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Short Sales: A Revised Strategy: Commission

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 3^rd 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.

Until Next Time, Have a Blessed Day,

John Occhi, ePRO & Five Star Certified REO REALTOR®
www.JohnOcchi.Com
Hemet - San Jacinto Valley, CA
The Excellence in Real Estate Team @
Allison James Estates & Homes
2281 W. Esplande Ave, #102-B
Next to "Starbucks"
San Jacinto CA 92582
(951) 654-5550

This blog and the contents written here is the intellectual property of John Occhi, Hemet - San Jacinto Valley 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.

Posted by John Occhi, ePRO, Hemet-San Jacinto CA Real Estate, 951-443-6259 on 11/25/2007 09:58 PM

Comments (46)

short sale, listing, list price, loss mitigation, lender, seller, bank, negotiate, commission

Originally posted at: John Occhi's Blog: Short Sales: A Revised Strategy: Commission

This post has been included in California Information Riverside County, CA Information Hemet, CA Information

46 Comments on Short Sales: A Revised Strategy: Commission

NOV

2007

Thanks John, I like this stategy and am dealing with one right now.

The second day in a row I was surprised to see your face at the top of my "subscribed to" list. It's good to see you back.

It sounds too good to be true. I will try it with my next one.

Missy Caulk Ann Arbor Real Estate - Again, I am glad to help any way I can - I hope this works out for you.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

Chris Elizabeth Griffith ~ Bonita Springs Fl Real Estate - Thanks Chris, its good to be back...and on top too!

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

Stella Barbour - Real Estate Agent - Serving Northern Virginia - You must remember there are no guarantees or set rules, but a rule of negotiating is you have to give up to get something in return...so I give up my "high commission" in return for ...

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

I love it! Fantastic advice. Have a wonderful monday.

Christin Griffin - thanks for the endorsement - try it, you'll like it

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

John. Realtors DO ask that of other REALTORS, lowering commissions. They count on the flawed belief that, when a seller lowers the commission that we split 50/50. NOT SO.

My commission comes from the listing agent's offer of co-op in the MLS. I don't care of the bank reduces the listing fee. The listing broker pays me what they offered for me to show and help sell their listing.

This is a game a lot of listing brokers are playing. Take the listing and if it turns out to be a short sale, not to worry. If the bank lowers the fee, we just pass the loss on to the buyer's agent.

Not this buyer's agent.

Lenn Harley, Homefinders - I did not write this to create a controversial debate over the value of buyers agents or the terms of the contract the MLS creates - It is simply a post to help educate listing agents maximize the commission that everyone earns.

I understand the purpose of the MLS and the contract that is made between REALTORS and that is exactly why it is paramount that the listing agent include in the agent comments and create additional terms that the offer is subject to 3rd party approval. If that is not good enough, then please don't submit your offers in the direction of the listing agent!

I for one prefer to do business in a spirit of cooperation and not confrontation. There is too much confrontation going on int the world that we don't need to create our own over such a trivial issue.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

NOV

2007

John,

I agree with your post... I list at 7% and usually get 6% as a result. Just yesterday I negotiated to 6% and gave the 1% and an admin fee as part of the negotiation. Deal goes thru and the bank can "win"...

Mark Ryan

Mark,

It's good to know that my theories not only work for me - they are becoming the way of the industry. I guess it is easy to spot these trends when your in front of the curve as it appears you are and where I hope to remain.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

John,

Forgot to respond to Lenn... I add to the MLS that ALL terms of the agreement are subject to third party approval and that includes commission. Again, you are right... spirit of cooperation. Why should I as the listing agent take 2% and give the buyer agent 3% and do all that work??? I work for a win win deal for EVERYONE involved in the transaction, buyer, seller and agents... that is the best most likely way for everyone to get to the closing table and get to their goal...

Mark

DEC

2007

Lenn has a good point, the buyers agent doesn't have to accept less. If a listing agent suspects that they might have to reduce it has to be put in the contract and all parties agree ahead of time. I'm working on a strategy that will prevent the banks from reducing I'll run it by you before I post.

