Realtor Commission in a Short Sale

How does a realtor get paid a commission. If you have to do a short sale the money is not there for a commission. I want to contact a realtor for help with investment property and am willing if I have to to sell shortsale but I don't have extra cash for commission. Who pays it?

3 Answers

In considering the short sale price, the lender that is taking the hit will also consider the realtor's commission request. Realtors that knowingly accept short sale listings understand that their commission is dependent upon the lender's approval, just as your ability to sell at the reduced price requires that same permission.

As a practical example, let's assume that you owe $250,000 on a home, but the home is only worth $200,000. In considering whether or not they will allow you to short-sell, the lender or lenders that will take the loss will be back calculating their net proceeds . . . The price will be $200,000 but there will be bills that must be paid from the proceeds . . .for instance, oversimplified: 10K to the realtors, 2K in final water/sewer/tax readings, 1K due to the attorney, and 2K due in sales taxes on the property . . . so if they agree to the short sale, they are really agreeing to accept only $185,000 to discharge your $250,000 lien.

If the lender can see that by foreclosing, they would net LESS than the $185,000 (after legal, carrying costs, eviction, etc), and that you will not net ANY PROFIT from the sale, they may decide that this is in their best interest and allow for the sale. They may also wish to negotiate these fees with the list or buyer's real estate agent(s).

It is extremely important that you disclose to your list agent or Realtor that the sales price may require a short sale, and obtain a payoff quote from your lender early on in the process so that they can accurately represent the expected net and loss to the lender. They will need the lender's permission to proceed with offers, and this catch will need to be disclosed in the listing (in come areas, unfortunately, this is commonplace right now. . . but in others it is not). Make sure that your agent has experience with short sale listings - this process can be complex, and you do NOT generally want to be the first one. . . . but an agent that regularly negotiates these deals will have contacts at the banks and attorney's offices that will make the process a lot smoother, comparatively.

The realtor's commission is part of the **banks agreement **to approve a short sale. If a short sale is approved, the banks have standard rates they pay each agent with. It is typically about 4% that they will pay, however on occasion, such as when the realtor gets a higher sales price then the bank required, AND the listing agreement states a higher commission, then the bank MAY allow a higher commission then their standard but this is unusual.

When selecting your agent to represent you, make sure they have experience in doing short sales as they are very different from any other listing type. Done correctly, and by the way most realtors do not do it correctly, the agent would submit a proposal to the bank and try to get the bank to approve a price range for the sale. If this is done, it eliminates most of the time and delays that short sales NOW have a reputation for. If the agent does not do this or does not know how to do this, find a different agent to save yourself extra stress in the process.

Hello great question!

In a short sale, once the bank has approved you for a short sale, they will tell you to go get a contract.  Once you have a contract  the bank will ask the seller's attorney to provide them with a preliminary HUD1 statement which essentially shows the bank all of the debt attached to the sale of this property and what the bank will essentially net once these debts are paid.  One of these debt items will be the real estate agent commission.  The real estate agent will paid at the time of closing when title changes hands.  All of the lenders are aware that they will be paying the real estate commission for a short sale. 

I would strongly urge you to use a realtor and an attorney in this short sale process as it is time consuming , their are a lot of details to handle and you want to make sure to select a real estate agent that is very familar with the short sale process.  This will ensure that you move as quickly as possible thru the process and it is also nice to have someone who understands the huge amount of stress you are under and is working for you so that you close as quickly as possible.  Have a productive and exciting day! Good Luck.