When I Offer Owner Financing, Should I Pay my Agent a Full Commission?

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

Whether or not real estate professionals should be paid their full commission at the close of a transaction where the seller extended terms (seller financing) to the buyer, is often a topic of some confusion.  While there is always room for negotiation for almost everything related to real estate transactions, it’s good to be clear about the fact that regardless of who provides the financing, (a bank, a hard money lender or the seller) a sale is a sale is a sale, and the agent/broker has indeed earned their commission according to the terms of the listing agreement.

Here is a recent email that I received, as well as my response:

Subject: Owner Finance commission pay out

Hi Dawn, I’ve been doing some reading on your site to try and figure out several things. I’m a cash investor and all of my said properties have an owner financing option. I’ve closed one owner finance without a Realtor involved - and just closed another where I had it listed through a Realtor, and paid full commission at closing. Which after the buyers down payment it still meant I came out of pocket around $3k just to sell the house.

I began thinking - what happens if this deal doesn’t turn into a regular mortgage within 3 years like its supposed to, or the guy defaults, or bankrupts. I not only will be out a sale but also around $7k that was paid in commission. Therefore I wouldn’t be able to make up the cost through another sale and would take a loss on the house b/c of commission paid.

The risk is extreme for the investor, seller, owner financier - yet only time for the listing agent. Is it not usual to pay a Realtor half commission upon the owner finance “sale”, and then the remainder once its turned into a “regular” mortgage?

I know this is a little long and scatter brained, just trying to make sense of the matter, I’m fairly new to all this.

Dear Investor,

I can totally feel you on this.  The short answer on commissions is…. it depends.  There are many ways to structure deals, including how commissions are paid.

The bigger question is your overall underwriting in general.  The out of pocket commissions will only be a small percentage of your potential losses if you are not putting these deals together a little more aggressively.  It doesn’t sound like your buyers so far have much “skin in the game,” which means it won’t be that hard for them to walk away if things get a little bit sideways, so you are potentially setting yourself up for bigger headaches than just being a landlord. 

Not to mention, the notes you are holding are probably not marketable, but they could be with a little strategic planning, which would give you greater liquidity… the ability to sell all or part of the note for cash.

I offer a book on my site that I don’t know if you’ve seen: http://notequeen.com/free-book-offer/.  If you buy the full ebook version it comes with a complimentary 15 minute consultation, and we could get on the phone and cut to the chase on some of your most pressing questions.

Best wishes,


So, back to the conversation…

When the buyer doesn’t have enough of a down payment to cover all of the closing costs, and the seller understands the risks and is willing to do the deal anyway, is it reasonable to ask the real estate professionals involved to delay part of their commissions?

I believe it’s always reasonable to ask questions to see how we can help transactions close for the benefit of all concerned.

Like I said in the beginning, the broker is not obligated to take less than the full commission at closing, but may be willing to if that’s what it takes to get the deal done.  Something is better than nothing.  Sometimes agents take their commissions in the form of a note that is payable in installments out of the buyer’s mortgage payment to the seller each month.

And… I don’t believe that seller’s should relate to their agents like Private Mortgage Insurance.

An agent’s job is to extract the best possible offer from the marketplace for you… it is not their job to be your underwriting department, or to guarantee that the buyer will continue making their payments as agreed and be able to refinance when that 3 year balloon comes due.  Just like it’s not an agent’s job to guarantee that your real estate acquisition will only go up in value after you buy it, and only down in value after you sell it.

They’ve done their job… they helped get you the best possible buyer for your property.  That’s what you hired them for.

You, the seller, are the bank… you need to hire your own underwriting department, and be responsible for the risk and reward potentials inherent in the way you put your transaction together. This is your investment.

Some agents understand financing, many don’t… it’s beyond the scope of their expertise to know how the secondary market will view the seller carry back note you are creating, or to help you accurately assess the risks and steps you might take to mitigate them.  Do I think agents need to learn more about these things?


Agents need to get a feel for the basics, and know when it’s time to bring in other experts to help protect and support their clients.  I have agents that bring me in as a consultant before they close on their owner carry transactions, because they understand that I possess a level of expertise they lack when it comes to engineering seller carry transactions in a way that preserves the value of the note/paper in the secondary market.

I’ve had sellers-become-note-holders bring me notes a few months after they’ve created them, and be shocked when I couldn’t offer anything at all, or could only buy a small partial, or required a MASSIVE discount in order to cash them out.

