Is it a buyers' responsibility to pay the realtor commission in a short-sale transaction?

Asked by Miki, Chicago, IL Wed Jan 28, 2009

We have submitted an offer to buy home in short-sale, and our realtor informed us that there may not be a commission offered by the bank. He then suggested that his potential compensation would be at our expense and at our discretion. Is it normal for a buyers' agent to ask their client to compensate them when no commission is being offered by the bank? We also intend to use the same realtor to sell our house, and would provide a commission for that transaction.

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Brittany Sim…, , Columbus, OH
Wed Jan 28, 2009
By the way, if you plan on making your offer contingent on the sale of your home-it will not fly with the lender for a short sale.

If you are not making it contingent-that is a huge risk in this market.

Agents in my market cut their listing commission 1% when they are representing on both selling and buying.
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., , Los Angeles, CA
Sat Feb 14, 2009
Baited question - this person is in the know! Whats wrong with that ! Its a net sale that can build in any commission you want ---like ahhhh up to 20 % ummm like we see latley.

Wait a minute - is that a Trulia Realtor saying NO WAY - HE'S NUTS - okay - You want the honest answer you got it!
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Miki, , Chicago, IL
Thu Jan 29, 2009
Wow, thanks to all for your very helpful feedback. These are shark-infested waters, and we appreciate the guidance.
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Christopher…, Agent, Chicago, IL
Thu Jan 29, 2009
Dear Miki,

You've asked a great question, and the answer in your particular case is that your responsibilities with respect to compensating your agent should be clearly spelled out in your buyer's brokerage agreement.

It is a relatively (and unfortunately) rare practice in the City of Chicago to have buyers sign a buyer's brokerage agreement, but it is a practice that should be commonplace for the protection of both consumers like yourself and buyer's agents. Your agent should be applauded for having had you complete such an agreement.

Your agent should also be admonished for having not explained the consequences and duties of the agreement to you in a way that you fully understood.

Cathi Weaver's answer to this question I assume is based on either limited experience with such agreements or her reliance on "past or common practice" in Illinois and the City of Chicago, but she is simply wrong on this.

Blaison Samuel's answer is also quite off the mark. When a bank or lender is not being paid the full amount that they are owed on a mortgage, they are often very reluctant to pay "traditional" or full fees to other practitioners in a given transaction. Banks tend to ask the proverbial question- If I (the bank/lender) am being shorted, then why should everyone else be paid in full?

Virtually every short sale or foreclosure that I have been involved in has featured a re-evaluation of the realty brokerage commissions being paid at some point after the contract is agreed to but prior to (or at) the closing. the only times this does not happen are in cases where the bank has agreed to either a set amount or a set percentage of purchase price in writing in advance of the listing (and the cooperating commission being paid to buyer's agents) being posted on the Multiple Listing Service. Even in some of these cases the bank will want to make changes to commission agreements (i.e. when both the buyer and seller are being represented by the same Realtor).

I disagree with Gilda Baxter's statements about when a buyer's brokerage agreement is signed/used. Most (if not all) Realtors work on both the buyer's side and the listing/seller's side of transactions eventually. Even if the agent in question "specializes" in representing buyers or sellers, the need to have a written agreement in place with you that clarifies "each parties' rights and responsibilities, and also to spell out the minimum services required to be provided by Illinois law" (to quote Jeff Kropp's post) still exists in all transactions involving a buyer.

If in your case the amount or percentage that you've agreed to pay your agent is less than the amount that is being offered by the bank/lender or seller in the short sale transaction, then you should probably amend your original buyer's brokerage agreement with your agent. If you feel that you would like to make up the difference between the amount that your buyer's agent was expecting to be paid and what they're being offered on the short sale, then you could always "add" that difference to the amount that you would compensate that same agent (based on your intentions as stated in your original post to use them to also sell your current house) to the listing agreement that you sign with that agent.

