Reducing agent commission/dual-agent

Investor · Metro East of St. Louis (Illinois) · Member since 2016 · 255 posts · 211 votes

I am on the verge of an offer on a SS property in Northern California. I think the property is worth $465K, but the listing agent already has an approved short sale from a previous buyer that walked out at $475K. So, obviously he wants me to pay the $475K and be done with it. He says we'll hear from the bank in 20 days and then close 45 days after that.

I am not an agent and I don't have an agent representing me. Can I ask the listing agent to take 3% and act as a dual agent? Thereby saving the other 3% of the commission.

Maybe I'm wrong, but it seems like there are far less conflicts of interest with a dual agent on a short sale than on a traditional home sale.

That would get the price down below $465K, the agent gets a solid buyer, and the bank/lien holders would still get the exact same amount they previously negotiated at $475K. Right?

2nd question:

Does California allow you to cancel a short sale contract and keep your earnest money?

You folks on this forum are awesome...no no really, there isn't any place on the internet quite as helpful as BP and I learn so much by reading. Thank you!

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Will BarnardPro Member

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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

I don't agree with everything and everybody above. I won't get into detail on it all but will point out a few things (that appear to have misconceptions from others above). It is NOT illegal for dual agency in CA NOR is it "frowned upon". Any such statements are absurd. The CAR forms have specific documents specifically for disclosure of dual agency. Brokers in CA will NOT assign another agent to handle half the deal (that may be true in other states but not here in CA).

The bank does set the commission amount that they will pay. In a short sale situation, the bank is deciding on how much less they will accept than is owed so they are already taking a haircut. Most banks will only offer 5% total commission or less and most listings will specify in the private agent remarks that any reduction in commissions by the bank will result in both agents commissions being reduced accordingly. In a dual agency transaction, the bank may very well reduce the commission to 4%.

As for asking for the agent to take some kind of reduction in commission to do dual agency so that your purchase amount could be at the price you need it for the deal to make sense, I see nothing wrong with asking. Some other replies appear to be outraged at such a proposal and that shows me a lack of out of the box thinking or negotiating skills. Ask away, worst that can be said is no. I would however recommend you ask for it in a different manner. Since the bank is the one that has the control over this amount, your request to reduce would likely just get the bank more money and not you. I would suggest you ask the agent to pay some of your closing costs from the fee rather than a commission reduction. This accomplishes what you are trying to do without having the bank involved. Secondly, most of the short sale work by the agent is on the listing side so performing the dual agency is simply adding the buyers docs to the transaction (not a whole lot more work), though it does add additional liability to the agent which needs to be covered by their E&O insurance. They may want a tad more for this over the 2.5% single side representation likely offered by the bank.

Lastly, there was a comment about being penny wise and pound foolish. While I agree such a thing exists and should be avoided, this may not be that situation. If your price of $465k is what you have determined to be your max amount you can pay for this deal to pencil out for you, then that is what it is. Paying an additional $10k and taking on added risk of possibly working for free or losing money is not smart either. I would rather "risk" losing the deal and not doing a deal too tight than taking this at a price of $10k more than I fel comfortable with just for the sake of "not losing the deal". It is only a deal if you make money at the end of the day. WIth that in mind, proceed accordingly.

