Where does the realtors' commission come from in a short sale?

Asked by Ab, Seattle, WA Thu Mar 6, 2008

Typically (in Washington anyway) I think the "seller" covers the realtors' commission / fees -- usually 6% total of the sale price. In a short sale situation, does the bank cover that? (for ex., does it come out of the price of the house being offered? (so if buyer ffers $180K on a $200K home, & expected commission is $3200 , does the bank assume it will get 176.8K instead of $180K?) We (as prospective buyers) would assume 100% of other closing costs, but have presumed we would not have to pay for realtors' commission.

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29
Mike Linkena…, Agent, Jacksonville, FL
Mon Feb 22, 2010
All traditional closing costs, including Realtor fees are typically paid for by your lender in a short sale! The only people or companies that charge homeowners a penny for short sales are those who are no successful at closing them and make a living off of FEES! Only choose an experienced Realtor to help! Check out:
1 vote
Courtney Coo…, Agent, Seattle, WA
Thu Mar 6, 2008
HI Ab -

Yes - the bank (seller) pays the commission:)

The bank does factor the commission into the deal as a whole when they are looking at their net bottom line. I have seen in many cases where the bank will try and cut into that commission on both the listing agent and selling agent sides. In that case the agents are kind of stuck with what the bank decides to pay them...unless:

The buyers have signed a buyer's agency agreement agreeing to pay their agent a certain percentage. In this case the buyers may be liable for the full selling office commission as agreed to in the agency agreement. That being said, it isn't what I would do.

I always go into a short sale offer deal with a buyer's agency agreement so that the bank knows what my commission is and that there is a contract for that amount. I am prepared, however, to negotiate my commission in this situation in an effort to put my client's best interest at heart. I would rather my clients get all their terms met and negotiate a bit on the selling office commission. I always go into a short sale situation expecting to get paid half a percent to a percent less than normal anyway just due to the situation.

OK - sorry to get so long winded there:) Bottom line is, you could still be liable for the full commission as a buyer if you signed a buyer's agency agreement, but if your agent did have you do an agency agreement, it might have been as a tool for negotiation like mine is in these situations.

Good luck! There are a lot of ins and outs with short sales!
1 vote
Good info. Thanks...
Flag Sun Jan 20, 2013
Deborah Madey, Agent, Brick, NJ
Thu Mar 6, 2008
Banks factor the commission payment in the price they approve as a short sale, providing it has been included and submitted in the short sale package.
1 vote
UpNest Top R…, Agent, Burlingame, CA
Fri Apr 24, 2015
I noticed that this question was asked about a long time ago, but we want to contribute for anyone else that comes across this thread.

In short sales, usually the bank covers costs associated with selling.

For those wondering about commission rates for a traditional home sale, commission rates are always negotiable with agents.

At UpNest, http://www.upnest.com, we created an online marketplace where home sellers can confidentially submit their homes, and multiple top local agents will compete to obtain your listing. Some agents lower their commission rates to stand out, and every agent that submits a proposal is an experienced agent, so it's not the same as working with a low grade discount brokerage.

Hope that helps!
0 votes
Linda Grigor…, Agent, Burbank, CA
Tue Jan 8, 2013
This is actually a big misconception amongst sellers and buyers of short sales.
The bank traditionally pays for all transaction costs related to selling, including closing costs and commissions. A HUGE relief when realized by a struggling home owner contemplating foreclosure. The buyer is still responsible for their portion of escrow fees.
0 votes
Linda Strasb…, Agent, Las Vegas, NV
Sat May 12, 2012
is it customary for a bank to ask the listing agent to assist with paying fees on behalf of the seller in a short sale when a HOA is unreasonable and is asking for a greater amount that the bank is willing to pay?
0 votes
MAX LEE, , Bellevue, WA
Sat Sep 25, 2010
Yes, you are right that in a regular transaction, the seller pays commissions, not the buyer. In a short sale, bank pays all the costs including real estate commissions, closing costs for seller, etc.

Learn more about a Short Sale at http://ShortSaleHomeExpert.com
0 votes
The Stephen…, Agent, Portland, OR
Tue Sep 7, 2010
You should not have to pay for your Realtor's commission in a short sale - not ever.
0 votes
Barbara Mcma…, , Seattle, WA
Wed Jul 8, 2009
It comes from the seller or the bank, not the buyer. Often agents get shorted in situations like this as the seller/bank decides what they will pay. this is quite unfortunate because they are a considerable amount of work and don't always go through. There is some new legislation to prevent some of this.
0 votes
Bill Gassett, Agent, Hopkinton, MA
Wed Jul 1, 2009
The Realtor's commission comes from the proceeds of the sale. This will be a part of the costs that the bank absorbs as part of doing a short sale. See the link below for everything you need to know about these kind of transactions.
0 votes
Does the buyer pay for changing ownership On a short dale in CA?
Flag Wed Jun 28, 2017
Sylvia Barry,…, Agent, Marin, CA
Tue Sep 30, 2008
All part of negotiation by the agents with the lenders. Everything will be settled prior to the sale.
0 votes
Kevin, , Seattle, WA
Tue Sep 30, 2008
Banks will pay commissions. Agents, please don't let them pay you 5%. 99% of the time they WILL NOT disapprove of a shortsale because of a measly 1% difference in their net pay off.
0 votes
Patrick Beri…, Agent, Seattle, WA
Wed May 28, 2008
You don't have to write a separate check to the agent--The commission is part of your purchase price and is paid by the lienholder, similar to a normal transaction where escrow takes the commissions from the seller's sale proceeds.