You should be able to do either, but I would strongly advise you to get whatever agreement is finally reached (especially if you amend the original compensation from the buyer's brokerage agreement) in writing. And make sure that all of the relevant parties are notified. If you're not sure who the relevant parties are in the transaction, then ask your attorney whom should be notified of changes to compensation.

Without having known that you did already have an agreement in place with your buyer's agent, Thomas McCarey offered a pretty complete and thorough answer. I hope that my answer makes sense to you, but if it does not please feel free to contact me directly to clarify anything I've written here.

And to any Realtors reading this post, I'd strongly encourage you to not follow the "common practice" in Illinois and Chicago but instead have signed buyer's brokerage agreements with your buyer clients. You'll eventually save everyone a lot of confusion (and you'll protect your ability to get compensated at the same time).

Good luck.

Christopher Thomas
Broker Associate, Sudler Sotheby's International Realty
1634 E. 53rd St. 2nd Floor Chicago, IL 60615
773-418-0640 (cell)
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Jeffrey Kropp, Agent, Chicago, IL
Thu Jan 29, 2009
Since I am a buyers agent, perhaps I can clarify some of the confusion. Good buyer agents always require an agreement, just like any listing agent would do. It only makes sense to clarify each parties' rights and responsibilities, and also to spell out the minimum services required to be provided by Illinois law. Some agents are not familiar with these agreements because they do not specialize in representing buyers and the l bulk of their business has been sellers (well, until recently when their business went south). My clients are provided a copy to review and can seek counsel and even modify its terms, and I only ask for a signed copy once they are comfortable with me and the process. After all this is the City, how many deals are done on a handshake? I would not let my clients buy a home on a handshake, so why would hiring a buyer agent be any different?

The other posts that describe unethical behavior are wrong, at least in the absence of other facts you never presented. Commissions are always negotiable and subject to an agreement, and in the absence of an agreement the commission offered through the MLS listing controls. Since many short sale listings clarify that the buyer agents' commissions may be reduced in the end, a buyer agent may want to make sure they are compensated for their time, usually the difference between 2.5% and the actual commission. Of course, this is negotiable and a buyer may cut a deal regarding the listing, etc. One fact is certain, short sales involve a lot of time and patience on the part of buyer agent and they have a right to negotiate a commission for themselves. I am assuming that Miki got a hell of a deal, picking up equity at the closing table, so what would be wrong with honoring an agreement? Of course, this is all talk since an offer to a bank with a home sale contingency will never work, but that issue involves the competency of the buyer agent or stubborness of the buyer not sure which.
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Gilda Baxter…, , Colorado Springs, CO
Thu Jan 29, 2009
Hello Miki
The only time I've heard of agents asking the buyer to sign an agreement to pay for the commission is when they are only Buyer's agents. They don't list homes. I've seen that with some investment realtors.
I've worked a few short sales and I've never seen homes listed in the multiple listing service not provide some sort of commission. Sometimes they are reduced commission. I would ask for proof that the bank is not paying. You may ask the agent to release you from your contract and look for another agent., I always feel that if my client isn't happy with my service, they will only say bad things about me. Why would I want to keep that client tied to me. You want a good working relationship with your agent.
Take Care
Gilda Baxter
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Miki, , Chicago, IL
Thu Jan 29, 2009
Thanks for all the responses, I truly appreciate it. Yes, we did sign a buyers' agreement and yes, it does state that it is our responsibility to pay it iof the seller does not offer or does not provide it. For many reasons we should have realized this as we read the contract from beginning to end, but somehow it slipped past us or perhaps we conveniently forgot. It could end up being a deal breaker because we don't think the house is worth the added expenses that are potentially involved. Thanks again for your input and help.

