Would This New 0 Money Down Strategy Work?

Question

Here's the hypothetical... Could an investor whose licensed as an agent use increased commission to offset their downpayment?? Say for example...

Purchase of $100k using conventional mortgage, Seller pays closing costs, seller pays 6% commission plus $15k selling agent bonus.

Would this work? If not where would it get derailed?

Jay Hinrichs · Answer

Not my personal sand box at the moment I don't deal in those loans.. but I sure get commissions are negotiable.. when I was an agent it was not uncommon for me to charge 20 to 30% commissions on very tough to sell land.. most folks would balk and I would say go ahead try the local residental realtors who cant even find the property much less sell it.. after a year on the market they come to me.. and I did not use MLS I just advertised it and double ended everything I did.. It was fun I loved the land business.

Jonathan Greene · Answer

There are several other issues with the structure, most that would be an issue for the brokerages involved. All commission and bonuses run through the brokerage and are subject to your split. The real question is why would someone do this? Any time you are trying to create scenarios to help yourself get property at a discount by using your license as a conduit, legal issues will arise. The mortgage company would never be on board with this and neither would the title company or the other brokerage.

Aaron K. · Answer

Probably not, the lender most likely wouldn't lend until you have the down payment, and you couldn't get the down payment until you had lender approval.  Also what seller is going to pay 6% + all closing costs + $15k selling agent bonus all to the buyer's agent on a $100k property.  You'd be lucky to get 3% + all closing costs.

Aaron K. · Answer

@Hart Pearson I agree that net is what matters most, but without listing on MLS there isn't the checks and balances to ensure that the seller is getting the same or better net.  Even if your intentions are 100% pure that doesn't mean that the next guy's are.

Being licensed you are a fiduciary which in my book means you put your client in the best possible scenario, you may think the house is worth $100k but if you list at $105k and someone offers $105k you were wrong in your initial assessment, which is a possibility.  By listing on the market you put the seller in the best possible scenario either

1. Someone is willing to net them more than you were.

2. They had the opportunity to find someone who would net them more than you and you would net them the same anyway, after a bit of market exposure meaning they have nothing to lose and everything to gain.

Aaron K. · Answer

@Hart Pearson that is still $15k less than you put in your original post, also maybe it is just me but I'd consider taking full double commission on something you're buying yourself and presumably not listing on MLS a bit unethical.

John Barrows · Answer

After reading your deal, my question would be how informed is the seller and does the seller have mental or other medical issues that would render them incompetent to do any business dealings at all?

Hart Pearson · Answer

@Jay Hinrichs Looked it up. Never mind! Haha. Never heard of that term for being on both sides. Thx

Hart Pearson · Answer

@Jay Hinrichs Cool! What do you mean by “double ended”?

Hart Pearson · Answer

@Jay Hinrichs It’s not tax advantaged. It’s true. But it’s stills spreads my precious capital out a little better than not doing it. I think 30 years from now I’ll remember that more than my 2020 tax returns. Can you think of any point that the increased commission would be an issue? I imagine it’s been a long time since you had to worry about Fannie Mae requirements. But what about for portfolio or commercial loans?

Hart Pearson · Answer

@Aaron K. Seller net is what matters as far as ethics. If I give you 120k for a 100k house and charge 20k commission or 100k and no commission there’s no ethical issue. Your nets the same. The point is not to get a deal from the seller. It’s to help them with time and convenience and minimize my outlay. Seems like the term “increased commissions” is setting of red flags here. But I think unnecessarily so.

Would This New 0 Money Down Strategy Work?

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