Southwest Florida Title Insurance & Real Estate Blog -

Should a Home Buyer Pay a Short Sale Negotiation

We have been reviewing recent activity in the home short sale market as we are wont to do and found a couple of surprises.

The most glaring was the number of multiple listing service (MLS) detail that burdened the buyer with paying commission to the listing agent, short sale negotiation fees to a 3rd party, or even the seller’s attorney fees.  Here are some examples of what we found:

  • “Buyer agrees to pay listing agent a bonus commission of $2,000 at closing.”
  • “Buyer to pay $2,500 at closing to 3rd party short sale negotiators.”
  • “Seller’s attorney will attempt to collect a fee of $2,500 from short sale lender at closing.  If lender should refuse to pay any amount of said fee, Buyer shall be responsible for the difference between $2,500 and the amount paid by the lender.”

My first thought was that such detail would discourage buyers from looking at these properties, which would be a reasonable presumption if there were a proven, no-cost, no-obligation-if-it-doesn’t-close short sale solution (which there is of course!) currently in the marketplace.

Curious, I put the question to our database of successful real estate professionals and to a short sale-focused online forum.  Responses were quick but thoughtful.

  • Don’t show them.
  • I advise all of my buyers to skip these properties. To me this is an ethical issue particularly in the case of listing agents wanting bonus commission. Here is the way I feel about it:  If you are the seller and need to short sale, it is not the buyer’s responsibility to pay for your problems in the form of negotiation or attorney fees. Either figure out a payment plan or don’t use an attorney/company that requires this.  If you are requesting the buyer pay the listing brokerage/agent a bonus, stop listing short sales if the lender approved commission is not sufficient income for you. This is extremely unethical in my opinion because you are severely limiting the buyer pool from FHA/VA loans, not to mention potentially harming your seller by requiring this since it is a huge turn off to potential buyers, who in turn will not wish to view the home. It’s incredibly irresponsible and infuriates me.  Sorry about taking a step up on the soapbox but this is a very raw subject for me. No wonder so many people disrespect us as professionals!
  • I don’t show. I don’t think it is ethically or morally right.
  • We don’t pay them……..if the seller wants to, that is fine……..or the lender has to reduce the amount of the sale to pay whoever is doing the work.  We did pay one about 8 months ago…………but it benefited us greatly to do it.
  • Never saw the bonus one, but that would have to come from the listing agent only. The other fees according to OOFR, NAR, FAR, DBPR are illegal fees unless charged by an attorney. If I did work with buyers everyday I would tell them not to go for the property. I know many many agents that will not show homes with these fees attached.
  • My buyers have been rejecting those listings, since they feel that they should not have to pay the listing broker with whom they have no relationship.  I have forwarded several of these to Freddie Mac, since if you review the new FHFA guidelines they spell it out pretty clearly that they do not want any “other fees” added to the HUD as well as in one conference call, they felt that this would disadvantage those listings.
  • I most certainly show these properties because in the end our job is to find the perfect home for our clients.  I am very upset about the agents that utilize this approach and in the case where I submit an offer, I use the following verbiage:  Buyer and seller agree that any commissions paid are to be assumed a seller’s liability.  Buyer refuses to pay any additional commissions.  Per the listing agreement, an agent must present all offers.  If they do not they present my offer, I always write reasonable offers, then they are breaking their legal obligation to the seller.  I have found that several owners do not even realize that the agent put this on the MLS.  I have followed up with the owner by reshowing the house “for pictures” and asking about the offer.  In one case, the owner was unaware of any offers.  I believe that something should be done about this because to me it flirts the line of a FREC violation.
  • Personally, I am offended by listing comments such as these below.  I will avoid showing such listings if at all possible and, when questioned by a buyer, I will explain these are additional fees being charged over and above the normal commission which I perceive as an unnecessary and unfair expense.  Our office refuses to charge any additional fees beyond the commission including the popular “administrative fee” which is nothing more than a compete rip-off.  My integrity is more important than an extra tank of gas.
  • Good question, if I do come across anything like this, I disclose it to my buyer, and if they still want to see the property, I show it to them, ultimately it is the buyer’s decision as to whether they are willing to pay these fees.  Everything is negotiable and if the the buyer and seller can come to an agreement, everyone wins.  If not and the buyer doesn’t want to pay anything additional, we move on.
  • If I am working with a first time home buyer I will by-pass this type of listing. I am always holding my breath that the bank will negotiate within my buyers budget for the purchase price….another chunk of change between closing costs and down payment isn’t usually an option. Besides, it really irritates me that someone is demanding additional compensation….aren’t they getting commission…or should I have a different mindset?
  • It’s true lazy Listing Agents that will take the Listing for next to nothing in commissions and then put the commission on the back of the Buyers.  I think it’s outrageous…Who do they represent?  Themselves!!!!  Both the Buyer and Seller lose….sad we have come to this.
  • I find these types of listings and their agents very difficult to work with. Some buyer’s don’t mind paying the short sale negotiation fees (they understand the sellers don’t have a lot of extra cash or they would use it to pay the mortgage) and so I understand that mentality behind 3rd party fees. “Seller’s attorney will attempt to collect a fee of $2,500 from short sale lender at closing. If lender should refuse to pay any amount of said fee, Buyer shall be responsible for the difference between $2,500 and the amount paid by the lender.” This verbiage I can work with. It explains exactly why you pay this 3rd party fee and protects the negotiators  because we all know you can’t work for free. The biggest hurdle I face, and something I personally feel is excessive and greedy (::cough:: ::cough:: extortion) are the commission bonuses to the agent. Between their “bonus” and the negotiation fee, all of that perceived value of buying a short sale is washed away. If I’m paying your 3rd party company to negotiate, why do you, the agent, deserve a bonus in addition to your commission split? What have you done above and beyond your normal job description to earn that money? Some agents argue that the banks will drop the commission to 4-5% instead of 6, 7, 8% that they are used to. My argument to that is there is no set and standardized price in this business. The bank determines what they want to pay you and you know that going in. It’s no different than a seller refusing to pay your asking rate and telling you to do it for less. You knew the risk up front and you either take it or walk away. Does that agent offer to refuse the bonus if the bank pays them their full commission? Certainly not.My strategy is ask for everything off up front and see where the chips fall. You can always go up but can never go back down. Most of the time the 3rd party fees aren’t negotiable, but more often than not I’ve personally been able to save my buyers the excessive bonus money due to the agent by asking what extra services they are providing to my buyer for this “bonus”.
  • Frankly, we try to get rid of it and if not possible, we pass or adjust offer accordingly.

Interesting, huh?  And if you’d like some more, I encourage you to check out this thread on Short Sale Superstars.  I will put together my own opinions and post in another entry.  In the meantime, please don’t hesitate to comment or share.

Thanks,

Chris

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NOT LEGAL ADVICE: This information is not to be construed as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure that this information is up-to-date as of the date of publication. It is not intended to be a full and exhaustive explanation of the law in any area. This information is not intended as legal advice and may not be used as legal advice. It should not be used to replace the advice of your own legal counsel.

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