Commission Issues Related to Short Sales – Massachusetts MLS

Short Sale Commission SLASHED!

We have had long conversations with all of the real estate agents we work with on how to structure commission splits related to short sales.   Here is the problem.  Most commission in Massachusetts is capped at 6%.  That’s not a problem if it’s a traditional sale, however, in a short sale many times the lender will cut the commission to meet investor requirements.  If there isn’t enough money in the offer, many times, a short sale negotiator will cut an agents commission.  Obviously this is NOT favorable by any means, but sometimes necessary to close a sale.

The problem is many agents co broke 3% of that 6% and that’s the amount they put in their listing.  That’s not an issue unless the seller’s lender caps that commission at 5%.  This doesn’t happen often, but it does happen.  When this happens, the buyer’s agent is entitled to 3% while the listing agent is forced to swallow 2% commission.  You can imagine if a lender caps the commission at 4% that the listing agent is not going to be happy.

What we have traditionally encouraged the agents that list short sales with us to do is offer a 50/50% split BASED on lender approval.  This has worked for the past few years, however recently MLS PIN in Massachusetts has started cracking down on this approach.

Read the following exchange provided to us by @cherylshortsale (ie, Cheryl Dwyer) one of the amazing agents we work with. Cheryl allowed us to publish this exchange between @cherylshortsale and MLSPIN.

Per Section 5.0 of our Rules and Regulations, you as the listing broker are required to make an unconditional offer of compensation to cooperating brokers, even in a short-sale situation.  The amount of compensation that you are unconditionally offering must be displayed in the appropriate compensation data field, expressed as either a percentage of the selling price or a definite dollar amount.  Our Rules do not allow for the compensation to be expressed as a percentage of the total commission.

Therefore, we ask that you do the following as soon as possible, but in no event later than the close of business Friday, December 14, 2012:

1. If the amount stated in the compensation fields is not the unconditional minimum that you are offering to cooperating brokers, please remove the compensation-related language from the Firm Remarks and change the compensation fields to reflect the minimum amount of compensation a cooperating broker would expect to be paid; or

2. If the amount stated in the compensation fields is the unconditional minimum that you are offering to cooperating brokers, please submit to us written confirmation that the amount stated in the compensation fields is the unconditional minimum.  In this scenario, we might suggest, in the interest of avoiding confusion, that the language in the Firm Remarks be re-worded so as to make it clear that the amount stated is the unconditional minimum.

So what does this mean?  It means you can’t write in 50% of whatever the lender offer.  You MUST commit to an amount either in the form of a percentage or unconditional minimum that you are willing to offer.

What you have to do is approach the commission BACKWARDS which is definitely not favorable for marketing listings.  For instance 2% co broke with a disclosure that states, “compensation may be higher per lender approval”

So, our new advice is to write in the 2%, but add in FIRM REMARKS – that the compensation will LIKELY be higher based on the approval from the lender.

All our packages include a disclosure that compensation is 2%, however, we firmly support listing agents who want to offer a 50% co broke and give more than the 2%, but what we don’t support is a listing agent being cut commission because of lender or investor requirements in a short sale.

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