveRain Real Estate Network, which is a social network highlighting the best of Web 2.0.  Information is provided with the intent of educating and assisting home owners, home sellers, home buyers and real estate investors with information the can be used to make better real estate decisions. 

I am proud to be a full time REALTOR® with Allison James Estates & Homes, who is proud to be a contributing member of the ActiveRain community.

 

 

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Until Next Time, Have a Blessed Day,

John Occhi, ePRO, REALTOR®
DRE Lic No: 01444168


ePro,John Occhi,www.johnocchi.com,realtor      Certified Probate Real Estate Specialist Logo Awarded to John OcchiFive Star Logo,Certification,REO,Five Star Institute     

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This blog and the contents written here is the intellectual property of John Occhi, Temecula - Murrieta, CA REALTOR® in the South West Riverside County region of the Inland Empire of Southern California.  The views and opinions expressed are just that - views and opinions of John Occhi and those who comment.  Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance. 


I am proud to be a full time REALTOR® who is proud to be a contributing member of the ActiveRain community.

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Comments (43)

John Occhi
AZ Veteran Notary Services - Marana, AZ
Mobile Notary Public/Certified Loan Signing Agent

Amber Castonguay - I agree, the listing agent is very much consumed with the transaction and does much of the work - but the buyers agent does have the buyer and right now it is the buyers who are controlling the market, so either way, we both bring a lot to the table.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

Dec 09, 2007 04:28 AM
Tina Merritt
Nest Realty - Blacksburg, VA
Virginia Real Estate

Maybe I'm completely naive here but my listing agreement is with the seller, not the bank.  When I get the short sale approved and the bank says, "short sale approved based on a 4%, 5%, or whatever less than what I have negotiated with the seller, I just tell them I have a contract that states otherwise and I represent the seller, not the bank.  A few times I have had to say, "now if this becomes a reo and you would like to use my services, we can negotiate my commission" - other than that, reducing my commission will make the short sale not happen and that 1% won't make much of a difference to the bank when they eventually get it back.

Dec 09, 2007 04:31 AM
John Occhi
AZ Veteran Notary Services - Marana, AZ
Mobile Notary Public/Certified Loan Signing Agent
Tina Merritt (Realtor, Virginia Beach) - Yes this does work some of the time - but especially when there is a 2nd and they are only waling away with $1K to $5K - on a $60K to $150K loan or LoC they are not thrilled with a Realtor walking away with a commission larger than their net.  There are times when commissions must be negotiated.  Certainly, I would never kill a deal because I wasn't getting my full amount.

This is why all of my commissions start out at 8% these days.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty
Dec 09, 2007 04:36 AM
The All Pro Team
EXIT Realty Leaders - Crystal River, FL

John, I think I will try that.  I always list the house at my full commission but rarely get it.

Melonie Haag

Jan 07, 2008 05:32 AM
Sean Dankers
Realty World Select - Fredericksburg, VA
Thank you for that strategy.  I have subscribed to you blog for more of your knowledge.
Jan 14, 2008 12:13 AM
The Keutla Team
Keller Williams - Auburn, WA

John, Good point!  What my team and I have been doing is starting at a comm of about 7% then ending up at about 6% and also using our LLC as a third party negotiator to charge an additional 1.5% for a fee to negotiate.

 The Keutla Team

Jan 31, 2008 04:55 AM
Anonymous
Charu

Hello everyone, I have a situation, I am new in real estate and I am about to close a deal which was a short sale. My client gave an offer of $325K and after a while bank accepted the offer asking a net of approx. 305K from that contract. Bank did not say anything about the commission, but the owner has not paid his dues (taxes, HOA Fees , water bill ) for last two years , So now the title company is using all that money to pay all the dues at closing and agents are getting only total of 1% (i.e. 0.5% each).

Any Suggestions.

Jun 13, 2008 11:45 AM
#30
Len McGuirk
Berkshire Hathaway HomeServices, Nevada Properties - Las Vegas, NV

John, good post. I specialize in short sales here in the Las Vegas area where we are flooded with them. I take every listing at 7%. I am a hardball negotiator. I have been paid at 7% commission a few times already. It is not easy, but possible. I have been very fortunate and persistent, which has gotten me paid no less than 6% and 7% on any short sale transactions! I just won't take less.

