Can a seller get stuck paying broker's commissions in a short sale?

Asked by Codegal, 95123 Mon Oct 11, 2010

I'm considering a short sale on my primary residence in San Jose, CA. The Realtor I've been working with sent me an "exclusive right to sell" listing agreement that specifies that the seller (me) pays 6% commission to the broker. Further down in the document, under "additional terms" he states "Seller not liable for any fees, expenses or commissions". It is my understanding that the seller does not pay commission in a short sale - the bank does. However, it worries me that the contract explicitly puts me on the hook for the 6%. The verbiage in additional terms section seems to contradict the earlier statement of liability, but I want to be absolutely certain I can't be forced to pay a 6% commission if for some reason the bank refuses to do so. My house would be listed at 500k, so that'd be $30k out of pocket.

thanks in advance.

Help the community by answering this question:

+ web reference
Web reference:

Answers

17
Steven Ornel…, Agent, Fremont, CA
Mon Oct 11, 2010
BEST ANSWER
Hi Codegal,

Regarding your concern about paying commissions, I would agree with the others that indicate you will not be responsible for paying this. To me, the quote you provide from the contract’s "additional terms" section establishes this fact.

I believe you meant to say that your 1st/2nd are purchase money loans, and therefore, are non-recourse loans, meaning no deficiency judgments are allowed (this is NOT true if the original loan(s) have been refinanced, however).

Even if your two loans were NOT non-recourse, you would still be protected IF the Short Sale takes place after 12/31/10. Starting 1/1/2011 deficiency judgments will no longer be allowed in CA. Earlier this month, Gov. Arnold Schwarzenegger signed SB 931 into law on 9/30/10, which protects homeowners who get their lender's approval for a short sale from deficiency judgments.

Best, Steve
0 votes
Kevin Olson,…, Agent, Colorado Springs, CO
Tue Oct 12, 2010
Hello Codegal,

One more thing to make sure of... if your home sells short sale, and the bank reduces the agent's commission in any way, make sure you will not be liable for the difference. Most agent are good people who know the commission could be lowered and are fine with that. There are a few, though, who think they will just go after the seller for the remainder. Be sure to make sure you are covered in this instance too.

Best Wishes,
Kevin
1 vote
Michael Robe…, Agent, San Ramon, CA
Tue Oct 12, 2010
Hi Codegal, There are some good answers provided so far but, something very important is missing.

First, I especially like Terri's and Vincent's comments. -You should have all the answers from the professional you hired- That caused me to be reminded...Many agents have paid for a certified distressed property expert designation (CDPE) and, like a newly designated doctor/PHD who volunteers to do surgery, they haven't a clue as to the infinite number of factors that could cause you, the patient, to have serious complications.

I am glad to see agents, inexperienced in Short Sale Approvals, getting some education however, one does not become an 'expert' from a day long class. I considered an offer to teach classes until I realized I could not teach everything I know. How can you expect someone to become an expert in a one day class? That's not my point though. How else can one get practical experience?

To my main point....

I hope you are not accepting any of the information provided here as "these terms of a short sale are written in stone". The lenders have every intention of having you pay for "anything they want". You may be required to pay any number of- fees, commissions or expenses based on your net assets (cash).

If you have money why would the lender(s) pay for the entire 'cost of sale'? The point is, you can be held responsible for the commissions. You have signed a sale contract, however until the lender(s) approve it you can't be certain you won't be liable. They could require it as a condition to grant the approval. Unbelievable, right?

Other comments have mentioned speaking to an attorney...That's GREAT advice!

My first Short Sale negotiation was a nightmare. Execution was the easy part. Now, years later, I use a Lawyer to negotiate all my short sales...for free. An awesome asset found through my Short Sale professionals network. This kills 2 birds with one stone. Legal advice at no charge and a level of certainty that can be relied upon.

So, if you have cash...prepare yourself. You may be asked to part with some of it to gain your Short Sale approval.

Michael
http://LosGatosHomesandRealEstateBlog.com
1 vote
Vincent Vill…, Agent, Chula Vista, CA
Mon Oct 11, 2010
Great question!, No you wont pay commisions... in a short sale..listing agent (your realtor) will receive an offer that is less the what you owe, you will then accept the offer the contract is then FULLY EXECUTED. Your agent will then contact escrow to creat a HUD1 in the HUD1 it will indicate that the lender that has a lien against your home will pay commision. The lender that has a lien against your home will look at the HUD and approve it. The lender typically will pay your closing costs as well as property tax liens and commisions. Several months later your agent will get a short sale approval from your bank ask your REALTOR if you can see it..It will show how much commisions your lender will pay as well as all the costs and property tax your lender will pay as well. One question: Why isnt your agent telling you this??
1 vote
Rebekah Owen,…, Agent, San Jose, CA
Fri Jan 7, 2011
Hey Gal,

EVERYTHING in real estate is negotiable. Your agent should know how to negotiate the transaction because one goof means you got a foreclosure on your credit for 10+ years.

