How Does a Seller Pay Commission on a Short Sale?

A short sale is a process by which a homeowner who cannot keep up with mortgage payments may avoid a foreclosure. In a short sale, the homeowner allows his lender to market and sell the home. The home will be sold at fair market value. This is usually much less than the homeowner actually owes on his home, thus the bank comes up "short." After a short sale, a lender may sue the seller for the deficiency balance of the mortgage that was not paid for by the short sale.

The Facts

Short sales are an alternative to foreclosure for homeowners, but if the bank is already prepared to accept a loss on the home, it may be extra stringent about any additional costs. Since the proceeds from a short sale go to the lender and not the seller, the seller is not responsible for paying commission to the real estate agents involved in the sale. Commission is dispensed by the lender and the lender may refuse to allot part of the proceeds from the home to a buyer's agent. Potential buyers should always evaluate the lender's policies ahead of time, lest they be left holding the bill for a commission they did not know their contract obligated them to pay.

Process

When a lender agrees to a short sale, the lender will immediately begin marketing the home. During marketing, sellers are responsible only for allowing buyers to view the home. A seller does not market the home and, when the home sells, a seller is not the one who pays the commission to the real estate agents. That responsibility also falls to the lender.

A potential buyer makes an offer to the homeowner. If the homeowner accepts, the lender decides whether to approve it. This process can take weeks or months. Once negotiations have been completed, the sale of the property takes place in the standard fashion. Because many lenders marketing short sale properties are already losing money on the sale, they typically offer less than the average commission to the real estate agents assisting with the sale--if they offer commission to the buyer's agent at all.

Commission

Commission is the payment a real estate agent receives for marketing and selling a home or for assisting a buyer to find a home and negotiating a deal with the seller. In a standard home sale, the seller pays commission to an agent unless he chooses to market his home himself. The average commission for a real estate agent is six to seven percent of the total sale price of the home. Real estate agents involved in short sales, however, can expect to receive much less. The average selling agent marketing a short sale will receive 2 percent to 2.5 percent commission when the home sells.

Considerations

The buying agent and selling agent typically split the commission after a sale. A seller can refuse to pay commission to a buyer's agent, and opt to pay only the agent who marketed the home for him. Most do not, since this is likely to result in a lost sale. Short sale lenders, however, often refuse to pay commission to any agent other than the selling agent. This can result in the buyer having to pay his agent the commission she is due after assisting with the home purchase. If a buyer has a contract with his agent, that contract will typically include the buyer's responsibility to pay his agent's commission in the event the seller refuses to do so.

Effects

Restricted commissions for real estate agents continue to plague the industry, but as the result of lobbying by the National Association of Realtors, the government loan servicer Fannie Mae has altered its policies. As of March 1, 2009, all lenders holding short sale property backed by Fannie Mae securities must provide the amount of commission established by the listing agent unless that amount exceeds six percent. Unfortunately, the new rules apply only to loans guaranteed through Fannie Mae. Each agency that backs mortgage loans has its own policies concerning short sales and commissions.

References

• Sold Up: How to Succeed at Short Sales
• Fannie Mae Short Sale Commission No Longer Cut