Nov 16, 2008 07:45 PM
Len McGuirk
Berkshire Hathaway HomeServices, Nevada Properties - Las Vegas, NV

Hey Jeremy, I read you post and I thought I was reading my own post! Lol. That is the exact results I get too. Never have I once taken a commission less than 6%, even though every lender only wants to pay 4%-5% maximum. What type of inside industry knowledge do you have that I may not know about? I am interested...

Dec 03, 2008 05:46 PM
Matt Yogerst
RE/MAX Realty 100 - Menomonee Falls, WI
Metro Milwaukee Real Estate

What do you do when you already have the 7% commission for that reason, but the first cut it down to 6%, and now the SECOND wants to cut it to 5%!!!! They say it is company policy and she will close the file if not agreed.

Dec 09, 2008 08:38 AM
Mark Ryan
Mark Ryan Group / Re/Max Victory - Dayton, OH
Broker, CRS, ABR, CDPE

Good post...  I always list at 7% and get 7-6-5 each about a 1/3 of the time...

Interested to see what the response is to Matt's comment.

Dec 09, 2008 12:22 PM
Len McGuirk
Berkshire Hathaway HomeServices, Nevada Properties - Las Vegas, NV

Matt, when a negotiator threatens to close my file if I do not agree to their commission amount, I typically push them to the edge even further. I will remind them that they are willing to close the file just because the 1st lien is paying me a reasonable commission. I will also remind them that they will not be gaining anything if the 1st lien forecloses. If they are still playing harball with me, I will usually always have to go above their head and speak with someone in upper management. If I can get someone in upper management on the phone, I know that certain people in this position have more of an interest in closing the file successfully. So they will usually review the deal and if it's good enough, they will override the negotiator's "limited" commission.

Of course you cannot expect a high commission if the offer is way unreasonable. All of my offers are typically great offers. Hope this helps someone.

Dec 09, 2008 09:22 PM
Maya Thomas, Broker
Tampa, FL
Please see my client recommendations.

The lender always gives in if you are PATIENT.  Don't be in a rush to close and you'll get paid.

Dec 23, 2008 09:38 AM
Len McGuirk
Berkshire Hathaway HomeServices, Nevada Properties - Las Vegas, NV

Maya,

Are you a bank negotiator? You definitely sound like it. How can someone be patient after waiting 3-4 months with no response! It is human nature to get frustrated with this kind of process. If the banks smartened up, they would have a better system to get through all of these short sales with less hassle. I guess we'll see that happen when hell freezes over.

Dec 23, 2008 08:30 PM
Maya Thomas, Broker
Tampa, FL
Please see my client recommendations.

Hi Len,
I feel more like a bank negotiator these days than a real estate agent. 

The BEST thing you can do is the very least with a short sale.  One picture or no pictures, no description or very little descriptive marketing.  Don't even try to get more money for the lender because they don't care about you, your commission, feeding your family or staying in business.

Be prepared to wait 9 months.  Since 9 months is pretty much as long as you'll have you'll need to get an offer as soon as you go on the market.  Consider it getting pregnant when you get the offer.  Then you have the 1st trimester, 2nd trimester and 3rd trimester. 

The 1st trimester is getting to an agreement from one or both of the lenders.  Try to get the 2nd to agree to something first.  Don't mention commission no matter what they say.  Just get something in writing.  Don't worry if the numbers don't make sence because you have NOTHING until you've got something on paper.  Once you've got a loan approval letter from BOTH lenders then you can start the 2nd trimester.

The 2nd trimester is the negotiation to get the lenders down to your actual offer.  The 3rd trimester  you can work on your commission. 

If you are really lucky you can get through these steps in a few months.  When you push the lender thinks you are desperate and they will try to cut your commission.

Dec 30, 2008 11:20 AM
Len McGuirk
Berkshire Hathaway HomeServices, Nevada Properties - Las Vegas, NV

Maya,

Have you ever closed a short sale before?

The things you have mentioned really boggle me. You recommend not taking any photos of the property, not putting a description of the property and not marketing the property. This is what the seller has hired you to do. If you are taking on a short sale listing, then it is your job to deal with the process with the bank.

