Short Sale and the Commission
Question:
I am concerned about taking on a listing and my potential liability to the Buyer’s agent for commission. The equity in the house appears to be on the negative side now.
Is there a way to limit my own risks here?
Answer:
There are numerous opportunities here depending upon the actual circumstances.
The standard documentation will not work. First, you have to figure out the priorities in the disposition of the property. Ordinarily, municipal taxes, first mortgage, second mortgage, construction liens, federal liens, provincial liens, then execution creditors.
So, the real question is: does the seller have any equity? And, if not, who is actually paying you? Make a deal with that person. Before the Seller can pay commissions, they need to get some money. Don't give it to them! That's the trick in all of this. If the seller gets any money, it just gets sucked down the drain. Don't let that happen.
Change the documentation around to protect the commission. This is a slam-dunk on the buy side. The buyer's agent also becomes a beneficiary of the trust for the deposit. This is not the case, unless you change that on the forms. So, two deposits will work perfectly.
Now, switch over to the sell side. This is a little more challenging, but not impossible. If you have time, get yourself appointed as a real estate mediator. That will move you to priority #1, ahead of the municipal taxes and the first mortgage. Another separate route would be sub-agency, by getting yourself protected from the buy side. It requires some discussion and co-operation but it will work.
There are also some interesting opportunities if there are a series of execution creditors. You can buy someone’s interest at a discount, meaning, of course, that you don’t have to pass along that discount to others. However, be careful, if you are an agent, then the principle of accounting means that you have to “account for” this profit. Again, the standard form documents will require amendment.
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