But speaking of short sales, to those agents who do these often, I say hats off to you. I'm the listing agent on a short sale and I've decided not to pursue these in the future--It's just not worth it.
0 votes
Joanna Jensen, Other Pro, Livermore, CA
Wed Mar 19, 2008
Usually the bank holding the note pays the commission. The seller does not pay the commission Usually but rules are different in different areas. You could also have the buyer pay the commission. If you are getting a great deal, it just goies into the transaction, and gets financed. You want to use an agent who is willing to put more time and effort into the process because it takes time but should be better for the sellers credit than a foreclosure.

JoAnna Jensen
Realtor
Hometown GMAC
Pleasanton, CA
Web Reference:  http://www.joannajensen.com
0 votes
Joni Sharrah, Agent, Lake Forest Park, WA
Tue Mar 18, 2008
In the short sale that I was involved with, the real estate commission was offered subject to the lien holder approval. Although the selling office commission was listed at 2.5% it was clear that even that was still an unknown entity right up until closing.

Short sales are tricky because although the sellers are listing and the ready buyer is willing, the lien holder is the decision maker. While the seller and buyer may arrive at mutual consent, the timing and full acceptance is driven by the entity who is holding the note.

From my perspective, in the short sale/pre-foreclosure transaction that I completed, my buyers ultimately paid the commission since they came in with a respectable offer. This is where the funds to close came from. Thereby, both the listing agent and selling agent were able to receive the agreed upon commissions.

Short sales are hard work and require more communication with more people. My clients were thankful for the professional and full service representation they received.

All parties had to give in a little for a win-win. The bank was willing to settle for less than what was owed on the property, the sellers had to let go of the home they had so much hope for, and the buyers had to be patient for the transaction to move beyond the stated expiration dates.

Best of luck as you weigh your options.
0 votes
Hi, , Virginia
Tue Mar 18, 2008
realtors are people too, someone needs to give them money.
0 votes
Jim Wagner, Agent, Auburn, WA
Tue Mar 18, 2008
I have been involved in 2 short sales. One as the buyer's agent and the other as the listing agent. In both transactions the seller has paid the commissions. However, in both transactions the bank reduced the commission paid to each side to 2.5% instead of the full 3% each side. From mutual acceptance to close one closed in 3 weeks and the other in 6 weeks. The time frame really depends on the particular bank who holds the mortgage. All the best!
0 votes
Beth Bird, , Mount Pleasant, SC
Tue Mar 11, 2008
I am currently dealing with a short sale as the listing agent, the bank asked me to give them an estimated HUD that includes the commission and all other fees associated with the seller. The bank then can look at the bottom line ( offer price less seller costs ) and then they can decide if they can accept the offer of as in your example $180K
0 votes
barbara mcma…, Agent, Everett, WA
Tue Mar 11, 2008
I would agree with most of the answers. If this is your first time buying, you may want to think carefully about purchasing a short sale home, especially if you have time constraints. They can often take a long time and be very frustrating, especially if the bank isn't local. The commission is usually set by the seller, however it will be negotiated with the bank with the agents involved in the transaction. Very often, the Realtors are asked to take less commission.
Web Reference:  http://www.investinhomes.net
0 votes
Britney John…, , North, SC
Fri Mar 7, 2008
A short sale commission is no different than the usual sale. The seller has already contracted with an agent if listed on the MLS and as a part of that they have agreed to pay a commission to their agent (broker).

The Lender has nothing to do with that commission which is between the seller and the agents broker. Be aware, it is possible for a bank to agree to a short sale and then the seller realizes that they are short on closing funds because they forgot about this commission.

If you approach a non-MLS listed FSBO property and you have an agent, most likely they will require that you sign a Buyers Agents Agreement whereas you are responsible for their commission since there isn't an MLS shared commission already in place and of course they want to be assured of their pay. If this is the case, generally there is a clause that allows the reduction of your commission dollar for dollar by whatever the seller may agree to pay towards it.

The last scenario is unlikely in a short sale because there already is a shortage of seller funds.
0 votes
Britney John…, , North, SC
Fri Mar 7, 2008
A short sale commission is no different than the usual sale. The seller has already contracted with an agent if listed on the MLS and as a part of that they have agreed to pay a commission to their agent (broker) upon sale.