Brittany - we made a non-contingent offer. We can afford to carry both houses, so if our current home did not sell, which we realize is very likely, we would be ok.
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Tom McCarey, Agent, Chicago, IL
Wed Jan 28, 2009
Hi Miki,

Your agent sounds a bit inexperienced. The only manner in which you as a buyer are bound to remunerate your agent is if you had an signed agreement already in place. These typically are referred to as buyer's agreements and are time-oriented and stipulate a specific amount either by percentage or an actual monetary amount that your buy-side agent is entitled to from you should no fee or a fee that is less than what the agreement stipulates be proffered in the transaction that he assists you to complete. Most commonly this deals with unrepresented sellers (FSBOs), but I could see an application with respect to short sales.

As for short sales some of the previous respondents have had experiences that differ from mine. Every short sale is different and typically complicated. The one thing they have in common, though, is the primary lien holder calls the shots as far as price and relative to a realtor's professional fee. What this can and does translate into is, should the deal actually come to closure, everybody involved is going to make a sacrifice. In other words, money often is shaved and each participant at the table will make some sacrifice to ensure that the deal is going to close. I have seen it amount to varying figures as it relates to buyers, secondary lien holders, and realtors in the transaction.

Back to your original query - you are not required to provide your agent with any compensation. And the manner in which you've painted him as softly and pathetically putting his hand in your back pocket sounds to be on the verge of unethical behavior. Bottom line are these two things - this is not something that is negotiated after the fact and should you come to an epiphany whereby you pity this guy and want to pay him, unless such payment is processed through his brokerage he would be in violation of the rules that oversee our activities as real estate professionals.

Finally... if the manner in which your realtor handled this situation reflects his skills as a negotiator I wonder if it's possible that another real estate professional has more skill and greater expertise with respect to negotiating as you prepare to list your home to sell. Just a thought.

All the best as you move forward toward your new home.

Thomas McCarey
Luxury Home Marketing Specialist
Accredited Buyers Representative
@properties and The Real Estate Lounge Chicago
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Brittany Sim…, , Columbus, OH
Wed Jan 28, 2009

Did you sign an agency agreement with your buyer agent? If not, you do not have to pay anything.

It is customary for the seller to pay all commissions in a transaction, even if it is a short sale. I do see lenders on short sales try to cut commissions to 2.5 or 2.25% in some cases in lieu of the normal 3%. Perhaps your agent is saying you would be responsible for the difference?

I do not normally make my buyers pay the difference if there is a cut in my commission. However, if you signed an agreement stating he/she would make x% of commission, that is what he will be due at closing. If the seller does not pay the entire fee, you will be responsible for the difference.
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Thomas Johns…, , Houston, TX
Wed Jan 28, 2009
If the property was listed in the MLS, there was an offer of compensation from the listing agent. The buyer agent can seek the compensation that was offered from the listing agent even after closing. If you signed a buyer's representaion agreement, it may have language that if the seller does not compensate the buyer agent, the buyer wll pay that compensation. You did read your buyer rep agreement before you sigened it, didn't you?
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blaison samu…, Agent, Santa Clara, CA
Wed Jan 28, 2009

I have never heard one case where bank doesnt give commission to the agents, bank always give commission but sometimes may be less than the market rate where seller's and buyer's agent distribute according to the mls. Ask your agent to prove in writing that he is not getting any commssion from the short sale transaction. If he is not giving any prove then tell him that you will look for other agent in selling your house. Just talk to that agent and try to work around, hope everything will work out with you both.

Blaison Samuel
Certified Short Sale Specialist
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Matt Laricy, Agent, Chicago, IL
Wed Jan 28, 2009
The bank usually covers the commission on short sales. However there are cases when they will not cover it. If this is the case, maybe it would be a good idea to discuss a way to compensate your realtor. Maybe make some sort of deal if he is also selling your house. I hope the transaction goes smooth for you.
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Cathi Weaver, Agent, Chicago, IL
Wed Jan 28, 2009
Hi Miki,

I haven't known other Realtors to do that nor do I.

You may want to talk this over with him and let him know that you are planning to use him for the sale of your home.


Keller Williams Realty
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