when buying a hud home who pays the real estate comission?

Asked by Marsha Wiss, Garland, TX Sat Jan 10, 2009

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14
T.E. & Naima…, Agent, Dallas, TX
Sat Jan 10, 2009
Marsha,

I think you'll find Bruce's answer, as usual, is the closest to the truth. Be wary of taking a rebate from a Realtor that is not disclosed to your lender. Some lenders prohibit this. Ask your Realtor and your loan officer about such arrangements before having your closing delayed or having problems afterwards.

When a seller lists a house, he agrees with the listing Realtor how much he will pay both to the listing Realtor and a Realtor who brings a buyer (actually the brokerage companies the Realtors work for). From the seller's point of view the money he receives is less than than the listing price not only by other closing costs but by those commission payments also.
As pointed out, since all of the money comes from either the buyer, the buyer's lender or is paid on the buyer's behalf by a third party, the money that you, the buyer, pay includes commissions plus closing costs plus money received by the seller. I hesitate to call paying indirectly "free" but it's not more than usual, and doesn't affect the sale, normally. "Normally" includes builders. If you go to a builder with a Realtor, you pay the same price as without, but sometimes the Realtor can negotiate more effectively for you. In this case, you might actually consider it free or to your benefit (not to mention the advice and experience you get).

HUD is no different from any other seller. They set a price and expect to pay some costs for closing and commissions. They won't allow more than 5% of sale price nor less than $500 as commission to your Realtor. They also pay the listing broker (BLB) from the proceeds 0.5 to 1% roughly. HUD will also pay additional closing costs up to 3% of the sale price, but as pointed out, these costs are considered as reductions in the net amount received by HUD.
Since the BLB gets the same amount no matter who buys, only the closing costs and your Realtor's commissions matter in reducing the net proceeds. HUD will use their rules to decide which bid gets the property but basically best net proceeds wins. (There is a pecking order, not necessarily what you expect, as to which class of bidder will win.) So, higher commissions can put you at a disadvantage compared to other bidders, potentially.

After the closing, a check from the title company is sent to the Realtor's broker for the commission. Another check is sent to the BLB for their commission. The buyer does not pay anyone directly except the title company and other service providers who inspect, appraise or perform services for the buyer. The buyer does not pay the Realtor directly ever, and does not pay his broker, unless specifically agreed in writing beforehand. The commission from HUD (the seller) via the title company is the accepted means for the Realtor of the buyer to be paid.

Does that help clarify who pays the commission?
Web Reference:  http://www.SumnerRealty.com
4 votes
Bruce Lynn, Agent, Coppell, TX
Sat Jan 10, 2009
Marsha,
Just depends on how you look at it. It's all your cash/loan so in some ways the buyer is paying. In other ways the seller pays from their listing agreement and it is deducted from the proceeds of the sale. So it just depends on how you look at it. It's not directly cash from your pocket that you turn over in addition to your purchase price.
Just one note Marsha if you are not already working with a Realtor. On HUD homes realtors can charge anywhere from 0-5% commission. Since you don't directly pay for this it is not always transparent to you, but this does affect your chances on getting the home as HUD looks at the highest NET bid. So for example if there are two bids for $100,000 and I take a 3% commission to represent you and another realtor represents a client and takes the maximum 5% commission you would get the bid as yours has a net to HUD of $97,000 while the other had a net of $95,000. This is a very simple illustration and it is slightly more complicated than this example, but something you should be aware of. There are a lot of realtors who want the 5% and HUD bids are more time consuming, and perhaps the prices lower in many ways so perhaps it is justified. You have excellent questions...so good luck with your purchase.
Web Reference:  http://www.teamlynn.com
2 votes
The Oliver T…, Agent, Ovilla, TX
Mon Nov 1, 2010
Marsha,
Although George put a different twist on I dont believe he is right. Yes the buyer brings the money to the table and yes if there is not a buyer there will not be a sale, but the seller pays for the brokers commissions out of their proceeds. If the seller were to sell the house at a loss, they would have to bring the money to the table to pay the brokers commissions.
Now HUDs structuring of commissions is a little different. They allow ,like T.E. mentioned, not less than 500.00 and not more than 5%. This gives the agent the ability to chose their own comission. The agents decision on what commission to take will affect the net to HUD and could possibly affect whether the buyer will in fact be the highest bid. I will never take less than 3% but there are some agents that take 5% all the time and thus they may lose a few deals due to the close bids.
I hope this helps. Contact me if you have any questions.
Thanks
Chris
1 vote
George West, Agent, Dallas, TX
Wed Oct 20, 2010
The “Who” in this question is the Buyer in Texas.

