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How Much Commission Should a Short Sale Listing Agent Earn?

Short Sale Negotiations Are Hard Work

Short SalesA topic that I have not really written too much about with regard to short sales is the commission. Negotiating a short sale of one of the toughest parts of the short sale transaction. There is so much more involved in the role of the listing agent in a short sale. In a traditional listing, the listing agent takes the listing and is responsible for securing the property, marketing the property, and receiving offers on the property. Add to this mix hours and hours of phone calls to the banks, short sale package preparation, and stress management of all the parties involved (who have probably had to wait far too long for a short sale approval letter).

While there are many companies who provide third party short sale negotiation services (Short Sale Expeditor® being one of them), the bottom line is this: it does not matter what qualified individual or group is doing the short sale processing, short sale negotiation is a heck of a lot of work for the money.

When the real estate market went bust a few years back, the major lending institutions would attempt to hack almost every real estate commission to nothing. Dual agents or two agents from the same brokerage would be asked to share three percent instead of six. Second lien holders would ask you to reduce the six percent commission allocated by the first lien holder to four percent and then give the second lien holder the other two percent to release their lien. Are you following me here? Not nice!

Whether it is a third party negotiator, a listing agent, or an individual working on the listing agent’s team who is attempting to make the stars align and get this deal to close, this individual is working extremely hard—and probably for a lot less money than they would make in a traditional transaction. Who cares that most of the real estate agents of the United States took a pay cut a few years back when housing prices dropped by fifty percent? Who cares if Junior needs braces or a new pair of shoes? (read: sarcasm)

While the commission problems I described above are still going on, they appear to be a lot less prevalent due to all of the government programs. A while back Fannie Mae stated that they would always pay six percent commission on a short sale. The HAFA programs also assure the six percent commission. So, that’s all good news.

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Would you reduce your commission?

Everyone knows that I love short sales. But, I propose the following food for thought: If the banks ask for a commission reduction, does that not perpetuate the notion that our service is not worth its standard price? How will these commission reductions reflect on future generations of agents?

Each and every time that the bank requests a commission reduction, the agent is between a rock and a hard place. One the one hand, the agent wants what’s best for your client (at all costs and/or losses) and on the other hand, there is the obvious need to earn a living. So every time I find myself in this position, I cannot help but think that I am allowing others to undervalue my service, a service that on its worst day is excellent.

Written By

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

28 Comments

28 Comments

  1. Paula Henry

    October 26, 2010 at 8:57 am

    Melissa – I face this on almost every short sale. If the loan is not FNMA or FHA, I can almost guarantee the bank will set the commission lower than my client has agreed to. Yes, we work much harder, but the banks seem to treat short sale commission as negotiable.

    Still…..we fight on for our clients.

  2. Sheila Rasak

    October 26, 2010 at 9:39 am

    Even though HAFA stipulates that once a buyer is procured on a short sale offer the commission set forth in the listing agreement is non-negotiable, many banks will, at the midnight hour, attempt to reduce commissions in their approval letter. This is not the time to freak out and think that because they are the lender they are entitled to change guidelines.

    HAFA trumps anything the bank will attempt to change…including my paycheck.

  3. Kelsey Teel

    October 26, 2010 at 3:18 pm

    I don’t think realtors should be asked to lower their commission in any case.

    Would you ask your lawyer to discount his fees? Probably not. It’s the same principle. Realtors and lawyers are working for the consumer, on the consumer’s behalf, and they don’t work for free.

  4. FlatFeeRealty.com

    October 26, 2010 at 3:47 pm

    I just lost a buyer deal because the listing agent would not lower the commission! There was another reason too, but that was one of them. I would have taken less than 3%!!!! Geeez

  5. bobhertzog

    October 27, 2010 at 10:53 pm

    Hey Melissa,

    I finally made it over here! As usual, another great post. Being asked to reduce a commission is always a difficult spot to be in. Experience always tells you how far you can push without “getting in the way” of the deal. After all, that 1% you may give up will more than likely lead to more referral business than you could imagine!

  6. Roberto Mazzoni

    October 29, 2010 at 3:47 am

    I was planning to get involved in short sales and this information is going to be very valuable,

  7. Thomas A B Johnson

    October 31, 2010 at 12:17 pm

    So what is the consensus? A bank interfering with an exclusive listing agreement is tortuous interference, is it not?

    • Paul Scheufler

      November 3, 2010 at 12:54 pm

      Right on Tom. That is how I see it too. I have always held firm on this matter.

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