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Leigh C
Brooksville, FL · Member since 2012 · 429 posts · 220 votes
9y
@Alex S. I hope one day your boss or someone walks into your office and informs you that they are cutting your pay by 50%. Not because you did a bad job or something wrong, but just because they feel that you should.
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Fred Heller
Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
9y
The listing agent answers to the broker. The commission is set when the listing agreement is signed and few brokers will agree to a discount.
Dual agency is frowned upon, if not illegal, in many states because one agent can't honestly represent the interests of both the seller and the buyer.
Here in Texas we have Intermediary Agency. The listing agent represents the seller and the broker will appoint another agent to represent the buyer. Both agents need to be paid so there is little room for discounting the commission.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
Alex short sales are a TON of work. The broker and agent earns every penny of that fee.
If you are buying one property maybe the agent does it with their brokers approval but don't expect to ever get another property from them again.
Lenders on short sales redo BPO's every 30 or 60 days so if the value comes lower the bank might agree to a reduced price. The downside is when the price changes they might make the whole process for approval start over.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
Think about this. If the agent is only getting 3% ( less when splitting with their broker) to do both sides of a transaction there is no motivation for them. In that instance they likely prefer to have an agent on the other side with the buyer so they only do their side for the 3%.
6% some agents happy to do double the work for double the pay
3% agents will not want to do double the work for half the pay
3% to buyer broker and 3% to listing broker. Both do their job but are not working double for nothing.
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Alex S.
OP
Investor · Metro East of St. Louis (Illinois) · Member since 2016 · 255 posts · 211 votes
9y
@Leigh C completely missed the boat, I think. I'm not the agent's boss and he can say "no."
Thank you all for the rest of your comments and I totally agree. Short sales are a TON of work for the agent and they earn that commission. My proposal does not slight the listing agent a single dime. He gets the full 3% he was planning to get...albeit for some amount of extra work. In my actual proposal I give the listing agent a flat fee that equates to $1K above 3% to compensate him for the extra work of dual agency.
I'll have to check if it is illegal in California; I hadn't even thought of that! I would never do it for a traditional sale, but short sales seem like it is buyer/seller/agent vs. bank. We want the same thing.
I also hadn't thought about the brokerage prohibiting the agent from dual-agency. It leaves money on the table, but it also keeps the RE union strong, so it makes sense that they would not allow it.
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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
9y
@Alex S., aren't you already saving 3% by not using an Agent? I don't get your concern...
Aah, but I just saw Fred's answer: "The listing agent represents the seller and the broker will appoint another agent to represent the buyer. Both agents need to be paid so there is little room for discounting the commission".
How about this: make your Offer INCLUSIVE of all commission (and let the chips fall)?...
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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
9y
@Alex S. You can ask, people ask all the time, but the answer is certainly going to be no. You're also assuming the commission is 6%, where many banks chop it to 5% right away. In either case the agent, as I would, is going to say no. But, don't be surprised if the agent list a different agent as the buyers agent, to keep the Bank from chopping the commission.....SOP. You could Easily end up losing the deal, or paying more, by asking for the $465k. As others have said, when the current BPO expires, usually at 60-90 days, a new one will be ordered. Then, you're rolling the dice with a new BPO coming in higher. We all like to save money when we can, but you can also find yourself prey to being penny wise, pound foolish.
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Account Closed
New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
9y
I used a dual agent and they pocket 4.5%, that's normal in my market NYC if the buyer comes without an agent. If the commission is set at 6% for that listing then get yourself an agent to make the purchase process smooth. If the listing agent agrees to negotiate the commission if you come with no agent that take that route to save money as well.
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Mike CumbieBusiness Member
REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
9y
Hi @Alex S.,
You can ask if you want I suppose. This is going to sound rough but it is not meant that way, I just can't think of a way to word it that doesn't sound harsh. So please don't take it that way.
The contract for commission is between the seller and the agent. The buyer is not part of that contract and the purchase contract for the property in no way reflects what that number is. Because you are choosing to write a contract to purchase an apple from a grocery store, it in no way allows you to determine how much the store pays for the display in produce. Stepping in and deciding that the maker of the display should take a cut so that you can get a cheaper apple is going to cause them both to look at you as someone who does not understand how it all works.
