“Don’t Cut Commissions” – Fannie Mae

fannie-mae1These are some of the most beautiful words in the Fannie Mae Servicing Guide:

Effective March 1, 2009, closing of preforeclosure sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6 percent of the sales price of the property in aggregate. Servicers are reminded that they must continue to obtain any approvals that may be required by interested third parties in connection with preforeclosure sales. (Part VII Section 504.02)

You need a translation from Fannie Mae speak to Realtor language. Preforeclosure is Fannie Mae’s term for a short sale. As long as the total commission is 6% or less, Fannie Mae as the investor is directing the servicer to leave the commission alone.

I have grabbed the microphone at REOMAC meetings to question the practice of cutting Realtors commissions. I have button holed Fannie Mae and Freddie Mac executives to discuss this practice. I lead an ovation for the Freddie Mac executive on a Short Sale panel who said they did not want the practice of cutting Realtor’s commissions to be allowed. I questioned a short sale panel that was so proud of paying a closing attorney extra money when the attorney worked to help loss mitigation, yet they condoned cutting the Realtors commission, and objected to me getting paid when I advised Realtors how to work their way through the short sale process.

Fannie Mae has said that Realtors are not to be treated like dogs.

Why is this important to the homeowners? Because it is the Realtor who is taking on the challenge of selling the home, getting the buyers to put up with the delays in a short sale review, and negotiating with all the lien holders. If the Realtor knows that the commission will be cut, they are much less likely to take on this task that is much more difficult than a traditional sale. If the Realtor knows that they will be properly compensated if the sale closes, there will be many more short sales with their benefit to the borrower, the lender and the neighborhood.

In an individual case, the bank will make more if it steals some of the Realtor’s commission. That is what CitiMortgage did to me in the short sale of a property on Crest Road in Rancho Palos Verdes, California. By negotiating in a questionable manner, they withheld approval of their short payoff until everyone else was up against a foreclosure deadline. Then, they would only approve a much larger payoff than allowed by the first and the second loans, so the only way to accomplish that was to have the Realtors pay CitiMortgage. Their negotiating trick left no time to get the situation corrected. In this one situation, they made more money. I have not done a short sale involving Citi since. Also, I disclose this experience to any Realtor that I educate on short sales. I will not do a short sale where Citi is involved unless they are representing a loan where Fannie Mae or Freddie Mac is the investor.

So, Citi made $25,000 more in this one situation. I will bet that they are losing many other short sale opportunities, where their total loss dwarfs the one time savings.

Fannie Mae has done an excellent job of emphasizing the long term benefit of short sales and eliminating the short term gain of stealing one commission. If Realtors know they will not have a commissionectomy, it is much more likely that they will do short sales.

Thank you Fannie Mae.


13 Responses to ““Don’t Cut Commissions” – Fannie Mae”
  1. very good information and video about the real estate short sale

  2. Liz says:

    I disagree with this decision or recommendation. If a seller is taking a loss because a property hasn’t appreciated as expected and there is less equity available, everyone should take a loss. The seller should not pay pay premium comissions if the sales price does not comensurate.

    • Tim Burrell says:

      The article talks about earning a regular commision for even though there is much more work in a short sale, not a premium commission. The Realtor does not have to subsidize the investment strategy of the seller/borrower or the profit margin of the bank because they should get properly paid for a lot of work requiring a lot of talent.

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  9. sesli says:

    good quality post thanks

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