I was reading a post on my favorite real estate social network and the writer was stating something I hear quite often. That you need to be very aggressive in making sure the bank does not reduce your commission. In fact the writer of the post I mentioned said:
“Who do they think they are to cut commissions? Negotiate for this! You work ten times harder on a short sale, so why should we be paid less. Fight for this commission. If you have to, take all listings at 8% and start there. Don’t let them push you around on this issue. They will break when you push!”
Great advice. Too bad it could put you on the other end of a massive lawsuit.
Short sales are not new. We have been doing short sales since before they became cool. We were doing short sales back when Sellers actually had equity. Aah..the good ole days! It’s not the short sale that is new, it’s the opportunistic real estate agent that’s new to the game.
Newly dubbed short sale experts are out there trying to do short sales and obviously the reason why is because the lure of a big payday. Most have found out that short sales are, from their jaded perspective, a lot of work, and have elected to forego short sales.
However some, who have decided to make it a go are learning from “instructors” that they need to watch out for the big bad lender who will try to reduce their commission. There’s a couple of reasons for that.
The first is obvious, they want to net more. The other is you are required to do so.
We have spoken to a number of prominent real estate attorneys. We have also spoken to a number of real estate boards in regards to this. Here’s what it boils down to and you may not like it.
If you are taking on a Seller in foreclosure you do so knowing full well they are in financial distress.You know they are about to lose their home if a short sale is not completed. You freely chose to market to this individual and some even have told the Sellers that they are “short sale experts”. Once you have taken that listing your fiduciary responsibility is magnified.
Not only are you charged with protecting their best interests, you must place their interests ahead of your own.
So let’s say you are “negotiating” with the bank and the bank says they need to reduce the commission in order to make the deal work. At once, the agent is going to do everything necessary to defend their commission. Uh oh…you have just breached your fiduciary responsibility.
In speaking with the attorneys for the State Board of Florida, FREC, we were informed on 3 separate occasions, that if you have to reduce your commission to ZERO to make the deal work then that’s exactly what you must do. YOU MUST TAKE NO COMMISSION IF IT MEANS GETTING THE HOMEOWNER OUT OF FORECLOSURE.
If it means you work for nothing and the Seller gets out of foreclosure, then that’s just the way it is. You chose to take on a client in financial distress and your fiduciary obligation is to protect their best interests ahead of your own.
I am not saying an agent that knows what they are doing should not be compensated. For that matter even the incompetent agent may need to be compensated based upon their listing agreement.
However, that may be a matter for you to collect upon outside the transaction in your own lawsuit. In the short sale transaction you may have to forego getting paid if the bank wants to reduce the commission to make the deal.I know..I know..I have heard it before, most agents will come back to the Buyer and say the bank rejected the offer and wants more money.
So you tell the Buyer they need to increase the offer in order to meet the banks requirements. Then when the Buyer won’t you tell the Seller that the bank and the Buyer are being unreasonable and there is nothing you can do.
Oops..there’s that fiduciary issue rearing it’s ugly head again.Don’t believe me, then call your local board..not your broker, not your friend, not another agent…but the State Board and ask this question exactly.
“Hello, I am working on a short sale. I have an offer and it’s well below what the bank will accept. The deal will close and the homeowner will be saved from a foreclosure if I agree to reduce my commission or eliminate my commission. I have been told that I have an extraordinary fiduciary obligation to a homeowner in distress and that I need to forego my commission if it is in the best interest of the Seller and it will keep him from losing his home. Is this true?”
Make sure you are sitting when you get the answer. One attorney told us that the mere negotiation of a commission and trying to “beat the bank” up over commission could be potentially actionable.
It makes a lot of sense when you think about it. You’re the one who decided to take on this listing, and you have obtained privileged, and confidential financial information that you would not normally have, and by negotiating a commission you are using that privileged information for your benefit. Kind of scary when you think about it.
But don’t worry, no one’s ever going to know about you killing a deal because the bank wanted you to take less commission. No one is going to know that the deal may have been able to be closed but the bank wanted $10,000 or $15,000 more. There is just no way anyone can say it’s your fault. In the end it just did not close and you can tell the homeowner that the Buyer would not go up in price and the bank wanted more than the Buyer was willing to pay.
Well…that’s not exactly true. We have spoken to 4 different attorneys in 3 different states and the next wave of real estate agent lawsuits are on their way.
You see, each and every time you call the bank to “negotiate”, those calls and everything you say on them are recorded. In fact, you AGREE to having those calls recorded as a condition to even being allowed to speak to a lender. Why do you think they record those phone calls? Did you ever think what the phone call waiver statement means and why they state it?
Lender reps are trained as to what they can and can’t say in regards to a client. More than likely in your newly read short sale expert manual, they failed to mention that little bit of information didn’t they.
Attorney’s that will be suing real estate agents can subpoena those phone records and in doing so can make a very compelling case for negligence. They can subpoena all of your notes, your short sale package…even your preliminary HUD-1 Statement showing your big fat commission on it. Yes, everything!
If that’s not bad enough, too many agents and brokers are chummy with their own title company or title agent and try and get “creative” with the paperwork. Unfortunately they used a title agent instead of a real estate attorney.
You see, that information can be brought in against the inexperienced, short sale expert as well. For if they used a real estate attorney, it’s possible another layer of protection would have been put in place per the attorney client privelege.
The two hour short sale expert class left out that tidbit of information as well.
Well, who knows, maybe the homeowner will just accept that he lost his home to foreclosure and believe that you did the best that you could. He probably will.
Here’s hoping for you that his attorney will too.
Check out this update to this post regarding the prospect of real estate agents being sued for misrepresenting themselves as short sale experts to vulnerable homeowners.