who pays the listing agent in a short sale in CA?

Asked by Needinfo, California Thu Oct 14, 2010

I was solicited to sell my investment property in CA by an investor/agent who found it on a foreclosure list. He said I had nothing to loose. I told him I didn't have any funds to take to the closing table. I have received the listing agreement where he has his traditional 6 %. I understand it will probably be cut down by the bank however no matter how much it's cut I still will oew commission legally.... am I correct?

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8
Steven Ornel…, Agent, Fremont, CA
Thu Oct 14, 2010
Hi Needinfo, I would agree with those posters below who indicate the Lender will pay the commissions (and much more as you will read).

In addition, if you are looking for some "insurance" that this occurs: 1) ask your Listing Agent to provide you with a Short Sale Listing Addendum (CAR form SSL 8/07), and 2) make sure the Buyer submits a Short Sale Addendum (CAR form SSA 4/09) with any offer (which is quite typical).

Here's why:

Section 5 of the SSL states:
"BROKER AUTHORITY: Seller authorizes Broker to: (1) market the Property for sale, (2) contact Lender concerning Lender’s approval of a Short Sale (C.A.R. Form ARC) and Seller agrees to give Broker any necessary information to negotiate with Lender, and (3) advertise in the MLS and other advertising medium that the Property transfer, sales price and payment of commissions are subject to Lender approval. If Lender will not cooperate, Broker may cancel this listing agreement."

["...payment of COMMISSIONS are subject to Lender approval."]


The first Paragraph of the SSA states:
"This Agreement is contingent upon Seller’s receipt of written consent from all existing secured lenders and lienholders (“Short-Sale Lenders”), no later than 5:00 P.M. on [enter date] (“Short-Sale Contingency Date”), to reduce their respective loan balances by an amount sufficient to permit the proceeds from the sale of the Property to pay the existing balances on loans secured by the Property, Real Property Taxes, brokerage commissions, closing costs, and other monetary obligations the Agreement requires Seller to pay at Close Of Escrow (including, but not limited to, escrow charges, title charges, documentary transfer taxes, prorations, retrofit costs and Repairs) without requiring Seller to place any funds into escrow or have any continuing obligation to Short-Sale Lender. If by the Short-Sale Contingency Date, either: (i) Seller does not receive Short-Sale Lenders’ written consent or (ii) Seller fails to give Buyer a copy of Short-Sale Lender’s written consent then either Seller or Buyer, respectively, may cancel the Agreement in writing, and Buyer shall be entitled to a return of any deposit. Seller shall reasonably cooperate with existing Short-Sale lenders in the short-sale process."

[...the proceeds from the sale of the Property to pay the existing balances on loans secured by the Property, Real Property Taxes, brokerage COMMISSIONS, closing costs, and other monetary obligations...]

Best, Steve
2 votes
Jeri Creson, Agent, Studio City, CA
Thu Oct 14, 2010
Can I make a suggestion... I get a little nervous anytime I hear an investor/agent solicits a short sale on a foreclosure list. There are a number of schemes out there going around where agent/investors talk people into giving them their listing, saying they have an investor who will buy it already. I get real nervous when I hear an agent say, "what have you got to lose?" I'll tell you what...you have your credit to lose... an unnecessary foreclosure that could happen by mismanagement of a short sale. BEFORE you hand over your listing, I suggest you do this: Do some research and ask for references of actual CLOSED short sales this agent has done...Recently. Interview at least 3 other agents who specialize in short sales. An investor can afford to "throw your deal at the wall and see if it sticks" with the bank. YOU cannot afford this. If you are to avoid foreclosure, your short sale needs to be handled by somebody who knows what they are doing, and who doesn't have a personal stake in trying to get the bank to accept an offer far below fair market value. Please, please be careful here.
1 vote
Terry Bell, Agent, Santa Rosa, CA
Thu Oct 14, 2010
The commission is paid from the sale of the home. You have a choice of agents. You didn't say where you are in the process. If the home is still in your name, it would be a short sale and you should have an agent that is working for your best interest and make sure that the bank agrees that the sale will be payment in full for your debt. There are benefits for doing a short sale rather than be foreclosed. By the fact that he didn't explain this to you suggests you would benefit by interviewing several agents. Getting into contract with a buyer can delay the foreclosure process, and also may not be as bad on your credit report. p.s., I always appreciate receiving a "thumbs up" or a "best answer", Thanks, Terry Bell, Realtor, CPS Real Estate, Santa Rosa, CA 95404
1 vote
Anna M Brocco, Agent, Williston Park, NY
Thu Oct 14, 2010
Generally, in a short sale the lender pays commission out of the proceeds of the sale--if two agents are involved the commission is shared.
1 vote
Jose Perez, Agent, Corona, CA
Thu Oct 14, 2010
Hello, When a bank approves a short sale the commission is factored in as part of their loss, along with property taxes, and various other fees usually involved in a sale. Contact me if you have more questions.
1 vote
Sylvia Barry,…, Agent, Marin, CA
Fri Oct 15, 2010
For your question - the commission will be part of negotiation of the short sale approval and you need to agree with the terms on the approval. If you don't, then the short sale does not go through and you should not be liable for the commission.

On the comment from another agent about investor / agent who wants to sell your house short. Make sure that if the deal is too good to be true it might just be too good to be true.

Had two of those groups tried to solicit my clients listings. I started asking questions about exactly how they will proceed with the short sale for my clients and whether it would actually be beneficial for my clients

After some in-depth questions Ihad for them, both ended up saying that "your client(s) is(are) lucky that you actually care about him/them". One was in writing in an email. They went away, I closed the short sale.

Good luck!
Sylvia
Web Reference:  http://www.SylviaBarryRE.com
0 votes
Monir Mamoun, Agent, Denville, NJ
Fri Oct 15, 2010
Typically the lender. Are you using a broker of your own? Have them settle this for you. And you don't need to deal with 6%, too much. Ask for a discount, 3% max. If you are not using a broker of your own, it's plenty. Stick with it. If he has a buyer, he'll go for it. Otherwise forget it. Just my opinion.
0 votes
Steven Ornel…, Agent, Fremont, CA
Thu Oct 14, 2010
Needinfo, Jeri brings up an EXCELLENT point!

On 8/26/10 I attended a meeting where Jeff Davi spoke (CA DRE Commissioner). In Aug of 2008 the DRE has < 10 active investigations running. Today, there are 2,600 active investigations primarily focused on loan mod, subprime, and foreclosure/short sale scams.

If you go to http://www.dre.ca.gov/gen_lic_info.html you will be able to research License Status, Desist and Refrain Orders, and Unlicensed Activities.

Also, talking to CPA/Tax advisor before making your next move is a good idea as well. Since this is an investment property we are talking about the Mortgage Forgiveness Debt Relief Act does not apply, meaning any debt relief from a Short Sale will likely be a taxable event. However, Bankruptcy and Insolvency can reduce and/or eliminate the tax liability as well. You can read more about this here: http://www.irs.gov/individuals/article/0,,id=179414,00.html

Every situation is unique. Please obtain advice from a tax professional to review options and then pick a fully-informed strategy to address your situation.

Best, Steve
0 votes
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