Brian Sharkey Real Estate Team - I am definately interested to see what you come up with - this is one of the big issues with short sales - getting paid what we are worth.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

Mark Ryan - I agree with you - COOPERATION is what makes up professionals and not some greedy ambulance chasers.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

Brian,

I would love to hear you strategy... that is something real and can be an unknown problem...

Thanks

DEC

2007

Brian Sharkey Real Estate Team - See....inquiring minds want to know, just look at what Mark Ryan has requested...

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

DEC

2007

I've recently started to list at 7% - 2.5% to listing broker, 2.5% to buyers agent, and 2% to negotiator. I also just added a SS negotiator to my team.

Its garbage that the listing broker wear 2 hats (listing agent and negotiator) and receive only 50% of total commission. It is just as much work to sell a short sale and get it to the closing table as any other listing.

I have a couple of SS's submitted with the negotiator fee on the HUD - we'll see how it goes.

DEC

2007

I am an agent that does negotiations for other realtors. We start out with my fee as a line item separate from the 6 percent commission. So far, about 30 to 50 percent of the time it remains a line item and is paid separately.

About the 3rd round of negotiations, lender payoff approval letters will many times just say..."as long as we net $x,000, we will accept it. That is when you can capitalize on the 6 percent and line item commissions.

Also, lenders will sometimes not do the math when offers follow the market down e.g. the first deal submitted to the lender us $400k, the second $380k, the third $350K and finally the one that closes is $340k. Keep the commission such that the starting 5% commission ends as a 6%.

Very helpful, it never fails the Listing Agent is expected to reduce and I have been trying to think of a creative way to try and get some more money out of these tedious transactions.

Wendy Smith - I like it, I like it. Do you use your own name as the Negotiator, or a team member, perhaps? I just think when you wear too many hats, the bank will cut it down - but why not create a simple dba entity to be your own SS negotiator?

Did I mention , "I like It!!!"?

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

Jack Hartzell - Welcome to ActiveRain - I see you are a new agent. I am hoping to see more of what you can offer.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

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

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.

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

JAN

2008

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

Melonie Haag

JAN

2008

Thank you for that strategy. I have subscribed to you blog for more of your knowledge.

JAN

2008

This seems to be a common occurrence with lenders and agents. I do not know if Tortious interference applies to what the lender is doing to the agent but here is the definition of Tortious interference:

Tortious interference, in the common law of tort, occurs when a person intentionally damages the plaintiff's contractual or other business relationships. This tort is broadly divided into two categories, one specific to contractual relationships (irrespective of whether they involve business), and the other specific to business relationships or activities (irrespective of whether they involve a contract).

Tortious interference with contract rights can occur where the tortfeasor convinces a party to breach the contract against the plaintiff, or where the tortfeasor disrupts the ability of one party to perform his obligations under the contract, thereby preventing the plaintiff from receiving the performance promised.

Tortious interference with business relationships occurs where the tortfeasor acts to prevent the plaintiff from successfully establishing or maintaining business relationships.

Tortious interference of contract.- When an individual uses "tort" (a wrongful act) to come in between two parties mutual contract.

Although the specific elements required to prove a claim of tortious interference vary from one jurisdiction to another, they typically include the following:

The existence of a contractual relationship or beneficial business relationship between two parties.
Knowledge of that relationship by a third party.
Intent of the third party to induce a party to the relationship to breach the relationship.
Lack of any privilege on the part of the third party to induce such a breach.
Damage to the party against whom the breach occurs.

Maybe someone can run this past their attorney. I have yet to see an agent go to court on this issue using Tortious interference.

I do a pretty good short sale presentation for agents in the Riverside/San Bernardino area covering most issues in todays short sale. If you are in the Riv/San Berdo area and would like a presentation let me know.

http://www.johnperez.thenewticor.com/

John D. Perez

Vice President/Sales Manager

Ticor Title Co.

3739 Adams St. #110

Riverside CA. 92504

Ph# 951-509-0211

Fax# 951-509-4979

Cell# 951-233-1306

email john.perez@ticortitle.com

website www.johnperez.thenewticor.com

JAN

2008

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

JUN

2008

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.

NOV

2008

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.

DEC

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

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.

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

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

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

DEC

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

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

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.

FEB

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

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.

MAY

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.

AUG

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AUG

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