DON’T LET THE SHORT SALE NEGOTIATOR REDUCE YOUR REAL ESTATE COMMISSION

In a previous article, I briefly outlined the short sale process. Like most real estate transactions, the seller’s broker or agent in a short sale will be paid a commission. However, because the sales price for the home is less than what is owed to the note holder, the commission paid to the seller’s broker is essentially cutting into the funds the note holder would otherwise receive as a result of the sale.

In other words, let’s say a homeowner owes $150,000 on the loan for her home but the home is only worth $100,000 and for whatever reason the homeowner decides to sale her home. The homeowner hires you, a real estate broker, and you list her home for sale and eventually you receive an offer of $100,000 for the home.

You and the homeowner agree that $100,000 is probably a sales price the note holder will approve so the homeowner accepts the offer and enters into a contract. If the short sale is approved by the note holder, you, the broker, will be paid a commission which commission will come out of the sales proceeds. If the commission to be paid is 6 percent, your (together with the buyer’s broker) will be paid a total commission of $6,000. This means that the note holder will only receive net proceeds of $94,000 instead of the full sales price of $100,000.

In this situation, which is almost universally applicable in all short sale transactions, loan servicers who negotiate the short sale for the note holder will oftentimes try to reduce the commission payable to the broker so that the note holder can receive more of the sales proceeds. The loan servicer on behalf of the note holder may even make the closing of the short sale contingent upon the broker reducing his or her commission. In these situations, there is often nothing the broker can do but give in to the loan servicer’s demand.

In February 2009 however, at the urging of the National Association of Realtors, Fannie Mae announced that for Fannie Mae owned loans, loan servicers could not condition the closing of a short sale on the real estate broker reducing his or her commission.

Fannie Mae Announcement 09-3 dated February 24, 2009 stated that

“Effective March 1, 2009, closing of [short] sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6 percent of the sales price of the property in aggregate.”

If you are a real estate broker or agent handling short sales, the key to preventing the loan servicer from reducing your commission is to know whether or not Fannie Mae owns the loan (or the note) that is being negotiated as part of the short sale. Fannie Mae has made it easy to find out if it owns the loan but setting up an online loan look-up webpage.

If you are a real estate broker or agent trying to get a short sale approved on a Fannie Mae loan and if the loan servicer is trying to reduce the commission below 6 percent, remind the loan servicer that the Fannie Mae guidelines prohibit the loan servicer from making the sale contingent upon you reducing your commission.