All sales commissions whether HUD, VA, Conventional or any type of sale of real estate in Texas are paid by the person who brings the money, the Buyer The BUYER’s in the State of Texas always pays the Commission(s). Every large Residential Agency tells their agents that this is not the case but in fact, it is. Just last month an instructor for the Dallas board told a class of beginners “We (all Agents) work for the Seller.” Well maybe in her mind, she does but the Buyer according to State Law is paying her. I would hate to see her defend that in a Court of Law.

Think of it like, if the buyer does not come to the table with his money no one is paid. The Supreme Court of Texas has ruled back in the 80’s that this is in fact the case. However, the Agents/Brokers spin it they are just not correct. Bless Their Hearts.
1 vote
Carmen Gutie…, Agent, Marietta, GA
Wed Aug 11, 2010
The seller. However, your offered price, closing cost contribution and real estate commission asked by the agent will affect the seller's bottom line. HUD will accept the best NET offer. However they give priority to owner occupants vs. investors so there are several factors they will consider when reviewing the bids.

HUD homes can be found at great prices if you keep looking daily for new inventory. Get an agent who has closed those kinds of sales to help you submit any bids. Buyers can not submit offers without an agent.


Good luck!
1 vote
J R, , New York, NY
Thu May 14, 2009
The seller pays the commission. It comes out of the proceeds of the sale. HUD does not ad 3, 4, 5 or 6% onto your puchase price in order to pay the commission. To say "HUD pays for nothing" because they don't pay for the water meter is irrelevant because that has nothing to do with the commission.
1 vote
Jmf, Home Buyer, Buffalo, NY
Thu May 14, 2009
Bruce is the only one making it clear. The BUYER pays the commission. HUD simply lets you borrow the money to pay for it instead of coming up with the cash. They're the ones writing the check but it's YOUR money. HUD pays for nothing! I also found out halfway through that I had to pay for a water meter because HUD removes them on all forclosures. $300 in New York State.
1 vote
Cassie, , Indianapolis, IN
Wed Feb 27, 2013
can i get a hud home if i have bad credit?
0 votes
How bad is your credit? We're able to finance loans with middle credit scores as low as 580. Feel free to apply online at http://www.rhlapps.com/kjones or give me a call.
K.C. Jones
RH Lending
214-432-0486
kjones@rhlending.com
Flag Thu Feb 28, 2013
Al Gaither, Agent, Grapevine, TX
Wed Aug 11, 2010
HUD will pay up to 5% Realtors commission in most cases.
0 votes
Bill Eckler, Agent, Venice, FL
Sat Jan 10, 2009
Marsha,

The fee for professional services is paid by the seller. In this case it is HUD.
0 votes
Cassie Schaaf, , Apollo Beach, FL
Sat Jan 10, 2009
Marsha,

The seller always pays the commission. The services of a Realtor is always free to buyers.
0 votes
Voices Member, , Benton County, OR
Sat Jan 10, 2009
Marsha, Here's al the general information on the buying process ect..with HUD...
http://www.hud.gov/buying/index.cfm

Good luck, Dunes
0 votes
Lori Lincoln, Agent, Dighton, MA
Sat Jan 10, 2009
Marsha,
HUD will pay the fees and/or, your buyers agent might charge you the fees. It really doesn't make a difference.HUD homes can be a risky investment, just like bank owned properties. The seller has never lived there. HUD requires more tedious paperwork than bank owned properties. If you have a good agent that truly represents you. It doesn't really matter if it 1,5, 3% or even 10%. Your great agent could save you tens of thousands of dollars by providing good coucel. You always get what you pay for in any profession.
0 votes
Scott Godzyk, Agent, Manchester, NH
Sat Jan 10, 2009
HUD pays the real estate commission. the listing is included in the paperwork submitted with the offer by a hud approved broker. i hope this helps.
Web Reference:  http://www.ScottSellsNH.com
0 votes
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