The Lender has nothing to do with that commission which is between the seller and the agents broker. Be aware, it is possible for a bank to agree to a short sale and then the seller realizes that they are short on closing funds because they forgot about this commission.

If you approach a non-MLS listed FSBO property and you have an agent, most likely they will require that you sign a Buyers Agents Agreement whereas you are responsible for their commission since there isn't an MLS shared commission already in place and of course they want to be assured of their pay. If this is the case, generally there is a clause that allows the reduction of your commission dollar for dollar by whatever the seller may agree to pay towards it.

The last scenario is unlikely in a short sale because there already is a shortage of seller funds.
0 votes
Andee Bemrose, Agent, Kailua Kona, HI
Thu Mar 6, 2008
The answersw you got already are generally correct, but the conditions vary by bank. Again, you as the seller, cannot be acocuntable for costs to an agent when you can't even pay the bank the full amount owed. When the bank negotiates with the agent, on the sellers behalf, and agrees to take less than is owed to transfer the title to a buyer, they must consider the cost of sales. The realtors commission is one of these costs. The bank will try and negotiate a lower commission than might have been agreed on in the contract, but again, it is a negotiation process between the bank and the listing agent. The buyers agent should understand this when entering a client into a short sale contract. In fact, the listing agent should disclose this condition on the listing in commission comments.
0 votes
Ardell Della…, Agent, Kirkland, WA
Thu Mar 6, 2008
I'm looking back at other answers. You would not have to pay your agent even if you signed an agreement to pay them more than the bank allows. They can't demand moneys not shown on the closing statement/HUD 1. If an agent tries to collect more outside of closing, you should report that to their Broker and other authorities.
0 votes
Ardell Della…, Agent, Kirkland, WA
Thu Mar 6, 2008
You are correct that you do not have to pay for an agent's commission. The bank does not "pay" the commission. The bank agrees to a "short payoff". Say they are owed $250,000 but the net proceeds with a 6% commission would be less that what is owed them. They agree to the short payoff subject to the commission being no more than 2.5% for each agent (the norm). So if the seller has an agent and you don't, they may only approve 2.5%. If both parties have an agent, they will normally allow 2.5% max to each. So if one is charging more and one less, they still will rarely allow more than 2.5% to either, even if the total is 5%.

There are exceptions, and I once received more than 6% as the only agent, given the difficulties of that particular sale and house. But that is very rare.
0 votes
Leslie Hende…, , 80112
Thu Mar 6, 2008
In a short sale, the seller hires a realtor for a negotiated commission amount. When negotiating with your bank, your realtor should stand behind that contract to get their commission from the bank who has agreed to short. Banks have very specific mathematical calculations for a short sale and if the agent knows this information and submits offers that meet the short sale guidelines, the realtor will be paid by the bank as will the sellers title fees, escrow fees, HOA fees, sewer fees, Transfer Taxes, and anything else that is "attached" to the property. The key to a short sale is that the sellers bring ZERO dollars to the closing table. It is the realtor's job to make sure they get paid and in no scenario is the seller paying anything outside of escrow to a realtor. In Nevada, the buyer will NEVER pay any real estate commissions whether they buy a short sale, a bank REO, or a regular listing. Buyers agents are typically free in Nevada. This may vary state to state, but the fact that the transaction is a short sale does not change the state's norm.
Web Reference:  http://www.leslie4homes.biz
0 votes
Susan Gouldi…, Agent, Tracy, CA
Thu Mar 6, 2008
The commission is paid by the bank. The seller has no financial obligation unless negotiated with the bank. Typically the bank will only pay 5% if it is 2 agents from different brokerages, and 2 - 3% if an agent represents the buyer and seller. As a buyer your offer can offer to pay whatever you want. Here in CA most offers are including a 3% seller concessions - if the bank agrees to the short sale they will pay the concessions also.
0 votes
Debt Free Da…, , 85260
Thu Mar 6, 2008
They come from the proceeds on the seller side of the transaction.
Web Reference:  http://getprequalified.com
0 votes
Greg Anderson, Agent, Burien, WA
Thu Mar 6, 2008
In a short sale the selling office commission is paid by the seller. It typically takes longer to get an offer accepted, and in some cases the seller may try to adjust the total commission. The seller also pays all typically closings costs. You pay the closing associated with purchasing a home. Most of theser costs are for getting a loan. If you are fortunate enough to be paying cash your closing cost are approx. 1% of the sales price or less.
0 votes
James Hsu, Agent, Bothell, WA
Thu Mar 6, 2008
Unless you have a separate arrangement with your agent, then the commission should still be coming out of the proceeds of the sale..which in this case is going to the bank...although the lender may not be offering the traditional 3% to the buyer's agent. What commission is being offered to the buyer's agent is shown on every listing an agent pulls up. It's hidden to public sites. Often for short sales, the listing will say 3% subject to lien holder approval.
0 votes
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