After the shock wore off, they were angry at the professionals involved in helping them put together their owner-financed transaction in the first place.  One note holder was so exasperated:

“I asked my agent if they knew anyone who could help us structure the seller carry back note, and they said they didn’t.  Now I’m finding I can’t sell my note at all, and I am REALLY upset.”

Even attorneys, while they usually know how to put the mechanics of a note together (sorry, but I’ve seen basic math errors on notes put together by attorneys), they don’t know how to structure a note for minimum discount in the secondary trust deed market unless they regularly buy and sell notes themselves, because the market is changing all the time.

When I’m involved in helping owner financing transactions come together, I help sellers create the kind of paper that I’d be willing to buy at a price that makes sense for the seller.

It’s my “Bake It and Buy It” program.

I will make an offer to purchase the notes that I help to create, in whole or in part, depending upon the unique aspects of each transaction.  And I’m often bringing techniques to the table that are generally only understood by savvy investors that have been studying creative real estate for years… strategies that are simple, but beyond what the retail market seems to think about for some reason.

But yes… those commissions… if there’s enough cash from the buyer’s down payment to cover them, then I believe it’s your responsibility as a seller to pay them in full, even if it means you are only netting $15.98 at closing, with the rest of your equity coming in monthly installments.

If the buyer’s down payment is small, and you really don’t have the cash to bring to the table to close, then I think it makes sense for everyone concerned to be flexible.  If I had a listing and I had the option of taking a partial commission up front with the rest of it in monthly installments (plus interest), or nothing… I think I’d probably choose the former… unless I was low on my girl scout credits for the month.  Then I’d just do it all for free.



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Seller Financing - Closing Deals in Any Market
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Patt M. Judd
First Realty Company - Cookeville, TN
Realtor - Your Cookeville Connection

Owner financing is bad , you have people with no money and how are agents suppost to get paid. question question

Mar 04, 2011 02:56 AM #1
Dawn Rickabaugh
Dawn Rickabaugh (Note Queen) Owner Financing Consultant - Carson City, NV
Note Queen

Hi Patt,

Owner financing, like anything, can be a good thing or a bad thing, depending on the particular situation and the objectives of the parties involved.  Some agents are functioning quite happily in owner financed scenarios, making commissions that their counterparts leave on the table, because they know how to put the deals together, and don't have to wait 60-90 days for a "maybe" from FHA... the underwriting just has to be there.

If the buyer's down payment is low, there is a possibility that the seller can create and then immediately sell a small note, or a partial, thereby creating more cash at the closing table to pay commissions and other closing costs.


Mar 04, 2011 06:38 AM #2
Bill Morrow
Keller Williams of Central PA - Mechanicsburg, PA
Bill Morrow, Associate Broker
Unless there is either an extrodinary relationship between the Realtor and the seller or the seller will permit the Realtor to place a lien against the property then I suggest payment of the realty fees at the settlement table. The Realtor brought a ready, willing, and able buyer to the table. The ability of the buyer may be somewhat in question with regards to the amount of down money on the table but the seller accepted the terms of the agreement. If the seller does not have the means to fullfill the obligations to the broker at settlement then a larger down payment should have been required by the seller prior to initial acceptance.
Mar 07, 2011 11:54 AM #3
Dawn Rickabaugh
Dawn Rickabaugh (Note Queen) Owner Financing Consultant - Carson City, NV
Note Queen

Hi Bill,

I agree.  The real estate professional should be paid at closing even if it means the seller needs to come out of pocket for closing costs.  If for some reason all the parties agree that it makes sense to take a small down payment, with the Realtor taking all or part of their commission in the form of a note, by all means, their position must be protected by a lien against the property.  They can record a 2nd lien, or be named in the 1st note with a servicing company disbursing the payments to both Realtor and seller.

Thanks for your thoughtful comments.

Mar 08, 2011 04:55 AM #4
webb rowan
The Smarter Finance Company - Baltic, CT
Rowan Webb is a New Zealander.

This seems like a problem across the board for brokers and agents for all sorts of items. We have been doing business as a car financing company for a long time already and inevitably we know of customers who use our resources and end up going to the financing institution on their own to try and snag the good deals without having to pay the agent fee. That's just life for you.

Nov 18, 2016 11:12 AM #5
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Dawn Rickabaugh

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