So just write an offer for the place. The bank is going to beat the agent up on the commission anyway. That's what they do with a short sale. Simply put you have no idea what they have agreed to already, it's frankly not the buyers business because they are not the one paying it and they are not entitled to dictate how the proceeds from the sale are spent. If the bank agrees to give a teller $15 an hour and because you pay at the window decide they should only pay her $10 so you can get a $5 discount they are going to look at you the same way.
Good luck with your purchase.
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Denise Evans
JD, CCIM , Real Estate Broker · Tuscaloosa, AL · Member since 2014 · 1k+ posts · 1k+ votes
9y
If the agent agrees to accept only a 3% commission, then the bank will want everything that is left.
You will need a new short sale approval to reduce the purchase price and reduce the commission.
Depending on the agent/broker split (if any) then 3% of the sales price nets the agent anywhere from $6,975 to the full $13,950.
Short sales for people with non-complicated financial lives are very easy. A non-complicated financial life is one in which borrower(s) have jobs with W2 income and/or social security income and no significant outside income and they own no other assets except for autos and household goods and possibly retirement accounts. Don't let anybody tell you this stuff is hard.
I'm not saying this is the case with the agent involved in your deal, but many real estate agents simply tell the borrower what the bank needs, the borrower provides it, the agent does not review or value added services, and the bank decides. Some get approved, some don't. As long as the agent has enough inventory in the pipeline, it all works out okay for the agent with minimal work on their part.
I would not be reluctant to ask the agent to cut her fee to make the deal work. This is NOT uncommon. The bank was asked to take a haircut to make the deal work. We are not talking about salaried or hourly employees taking a pay cut. We are talking about an independent contractor making a decision on one deal whether to accept less compensation or not. There are many other deals where the real estate agent does 4 hours of work and earns many tens of thousands of dollars. Let's not forget that.
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Brett Goldsmith
Investor · Los Angeles, CA · Member since 2012 · 1k+ posts · 500 votes
9y
Most agents will expect to keep the commission. You can try to negotiate with them. Also, just because it was previously approved at 475,000 does not guarantee it will be approved at that price again. Depends if the value is still good on the file.
The important question is what did the banks value come back at. Who knows, maybe you could get it less than $465,000. The challenge is that many listing agents don't ask the right questions and they may just want to attempt the shoe in route to get the transaction closed.
Generally I don't even open escrow on a SS unless it is approved. Generally It's more difficult for a buyer to lose their EMD on a SS than a standard sale in my opinion.
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Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
9y
I don't agree with everything and everybody above. I won't get into detail on it all but will point out a few things (that appear to have misconceptions from others above). It is NOT illegal for dual agency in CA NOR is it "frowned upon". Any such statements are absurd. The CAR forms have specific documents specifically for disclosure of dual agency. Brokers in CA will NOT assign another agent to handle half the deal (that may be true in other states but not here in CA).
The bank does set the commission amount that they will pay. In a short sale situation, the bank is deciding on how much less they will accept than is owed so they are already taking a haircut. Most banks will only offer 5% total commission or less and most listings will specify in the private agent remarks that any reduction in commissions by the bank will result in both agents commissions being reduced accordingly. In a dual agency transaction, the bank may very well reduce the commission to 4%.
As for asking for the agent to take some kind of reduction in commission to do dual agency so that your purchase amount could be at the price you need it for the deal to make sense, I see nothing wrong with asking. Some other replies appear to be outraged at such a proposal and that shows me a lack of out of the box thinking or negotiating skills. Ask away, worst that can be said is no. I would however recommend you ask for it in a different manner. Since the bank is the one that has the control over this amount, your request to reduce would likely just get the bank more money and not you. I would suggest you ask the agent to pay some of your closing costs from the fee rather than a commission reduction. This accomplishes what you are trying to do without having the bank involved. Secondly, most of the short sale work by the agent is on the listing side so performing the dual agency is simply adding the buyers docs to the transaction (not a whole lot more work), though it does add additional liability to the agent which needs to be covered by their E&O insurance. They may want a tad more for this over the 2.5% single side representation likely offered by the bank.
Lastly, there was a comment about being penny wise and pound foolish. While I agree such a thing exists and should be avoided, this may not be that situation. If your price of $465k is what you have determined to be your max amount you can pay for this deal to pencil out for you, then that is what it is. Paying an additional $10k and taking on added risk of possibly working for free or losing money is not smart either. I would rather "risk" losing the deal and not doing a deal too tight than taking this at a price of $10k more than I fel comfortable with just for the sake of "not losing the deal". It is only a deal if you make money at the end of the day. WIth that in mind, proceed accordingly.
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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
9y
Originally posted by @Will Barnard:

