No one likes to take a job, expecting to earn compensation, and then learning that it isn't so. In the real estate world, it happens all the time. When representing a buyer, it's a few days from closing when the buyer learns they lost their job or that they're being transferred. Sorry for your hard work real estate agent but there's no pay day resulting from that.
One gripe that real estate agents have / had with short sales is that often when negotiating a short sale, the lender will come back and ask for a reduction in commission earned by the real estate agents. Some have fought to the death with the lender in the hopes of defending their income. At times, they were successful however on the other side, there have been real estate agents who have stood in the way of a short sale over compensation. On five occasions last year, sellers called into our office looking to switch agents after their current / former agent cost them a short sale approval because they weren't making enough money.
For 95% of real estate agents, the commissions earned is the only source of compensation. We're not reimbursed for gas, insurance, marketing...you name it as the list goes on and on. So compensation is a touchy subject and I totally get why some fight so hard. However, beware of fighting so hard as it may land you in a lawsuit.
Apparently, some lawyers are contacting homeowners who were foreclosed upon looking for a lawsuit. By examining the documents and issuing sopeanas to the lenders for recorded conversations and emails, they are getting a sense of what went on in the transactions and why it didn't go through.
The belief among some real estate commissions and local Realtor boards (including the Charlotte Regional Realtor Association) is that the listing agent and selling agent are taking on a short sale knowing the homeowner is in financial distress. As the fiduciary duty is to the seller, if the commission is reduced, they feel it is appropriate to split the balance among the two firms. An example of this would be an agent who took a short sale listing at 8% commission (where their firm paid the buyer agent firm 4%) but the seller's bank said they would only pay 3% total commission, they would each earn 1.5%. Most real estate compensation models for agents would result in that agent earning about .75% or less of the sales price before taxes.
Ultimately, in a tough market such as we are in currently, that means that the buyer's agent can (and they do) steer their client away from short sale properties out of the fear of being paid a reduced fee. The thought is that with so many opportunities on the market, why risk being compensated less? Buyers too tend to agree with their agent as they are faced, through a Buyer Agency Agreement, of paying any unearned income themselves should their agent choose to enforce the agreement.
The good news is that that vast majority of lenders have at least made the effort to at least pay up-to a 6% real estate commission without a fight....kinda. The latest trend among lenders is to hire a third-party to act as their loss mitigation team and pay them from the real estate compensation. I closed a HAFA short sale with Saxon in November 2010 where Saxon agreed to pay our fee of 6% provided that we pay 1% (or 16% of our income) to Zenta realty. Zenta isn't a real estate firm but rather a third-party hired by Saxon.
Commissions are cheaper than foreclosures.
The average foreclosure costs a lender $60,000 and that doesn't include the amount lost by the poor property condition, vandalism, etc. Therefore the argument from the real estate community to lenders is that by not paying up now, they are costing themselves money in the long run. However, I would recommend that agents take a different approach, which is the approach I follow:
No amount of compensation is worth a foreclosure...period.
While no one wants to work for months and earn nothing (and certainly my family and the family of the other agent would agree), putting ourselves ahead of the situation is out of place in every situation.