Admin

Buyer's Lender Limits Amount of Commission the Seller is Paying... WHAT!!?

By
Real Estate Broker/Owner with AmeriMade Realty

I don't know if any of you have had this happen, if so please help me figure out what to do!

Scenario:

I have an investor who is in the process of retiring and selling off several of his properties.  Most of them are listed under $40,000.  As an incentive to try to get other agents to show his properties, the seller recently contacted me and said "I want to raise the commission to 8% and offer a $2000 buyer's agent bonus on all of my properties."

Honestly I did try to convince him to just reduce the listing price by $2,000 on each property instead, but he insisted and so we offered the bonus.

[NOTE:  About a month before he asked me to raise the commission and offer the new bonus, he first asked me to offer a $1,000 bonus on all of his listings.  It was only after that didn't work that he suggested we go up to 8% and offer a $2000 bonus]

I was lucky enough to find my own buyer for one of his properties... but at the time the offer came in we were still at the lower commission with only a $1000 bonus.  The selling price is $39,000 with a 6% commission plus the bonus.  If you do the math, that actually looks like an 8.5% commission or something like that. 

I'm not one to be greedy... but I have had these properties listed for a very very long time and I've spent an incredible amount of money and time marketing these properties.  Having the bonus coming to me has been something nice to look forward to.

But then I get a call from the title company today saying "I don't know what to do but I got a message from the buyer's lender today saying the commission cannot exceed 8%.  So we need to reduce the commission or we can't close."

ARE YOU KIDDING ME!?

I've been selling Real Estate for 10 1/2 years and I've never had someone tell me I couldn't close because there is a limit to the amount of commission I can collect.  And it's the buyer's lender!? 

Are they allowed to do that?  And wouldn't it be a violation of RESPA if I had the seller pay me the difference outside of closing? 

I realize in my scenario it isn't much money... so I could just take the reduction.  But we've now got all of these other properties listed at 8% already (PER THE SELLER'S REQUEST) plus a $2,000 bonus.  So what do we do now if lenders are allowed to say "no, that's too high."

My buyer can't bring the extra money to the table... they are already using USDA financing with the seller paying the closing closts and prepaids.

So am I stuck reducing my commission? 

Please help if you have any information on this or if you know if this is legal!

Thanks!

Show All Comments Sort:
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Misty - Professionally, I have never heard of any of my lenders (I work most with buyers) limiting the agents commission.  Seller credits - yes but not agents commissions.  Having said that though, I also have never seen an 8% agent commission on a HUD1 statement.

Sep 15, 2011 09:40 AM
Misty King
AmeriMade Realty - Bryan, OH

Donne,

I've heard a few people say that they haven't heard of an 8% commission.  It is rare.  But it happens more often than people realize.  In fact I've actually seen commissions that are essentially 30% or more. 

Here 's a recent example:  A foreclosure in an inner city is selling for $3,000 with a lump sum commission to the selling agent of $1000 and a lump sum commission to the buyer's agent of $1000.  That's $2,000 on a $3,000 sale! 

Fortunately those are almost always cash deals, so there is no bank on the buyer's side to throw a fit when the HUD-1 shows up with a 66% commission.  But it makes sense that a lender-owner would pay that.  How else are you going to get an agent to show a property if it's a straight 6% commission (which translates to $180 total to be split between buyer's agent and seller's agent and then split again with each of their brokers). 

I just don't understand how they can tell me they are not going to approve the HUD when it's a standard 6% commission with a small buyer's agent bonus.    I might as well close my doors since there are so many homes in our area selling for under $40,000 due to the foreclosure boom. 

I just can't believe this is allowed!

Sep 16, 2011 02:14 AM