In response to my recent blog post explaining what a HUD Home is (click on the headline excerpt to read the full post),
I received the following request:
And so, Laura Gibson ... this post is for you! Thanks for asking the question; my hope is that many other Realtors®
will benefit from the response.
WHAT HAPPENED TO MY 5% ????
Have you wondered why all of a sudden HUD Homes are showing up in your MLS as paying "UP TO 3%" commision to the selling agent instead of the old standard of 5%?
The answer is that the entire HUD Homes process got an overhaul in Fall 2010 when HUD's Marketing & Management III (M&M III) went into effect.
Under this new contract, the responsibilities of HUD Local Listing Brokers (LLBs) were expanded to include more full service and traditional REO duties.
As a result, Local Listing Brokers are now responsible for everything you would be responsible for with a traditional seller, as well as regular valuation reports, regular inspections and reports, broad and innovative marketing strategies to attract attention to HUD Homes and training responsibilities for reaching selling agents in general and assisting selling agents in escrow on their listings through the HUD escrow process.
In a nutshell, HUD adjusted its distribution of commissions to compensate the Local Listing Brokers for the added duties they now undertake in their new role under M&M III.
BUT WHY ARE COMMISSIONS NOTED AS BEING "UP TO 3%"?
HUD will gladly pay out AS MUCH AS 3% commission to the Selling Agent on any* HUD transaction. That means that you as the Selling Agent get to pick your commission amount on HUD transactions.
Okay, okay ... I know; You're thinking, 'Angie ... why would I ever ask for LESS commission?'
So the good news is, if you don't want to, you don't have to.
'Right, Angie ... but why would I WANT to reduce my commission?'
ONE REASON AND ONE REASON ONLY: STRATEGY.
As you may know, HUD Homes are sold via online bidding. If you've ever wondered how the winning bidder is selected, you're about to find out.
HUD bids are awarded according to one criteria and one criteria only: HIGHEST NET TO HUD.
So if you are concerned about your buyer's competitiveness on net to HUD, or perhaps you're concerned about stiff competition on the home your client is bidding on (one of my listings recently received 84 bids in the 24 hour bidding day) ... you might want to reduce your commission to edge out a competing bid.
One misconception many agents have is that they have to reduce their commission in a particular increment (e.g.: .5%, 1%, etc.). In fact, you can choose to reduce your commission by any dollar amount you choose. Take off $1, $10, $200, $427 ... it's entirely up to you.
INCREASE EFFICIENCY BY REDUCING YOUR COMMISSION
Okay. Before you pull out the tar and feathers, hear me out. I know, that sounds like it makes exactly ZERO sense.
However, one thing to think about is that on HUD Homes that have been listed for longer than 9 days, HUD's Asset Managers respond daily to bid submissions.
SCENARIO #1: BE A HERO TO YOUR FRUSTRATED BUYERS
You've been working with a buyer for weeks, maybe months. They keep getting beat out on regular REOs, and they're sick of waiting on short sales. You're showing homes multiple times a week with limited success. Frustration is mounting ... on your part and theirs.
Enter HUD Homes. Now you can find out as soon as THE NEXT DAY if your buyer got the house, and if they didn't, you know for sure that they got outbid. Now, if you drop your commission by say $99, you may just edge out the highest bidder and become the winner.
Now you're in escrow, your client loves (and refers) you, and you're on to helping your next client! With gas at or near $4 a gallon, you might find it worth the commission reduction to get the escrow opened and move on!
SCENARIO #2: LEGALLY SWITCH THE SIGN IN THE YARD!
You represent an investor group that fixes and flips houses. You have a contract with them to get all the listings on homes you find for them once their rehab is complete. Your history tells you that for every rehabbed listing, you pull in 40 solid buyer leads while your sign is up in the yard.
You might choose to take little to no commission (I have seen $100) on the selling agent side of a HUD transaction to get your investors the inventory they need and secure your next listing, complete with all the leverage your yard sign will produce. Then you can show a bunch of those overflow buyers HUD Homes and repeat the cycle!
SCENARIO #3: EXPEDITE ANOTHER TRANSACTON SIDE!
Same as scenario 1, except your buyer is also a seller. The sale of their home is contingent upon them finding a house. The same principle applies, but your commission reduction on the HUD transaction can actually facilitate the sale necessary to realize your commission on the list side of your client's home. In a nutshell, it's a two-fer, and your clients will definitely think you rock!
I know 3% is not the same as 5%, but it's still a healthy (and in most markets, standard) commission. Even if this isn't the answer you were hoping for, I hope you're glad to have the facts, and have found the practice tips helpful.
FOR MORE HUD TIPS LIKE THESE, JOIN US OVER AT THE HUD HOMES MASTERY GROUP RIGHT HERE ON ACTIVE RAIN!
*Except Good Neighbor Next Door Listings ... more on that in a later post : D
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