I've had short sales where contribution was required from the Seller [one of the Sellers had significant assets and was willing to contribute to make the deal happen] - but the vast majority of shorts that I have done have had no Seller Contribution.

Good Luck to you and I hope that helps!

Rebekah Owen
RebekahOwen.com
0 votes
Ruth and Per…, Agent, Los Gatos, CA
Sat Oct 16, 2010
HI Codegal

Regret to hear about your difficulty.

Your understanding is correct, The bank/s (if you have more than 1 lender or loan) determines the Final Sale Price, whether it can proceed as a short sale or whether it is too late to be sold as Short, and what the final commission is.

Good luck.
Perry
Web Reference:  http://www.ruthandperry.com
0 votes
Steven Ornel…, Agent, Fremont, CA
Fri Oct 15, 2010
Update regarding my earlier post:

"Even if your two loans were NOT non-recourse, you would still be protected IF the Short Sale takes place after 12/31/10. Starting 1/1/2011 deficiency judgments will no longer be allowed in CA. Earlier this month, Gov. Arnold Schwarzenegger signed SB 931 into law on 9/30/10, which protects homeowners who get their lender's approval for a short sale from deficiency judgments."


SB931 deficiency judgment protection only covers FIRST TRUST DEED Lenders! Additionally, the protection only applies to 1-to-4 residential units. Furthermore, SB931 does not limit the lender from seeking damages for fraud or "bad faith waste" (such as removing fixtures and active damage to property).
0 votes
Kevin Vo, , San Jose, CA
Wed Oct 13, 2010
Your listing agent must include a short sale addendum in the listing agreement. Seller's offer acceptance letter will tell you who pays for commission fees. Lender pays for commission fees on a short sale.
0 votes
Vincent Vill…, Agent, Chula Vista, CA
Tue Oct 12, 2010
Thanks for the Thumbs up:) good luck with the short sale.
0 votes
Terri Vellios, Agent, Campbell, CA
Tue Oct 12, 2010
Make sure that your real estate agents uses the short sale documents in the listing agreement and any offers which come in include the short sale addendum. It is also important that the agent put in the listing agreement it is a short sale and to clarify the commission and short sale in the agent private comments and in the type of commission offered. If he/she does all that then it has been fully disclosed. I would also take it one step further should your lender cut the offered commission during the negotiations, make sure both selling and buying side acknowledge and accept the offered commission.

It will be a long road and frustrating at times. Best of luck to you.
Web Reference:  http://www.TerriVellios.com
0 votes
Karin Carr, Agent, Woodstock, GA
Tue Oct 12, 2010
Nope! The mortgage holder that approves the short sale will pay all the brokerage fees involved. Ask your Realtor for the Short Sale Listing Addendum to the listing agreement which states that the short sale is not a sure thing, no one can guarantee that the bank(s) will agree to a short sale, you don't have to pay, etc. That way you'll have something in writing and that should put your mind at ease.
0 votes
Codegal, Home Seller, 95123
Mon Oct 11, 2010
Thanks to all who have answered so far. Quick clarification - both my first / second loans are non-disclosure, purchase-money loans. It is my understanding (also confirmed with a real estate lawyer) that the anti-deficiency laws in CA protect me from a deficiency judgement in this case.
0 votes
Sergio L. Sa…, Agent, San Jose, CA
Mon Oct 11, 2010
Mr. David Uffelman is correct in which the Seller (being the Bank/Investor) typically covers any "Approved Commissions" paid out. Aside from that, just make sure all forms are current and that a "Short Sale Listing Addendum" is included with your agents "Listing Package".
0 votes
Caroline Choi, Agent, Los Angeles, CA
Mon Oct 11, 2010
Nope, you're not liable for paying the commission - the bank will pay that. I agree with Gabriel that your biggest concern would be the judgement deficiency -- I know a certain bank that has in their short sale addendum that you are not necessarily absolved of all your debt, and that while they may accept the short sale, that doesn't preclude them from coming after you later. I would just check the verbiage in whatever short sale acceptance letters and terms you receive from your lender(s) as that could affect you down the line. Best of luck, Caroline
0 votes
Gabriel Nguy…, , Campbell, CA
Mon Oct 11, 2010
Hi,

6% that stated in your contract is for your lender(s). You are not the one who decide how much the property to sell for. The most important thing you will need to worry for is the judgement deficiency. You need to work with experience realtor who can make sure lender(s) will not go after you after you short sale your own home. I have seen agents who stated that they are experienced in short sale but their clients ended up paying the money they own the bank.

So, no need to worry about the commission and start worrying about if your realtor really know how to negotiate with lenders to release your liability.

Good luck!
0 votes
Dorene Slavi…, Agent, Torrance, CA
Mon Oct 11, 2010
Dear Codegal,
I would consult a lawyer on this one to be absolutely sure. Normally the bank does take care of commissions.
0 votes
David Uffelm…, , Pittsburgh, PA
Mon Oct 11, 2010
The bank typically pays the Real Estate Broker's commission in a short sale.
0 votes
Search Advice
Search
Ask our community a question

Email me when…

Learn more