How Do Realtors Get Paid On Bank Owned Homes or Short Sales in Washington?
It’s a sign of the times that this question has been coming up a lot lately. Before the market took its current turn, bank owned transactions were pretty uncommon and short sales where downright rare.
Bank Owned Commissions Work Like Any Other Sale
The short answer is that Realtors generally get paid on a bank owned home transactions just like any other sale.
For bank owned homes, also called REO properties, the listing agent has a commission agreement with the bank that owns the property. The listing agent advertises the listing to other agents with the offer of splitting the commission the bank is paying with the agent that brings the buyer.
In the event that the property is not listed with an agent, an agent representing a buyer would likely present a commission agreement to the selling bank stipulating that if a buyer they represented were to purchase the home, the bank would pay the agent a commission.
Alternatively, if the seller is unwilling to pay a commission, the buyer may choose to pay a commission to their buyers agent. In our experience, that just doesn’t happen very often. We’ve heard of it, but we’ve personally never had a seller refuse to pay a commission. After all, sellers are generally interested in selling their homes. Banks, in particular, generally understand that paying an agent is worth their while.
Some buyers and agents have exclusive buyer’s representation contracts that specify the buyer will pick up the commission if the seller doesn’t pay.
Short Sale Commissions Are a Little More Tricky
A short sale begins with a transaction in which the sales price is insufficient to pay off a seller’s closing costs and mortgage.
In these cases, the seller may be able to bring money to the closing table to cover the shortfall and complete the closing. If they can and do, that is not a short sale.
A short sale occurs when the seller does not have funds available to bring to the table and asks the bank to accept less money than is owed on the mortgage.
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So if a seller doesn’t have enough money to pay off the bank, how could they pay any commission? The answer is that the commission is included in the closing costs. When one attempts a short sale, the bank is asked to accept a payoff that allows coverage all of the other costs at closing…including commission.
For example, say a seller owed $300,000 on their mortgage and the estimated closing costs on transaction (including commission, real estate excise tax, title insurance, closing and recording fees, etc.) were to be $24,500. The seller puts their home on the market for $325,000 to try to clear enough money to pay off their expenses, but the highest offer they receive is for $300,000. After carefully evaluating their circumstances, the sellers decide that they’d like to proceed with attempting a short sale and the bank is asked to accept a payoff of $275,500 instead of the $300,000 loan balance.
Short sales are complicated. There are no guarantees and it may not even be the best path for some sellers.
We’re happy to help answer any questions, feel free to contact us anytime. By all means, if this information is helpful to you please subscribe to our Seattle real estate blog by RSS or email.