... It is NOT illegal for dual agency in CA NOR is it "frowned upon". Any such statements are absurd. The CAR forms have specific documents specifically for disclosure of dual agency. .
Confirmed; I allowed dual agency which consent was preprinted on the CAR form - - JUST ONCE - - and it was a fiasco. Never again, "once bitten, twice shy".
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
9y
Here is your option: make an offer 3% lower. That agent's broker gets paid what is due to them and you save some money.
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Gautam Venkatesan
Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes
9y
As a principal in the transaction can @Alex S. request half the sales commission for representing himself?
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Stephanie MedellinBusiness Member
Mortgage Broker · CA · Member since 2014 · 1k+ posts · 642 votes
9y
Originally posted by @Gautam Venkatesan:

As a principal in the transaction can @Alex S. request half the sales commission for representing himself?
No, an unlicensed person cannot request a commission.
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Wells Lange
Indianapolis, IN · Member since 2015 · 125 posts · 50 votes
9y
Don't be cheap man
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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y
If your numbers work at X Price....Im just they work just as well at X plus 3%. If 2.5%-3% is a game changer on an investment then maybe its not as good of a deal as you think
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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
9y
Originally posted by @Jeff B.:

Originally posted by @Will Barnard:
... It is NOT illegal for dual agency in CA NOR is it "frowned upon". Any such statements are absurd. The CAR forms have specific documents specifically for disclosure of dual agency. .
Confirmed; I allowed dual agency which consent was preprinted on the CAR form - - JUST ONCE - - and it was a fiasco. Never again, "once bitten, twice shy".
Are you willing to share some details of your fiasco? I am sorry you had a poor experience but I certainly would not want your one and only experience to scare off others. I have completed dual agency at least 25 times and have not had any problems that would not have been there with separate agents. Perhaps my extensive experience and abilities in real estate afford me better dual agency results than yours, r perhaps there are other reasons.
I have got deals that I would not have got without dual agency. There exists self interest in every single deal involving a real estate agent. Theirbinterests are to close to get paid. If a listing agent sees an opportunity to get double or at least more than 1 commission by reaping both ends, they will certainly want to push that through to make more money. I have yet to meet anyone who said they wanted to make less money rather than more!
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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
9y
Dual agent was selling her father's MFU - - obvious conflict of interest. Units were in disrepair and during the inspection period, the roofing was replaced. I disapproved of the inspection contingency and withdrew the offer. The EMD was not returned for years as the seller and agent insisted that the repair would not have been done w/o my offer. I did not object or cite the roof condition and thus it was not a reason for my disapproval and withdrawal.
I complained to the broker for the ethics breach and he was not happy either.
ergo: NEVER AGAIN.
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Alex S.
OP
Investor · Metro East of St. Louis (Illinois) · Member since 2016 · 255 posts · 211 votes
9y
UPDATE:
I offered $470K and told the listing agent that I will use him as a dual agent IF he pays all closing costs (~$4.5K) and kicks in $5K to the bank. Bank agreed to 6% in my case. Thank you @Will Barnard for the closing cost suggestion and the post that basically reads my mind! I ran all the calculations and my dual agent offer leaves him with about $7,600 MORE dollars than if I got my own agent...effectively giving him a 4% commission. Much like what @Account Closed It is a primary residence, not just an investment. That said, I disagree with your premise. Every investor decides the max amount they will pay...and yes 3% is a game changer.
Thanks again everyone for the personal insights.
6 Reply
Solon S.
NYC · Member since 2015 · 27 posts · 14 votes
9y
@Alex S. Thanks for sharing this. This was very helpful as I'm looking to go the same route.
Also, it shouldn't be outrageous if somebody wants to negotiate and get a better deal. 1-2% on $300-500K is a lot of money, especially for people starting out. It would take the average income earner 2-5 years to save that kind of money assuming they save 10% of their income. And considering that agent and broker will still come away very well when they close on the deal, there really shouldn't be any hesitation to negotiate should it actually get the deal done. If they decide not to negotiate, they could say no, and you could move to another agent who's willing to do the extra work. That's the best part of free market economics, you can always negotiate.
2 Reply
Timothy Tooker
Real Estate Agent · Puyallup, WA · Member since 2012 · 240 posts · 95 votes
9y
@Alex S.
Congrats on sifting through all the opinions and sticking to what fits your investment needs.
@Will Barnard
Amazing Advice!!!!!
I just helped some clients lock up a FSBO for their dream home. We talked the builder (new construction) into dropping the price of the house $12,000 to fit their budget. In order to do this, I agreed to dual agency for 3%. I am going to make a $12,000 commission and my clients are getting the house of their dreams. Plus, now I have at least one builder out there that knows my name and that I am willing to modify my numbers to make deals happen... This 3% and 6% are nice, but not guaranteed and definitely not automatically owed to agents.
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Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
9y
Originally posted by @Jeff B.:

Dual agent was selling her father's MFU - - obvious conflict of interest. Units were in disrepair and during the inspection period, the roofing was replaced. I disapproved of the inspection contingency and withdrew the offer. The EMD was not returned for years as the seller and agent insisted that the repair would not have been done w/o my offer. I did not object or cite the roof condition and thus it was not a reason for my disapproval and withdrawal.
I complained to the broker for the ethics breach and he was not happy either.
ergo: NEVER AGAIN.
Jeff, I would personally not take your situation with a conclusion of "never again". I bet there was much more self interest on the side of the family relationship than there was on the dual agency. In a dual agency situation, you as the buyer need to be savvy enough and knowledgeable enough as an investor to know negotiations, laws, and the contracts associated. With that power, you are prepared to protect and rep yourself during dual agency to not get burned on the dual agency situation. I am not privy to your contract details in this case but if your cancellation was within the inspection period and no document was signed stating that you would close if seller performed those repairs during inspection period, then when the EMD was not released, I would point out to the agent that any seller repairs should have been completed after the contingencies from buyer were removed and not before. That is the mistake of the listing agent not providing that advice to their client, not your fault. Then I would have threatened and followed through with a lis penance on the property preventing any sale until your EMD was returned. Simultaneously, I would have filed a formal complaint with both the agents broker and the RE commission. There was no need for this to drag on for a year.
Point being, don't let this learning experience prohibit you from ever looking at using dual agency to acquire another property.
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Lloyd Lind
New Orleans, LA · Member since 2016 · 20 posts · 8 votes
9y
@Alex Smith, As an agent that has done a few SS, the bank sets the commission and in the ones I have done, there was already in place from the bank a commission rate in place in the event I was a dual agent. It would drop to 4% total in those cases. Each bank however is different as is each SS.Only thing they all seem to have in common is they are a giant pain in the ***. I only do SS for friends and past clients as they are not worth the headaches and work needed.
On the agent paying any of your closing costs, in my state that is totally illegal and probably the number 2 reason agent get sanctioned, suspended, or lose license. It is blatant Co-mingling of funds.
Good luck, but with you tight budget and I am guessing wanting answers quickly, maybe a SS isn't for you.
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