Reducing agent commission/dual-agent

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Reducing agent commission/dual-agent

Alex S.
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
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

    The decision is already made and without your prompt, I would not have shared the details - - so I'll thank you for exposing the issues to others.  They, like I did, will make their decision now with a better understanding.

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  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 642 votes
    9y
    Originally posted by @Lloyd Lind:

    @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. 

     Crediting closing costs in California is definitely not illegal.  The funds are credited through escrow.  The broker simply gives the escrow officer instructions to credit a certain amount of commission to the buyer.  It reduces the amount the broker gets at closing as well as the amount the buyer needs to bring to closing.  There is no commingling of funds; no actual money is exchanged between the buyer and the broker.

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  • Lloyd Lind
    New Orleans, LA · Member since 2016 · 20 posts · 8 votes
    9y

    @Stephanie Medellin Thanks for info... Here, in LA, I can't even pay for an inspection even if reimbursed by buyer without it coming under scrutiny for commingling funds by LREC even if full disclosure is given that such is happening to both brokers and to both buyer and seller.

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  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 642 votes
    9y
    Originally posted by @Account Closed:

    @Stephanie Medellin The buyer should never get any commission for buying.

     Well it wouldn't be considered commission - it's basically a gift or rebate from the broker to the buyer.  Some agents give buyers gifts at closing; it's the same idea.  If you go through the whole transaction and something happens and you find that the buyer needs an extra $1000 to close, I'm sure there are a lot of agents that would chip in to make the deal happen.  You could also represent a friend or family member and offer some help with closing costs.  Or you could represent yourself as the buyer and apply the commission to your costs.  So actually in that case, the buyer who is also an agent would get a commission for buying.  :)  

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    9y

    @Alex S. Just so you're prepared, if the agent submits the contract as a dual agent, the bank will likely immediately reduce the commission to 4%, eliminating any credit back to you.

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  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 642 votes
    9y

    @Lloyd Lind  Wow that's very interesting how the issue is dealt with in your state.  It seems very strict to me, but I suppose it's similar to how loan officers in many cases cannot reduce fees for a borrower.  

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