Short Sales: Can A Bank Make A Realtor Cut His Commission?

Can a bank force a real estate agent to reduce his commission on a short sale? When you talk to a bank negotiator reviewing a short sale package, one of the first things you’re likely to hear is “you’re going to have to cut your commission or closing fee”. This is to be expected from professional negotiators trained to use scare tactics in an attempt to minimize a bank’s losses. As of March 1, 2009, Fannie Mae loan servicers cannot require real estate brokers to reduce commissions below 6 percent as a condition for a short sale approval. Even without this recent rule change (which banks often ignore anyway), banks have no authority to alter the terms of a listing agreement, which is a binding legal contract.

Nobody can force an agent to lower his commission, but a bank rep can try to bully an agent or broker into lowering it voluntarily. Here are some of the phony reasons and intimidation tactics bank reps often cite or use to get an agent to lower his commission:

1. “The investor guidelines don’t allow us to pay more than X% for a commission.” Investor guidelines have no bearing on the legal contract a broker signs with a seller. The bank can’t cut your commission, but they have a huge incentive to try to scare you into doing it yourself.

2. “We’re not or our investor is not going to pay for that.” The reality is that in a short sale, the seller’s lender is not paying for anything. The seller’s lender actually receives a check at closing-the buyer or the buyer’s lender actually pays for everything.

3. “If you won’t lower your commission, then the seller will need to get another agent.” It’s up to the seller not the bank to choose an agent to represent them. If someone says this to you, turn the conversation around and ask the bank rep “Are you suggesting that the seller break the legally binding listing contract they signed?” They usually back off real fast.

Real estate is a people business and Realtors are accustomed to trying to make everyone happy. For this reason, agents frequently give in too quickly to unreasonable demands and banks know and exploit this tendency. When you stand up to the bank and calmly explain that under no circumstances are you going to lower your commission, the bank will normally give in. If the bank does not give in, tell them that they can continue paying the taxes and insurance on the property for a few more months or they can get this bad mortgage loan off their books by honoring the terms of your listing agreement.

Why should you accept a lower commission for doing more work? As soon as you start reducing the commission you are contractually owed, the bank is likely to ask you for a bigger concession later on. If the bank believes that they can take advantage of you, they will! Take your stand at the beginning of the negotiation. Banks usually back down-sometimes immediately, in other cases it may take some time. Regardless, as long as you have a good working relationship with your client, you can wait for the bank to come to its senses. Miraculously, banks tend to be much more cooperative and less likely to try to cut commissions the closer a property gets to a foreclosure sale, so stand your ground and get paid the amount that you have earned and are entitled to receive.