Strategy For Working With Realtors & Commissions

[Tom Medwin]

As a realtor I just want you guys to know that you are being a little too generous to have the realtor make their commission on the A-B transaction AND B-C transaction. Just know that most, not all, but most realtors are exceedingly happy to have you take over the short sale for them and get them to closing. Here's what I've been doing and it works great:

1) Call an agent who has a listing that is subject to short sale
2) Get the details from the agent on the short sale i.e. are there any offers? have they engaged the bank? etc.
3) Most times the answers are no to the above questions, and I tell them that my niche is working on short sales and I'm getting most of them approved very quickly and with minimal headaches and most importantly getting to closing. I then give them some tidbits to let them know how they can get a short sale done quickly and efficiently. I say that the banks are usually very cooperative once they have a COMPLETE short sale package and especially when that package contains a CASH offer. I tell the agent I know the checklist of items the bank wants to see and have investors who back me with cash to submit a cash offer. I ask if they'd be interested in letting me put the package together WITH them and let me handle all their headaches of dealing with the bank.

4) Here's the key on saving a few thousand dollars in commission per transaction. I tell the agent the nuts and bolts of the A-B and B-C transaction. I say something like IF the bank accepts an offer that is good enough for me to buy, we will sell to the C buyer and you will make your commission at the higher resale price, and I will guarantee that it is 3%. At my resale price it will be cheap enough where I can give the buyer's agent 2.5%, thereby paying a total of 5.5% commission on my resale price. Again, as an agent I'm telling you MOST agents will be thrilled to have someone handle their short sale which they don't want to do, to have a cash offer in the package to give maximum leverage when dealing with the bank, and have a secured listing that is approved and ready to go for the C buyer and have it locked up at 3% on their end.

So here's the commission totals in an example:

$200k FMV
$120k Cash Offer and bank approval
$6,000 Commission paid by bank (5% of $120k)

$175k Resale Price (priced for quick sale)
$9,625 Commissions (5.5% of resale price)

The bank is already paying $6,000 so I'm really only coughing up $3,625. The math is $9,625 acutal commissions paid minus $6,000 bank paid commissions equals $3,625. So for a little over 3,500 bucks I'm getting the deal and utilizing the services and resources of agents and the MLS.

Old-School way of getting agents on board: pay agent 5% of commission of first A-B deal which is paid by the bank. Then pay a minimum of 5% on the B-C transaction which in the above example would equal $8,750. That is how much you are subtracting from your profit. Multiply that times the number of deals you do a year. OUCH!!!!

This forum has been very helpful to me so I hope this helps some of you. As an agent let me say one last time, the way I'm doing it is working and agents are happy about it. Win-Win, that's what I'm all about.

[Scott Hubbard]

Originally posted by Tom Medwin:

The bank is already paying $6,000 so I'm really only coughing up $3,625.

I am not picking on Tom.... But I am going to show you how his statement above is completely wrong.

First, banks deal on a net proceeds basis. They will compare your offer against a foreclosure scenario in order to see if your offer is better. In essence, your short sale offer will need to be better than what they estimate they will receive at Auction or as an REO.

Your offer - closing and carrying costs - commisions - lien payoffs - legal expenses = Net Basis

So let us say that according to the lenders analysis based on a BPO, they estimate that they will receive $115K in net proceeds as an REO.

Your offer is $120K gross. $120K - $2.4K (CC) - $6K (commissions) - $0 (no liens) - $1.6K (legal) = $110K

When comparing your $110K Net Short Sale offer to the $115K estimate Net as an REO, they will not accept your offer.

In order for you to acheive a better SS offer over the Net proceeds as an REO, you will need to raise your offer by more than $6K to $126K. By raising your offer, you are already eating into your spread thus costing YOU profit.

Lenders will not pay for commissions on the A to B, you will 100% of the time. Your job is to get the lender to accept the lowest Net Proceeds as possible. I am not telling you not to pay commissions, I am just telling you not to overpay. Paying too much does not help you, the seller, or the agent. There should be a compromise.