You also mention waiting 9 months for a bank's response! This tells me that you may not have had many closed short sale transactions. As an agent, you should know that there are not any buyers that are going to wait around for 9 months to get a bank approval. So if you don't push the bank for an approval in a short period of time, the buyer will no longer be on the table. So being patient doesn't benefit anyone. I don't think by pushing the lender to get the job done in a reasonable timeframe is necessarily showing desperation. You need to understand that many of the reps at these banks have little common sense and no logic. So our job as agents is to convey the real message to them that there is no deal if they don't move quick enough. As long as the message is sent in a professional manner, then there are no signs of desperation.

Honestly, with your method of just sitting back and waiting for the banks patiently, I am not sure if you should take on short sales. If this is true, you are really doing a disservice to your sellers when they think you are helping them avoid foreclosure. Your job is to fight hard for your clients and get the job done, not sit and cross your fingers.

Not to sound harsh. I just hope you take this as solid advice that you may not want to take on short sales. Good luck to you in your business.

Dec 30, 2008 06:08 PM
Maya Thomas, Broker
Tampa, FL
Please see my client recommendations.

Len,

I think you should put the least amount of work into the short sale.  That's my belief.  You can do something different.  I've come to this conclusion after putting far too much effort into the deal.  I did not say to wait 9 months, I said be prepared to wait 9 months.  It doesn't take that long, but if you are in a big rush you're not going to get what you want.  If the LA, BA and buyer start out thinking it's going to take 30 days you are going to have a bunch of angry people.  If everyone is prepared to wait and hang in there together it's easier.  Maybe your experience is different.  Maybe you can call and threaten the lenders and push and get yourself in a big flurry of angry activity and you enjoy working like that.  I've done short sales that way and gotten paid a full commission too, but I don't choose to work that way anymore.  I enjoy being calm and professional with everyone that I work with.

Yes, some buyers will walk away.  Buyers that walk away in the first 30 days were going to walk no matter how hard you push and rushed the deal.  Most deals are not going to get approved in 30 days.  And it the buyer walks, fine.  The next offer will be lower and the bank will get less.  Sometimes the bank has to keep loosing before they become rational.  Find someone else to say rude things about.  Most of us are here to help each other not put each other down.  Doing less work and being patient makes me relax and helps me close deals and get paid the full commission.  If you are not interested in trying it, don't.  There is no need to be rude when you can be professional and supportive.  There are AR agents that may find my experience useful and these methods may help them to relax and get deals done and get paid the full commission.  Everyone doesn't have to do everything the same way to get good results.

Maya

Feb 22, 2009 07:35 AM
Len McGuirk
Berkshire Hathaway HomeServices, Nevada Properties - Las Vegas, NV

Maya,

I was not being rude to you. All I am saying is that short sales may not be best for you and the way you do business. Short sale transactions seem to be more for the aggressive agents, not the relaxed agents. The more aggressive agents that are negotiating with the banks will also help the short sale process as well. Upper management will not want to continue dealing with aggressive agents like myself, so that will force them to organize their process better. Then people may be able to relax a bit more, but as for now, I truly believe short sales must be gone through very aggressively.

Also, by relaxing more and not continuing to harass the banks, the banks will see you as a pushover and delay their timeframe with the process. There are many times that the negotiators and people working on your file forget to do something in the process too. If you are not there to stay on top of them and make sure they are moving forward, then the process can get paused and sometimes even cancelled.

Again, don't take my comments the wrong way. I believe every agent that takes on short sales should definitely be as aggressive as possible or not get into them at all. We, as a whole, need to step up in this business and take on these types of deals as best as possible in order to succeed.

Feb 23, 2009 06:46 PM
Christine McInerney
Great Life RE - Knoxville, TN
The McInerney Team, Knoxville TN Homes For Sale

This is a very good idea.  I just got my 1st short sale listing.  I am heading over to check out your other posts as I need all the help I can get.

May 04, 2009 04:26 AM
Lynn Semer
Cutler Real Estate - Wooster, OH
Experience-Knowledge-Commitment-Technology-Results

Whoo - hoo!  Thanks for the advice!  I jusat closed one that I took at 8%, when it was all said and done they cut to 6% which is our usual commission - I was sooo happy!  The last time we took one at 6% and they cut to 4% - so apparantly the standard is 2% reduction!   Maybe I'll try the next one at 10%  LOL

 

Thanks!!!!

Mar 18, 2011 07:42 AM