short sale & commisions

[Mary Ann Rocco]

I'm looking for better understanding about short sales and real estate commissions. I apologize for the length of this post.

The short sale has not been approved because of the 2nd with Chase, but I want to ignore the issue of the 2nd for now. I’m trying to understand certain numbers.

The property is in California and I’m the buyer. I signed a contract saying I would buy a house for 720,000 plus an additional out of pocket expense of 20,000 towards the second and 1% in commissions to the agents and another 1% to the negotiator which is an additional 14,400. I knew the agents were receiving a total of 5% commissions but as a first time home buyer I didn’t think to ask my agent where the other 4% was coming from.

The outstanding loan balance on the 1st (GMAC) is 656,000. The outstanding loan balance on the 2nd (Chase) is 175,000. The issue of the 2nd is a whole other post so I won’t go into detail on that. I have a copy of the GMAC short sale letter. It outlines the following numbers:

We agree to accept proceeds generated by 720,000. Seller to net zero. Net proceeds to GMAC will be no less than 653,000. Yes, that’s only $3,000 short.

It goes on to list all of the closing costs approved (not to exceed)
Taxes title, etc. = 8,515
6% agent commissions = 43,200
Payoff towards second = 15,000

I’m trying to understand the issue of the 6% agent commissions and that fact that I’m paying that on top of the amount owed to the bank. Something about this seems 'off' to me. I was told they moved the numbers around to make this short sale go through more easily. I realize that I signed a contract and the bottom line is what it is, regardless of how it’s ultimately divided, but is this normal practice in how the numbers work? I was under the impression that in a short sale, the banks would kick a certain percent back towards commissions. Since the total loan is only 656,000 GMAC is not really paying anything towards the commissions, I am. My agent thinks this is fine, and I trust my agent, but I can’t let go of this nagging feeling that something’s not right, but I know nothing about the the real estate industry. I feel deceived by how the contract was worded and how the numbers are playing out. Can anyone give me their opinion on this situation? Is this SOP in short sale world?

Mary

[Justin S.]

I'm not sure why you are paying out of pocket expenses that are not going towards the property. I have not seen this, but that does not means its not right.

IMO, a typical deal would be you pay $720,000 for the house, and those funds would be distributed as follows:

720,000 - Purchase Price
-8515 - Taxes, title, ect
-43200 - Commisions
-15000 - towards second
653285 to the first.

I have no idea why you are paying additional 1% to the agents and another 1% to the negotiator. Typically the agents will each give 0.5% to the negotiator. In addition, the extra $20,000 to the second is unnecessary.

Basically you are paying the agents and the negotiators for not doing anything extra. The negotiator should be ensuring you do not have to come out of pocket to satisfy both liens. I know the negotiator did not do a thing to get the first satisfied. Losing $3K on the first is NOTHING compared to other houses. The bank is probably throwing a party that they only lost $3K. I've gotten approvals where the banks have lost over $150,000.

IMO, you are being taken advantage of by the agents. You should only be paying $720,000 for the house and nothing more.