What Happened to My Commission Check?

Is really stinks to go through a short sale only to have your commission cut at the last minute. It happens all of the time and when you read further you'll find out the secret to keeping all of your commissions. How is it that the banks don't see how hard you are working? There are months of work, managing your clients, your expertise and in the end they want you to do it for free. How do you protect your commissions?

Let's say you are the listing agent and your seller has agreed to pay you 6 'apples' to sell their home. Those 'apples' are coming from the proceeds of the sale and if you have negotiated short sales you may have heard from the bank 'the most we will pay is 5 'apples'. 'We did not agree to pay you 6 'apples' the seller did, get the rest of the money from the seller.' So what do you do? First keep your calm and confidence. There are plenty of scripts you could scream out at them about how hard everyone is working. Let me save you the time, they really don't care.

The negotiator's job is to get as much money as they can and they are counting on you giving in. They might say 'well it's better than getting nothing and oh, you better take the 5 'apples' because our new policy will be dropping that to 4 'apples'. If you are panicking about getting paid you will become a victim to the pressure from the bank. If you are a professional you know that at times it is actually better to say no and cut your losses (and mean it!).

So what would I do? Well why not ask the seller if they have the difference? My first goal is to keep the seller from having to pay any money, they need it for their next move. But I will ask if it comes down to it. Many sellers can see that for such a small amount of money they will be able to get away from a huge debt, not too bad at all. But we really don't want to do this do we? No. And we aren't going to short change the buyer agent are we? NO!!! Do this even once and good luck getting that buyer agent or others to write offers on your other short sales.

Here is exactly what we did recently when the bank gave us the 'take the 5 'apples' because if you don't the new policy will only pay you 4 'apples'. We thanked the big old bank for all of their help and time, told the negotiator how great it was to work with such a professional. And guess what? We meant it. Then we asked them to send over the approval letter with the 5 'apples' listed. Once the letter arrived we contacted the seller and had them hand write a letter thanking the bank for their help with their short sale. The letter continued and then referenced the fact that because the bank would only pay 5 'apples' and 6 were promised that the seller's themselves would have to come up with the 6th 'apple' and they did not have it to give. The letter continued to state that due the the fact that the terms of the approval would not work for the sellers that if the bank could not approve 6 'apples' they would need to void the offer. This letter from the seller along with the original approval letter from the bank corrected to match the 6 'apples' was sent back to the negotiator. Four hours later the commissions were approved at the 6 'apples'.

The key to negotiating is staying calm, thinking clearly and doing your best to make all sides feel as though they are winning in some way.

One last comment about saving commissions - Just Say No! It is just like doing a listing appointment and the seller asks you to do it for less. You tell them no and move on to the next appointment. This is absolutely no different, say no. Push back but in the nicest way possible of course :)

Loss Severity

Pay attention to the loss severity of your short sale from the start. I would not necessarily panic if it is high but the contract price better be in line with Fair Market Value (FMV).

Loss severity is simply the percentage of return for the bank. All banks will have a loss severity number in thier guidelines that the initial loss mitigation group checks. For example if the balance of the loan is $300,000 and after all fees the bank would recover $240,000 then they would be getting $.80 on the dollar or a 20% loss. Not too bad but if the loss severity starts to move over 20% then you will most often have a concern. If, for example the bank recovered $150,000 or a 50% loss, then you should know that the typical hourly wage, loss mitigator will never be able to approve it.

Knowing this from the start would tell you not to waste too much time waiting for the loss mitigator initially assigned the file to respond to you. I would suggest escalating your file within 30 days of submitting it. As long as you are confident that your sale price was close to FMV you should have success taking this to the senior loss mitigator at the bank. Explain in a cover letter what the numbers are and refer to the loss severity and your personal BPO value. If they see that the numbers are justified they will push your file through.

Setting Expectations

The key for success when listing short sales is 'Setting Expectations"! This goes for everyone involved. At the start it begins with setting your client's expectations. Once you have an offer it continues with setting the expectations for the buyer agent and buyer. If you neglect to get their expectations in line at the start you are going to have problems for sure.

Setting the Seller's Expectations
After you have interviewed the sellers and if they qualify for a short sale set them at ease first. Remember they are not sleeping at night, they wake up in a panic, often they have stopped checking their mail and answering their phone. Some that we have interviewed were afraid they would return home one day and all of their belongings will be in the street. Here is where you step up as their Realtor and let them know you are here to help. Tell them the first thing you want them to do tonight is to have a good nights sleep. Assure them you know what you are doing and while there are no guarantees that they are in good hands.

Have them commit to opening all mail and communicating with you. Explain the foreclosure process for your state. For a list of foreclosure laws and procedures by state click this link. Once you know how late they are you can fit that into your states procedures and let them know where they are today and how that effects their short sale timeline.

If they no longer wish to speak with the bank that is their right. Have them sign a document stating that and that they wish the bank to direct all phone calls to you. Send this to the bank with your 3rd party authorization form.

Explain the time involved. Typically 3 months to close after ratifying a contract on a home with one loan. It could take up to 4 months for a home having 2 loans with different lenders.

As you gain more knowledge and experience you wil come up with some of your own details to cover in order to properly set their expectations. I would suggest putting everything in writing so it can be reviewed and signed off on by the sellers.

Setting the Buyer Agent and Buyer's Expectations
This is a big one. When you are speaking with a buyer agent they are listening closely to you and trying to assess your ability to get this sale to closing. Just like you they don't want to go through a 3-4 month ordeal to end up with no sale. Tell them how often you will update them and know that it is not acceptable to only update them every 3 or 4 weeks. I suggest a weekly update via email if acceptable to them. I know it seems silly to update them only to say you have no new updates but the buyer agent is sitting blind and these light touches via email or phone will keep them confident and they can do the same for their buyer. As you handle more listings you may wish to work a better system to manage your time if you do not have an assistant. Possibly a web site or page where you update the status for the agents to check on directly.

Ask the buyer agent in a respectful manner if they have written on any short sales? Find out what expectations they have set for their buyers. Our local contract has a short sale addendum allowing for all parties to agree how long the buyer will wait for the bank to send a written approval. I suggest all parties agree to at lease 3 months to be safe. If the buyer only wants 1 month I would suggest they are not motivated enough to stay with the sale and you might want to consider your options. For example, if they will only wait 1 month but you want to use this contract as a vehicle to start the process with the banks then go forward. I would also suggest in this case that all parties agree to keep the home ACTIVE for sale. Consult your broker with how to do this. In my area we would just add an addendum to the contract to cover this.

If you set every ones expectations from the start and manage them along the way it gives you more time to work on the negotiations and get to close quicker.

Disclaimer - Read This or Else!

DISCLAIMER: I’m a Realtor. Here is what I am NOT – I am not a bomb diffuser, not an attorney, not a rocket scientist (but I dated one once :-), not a lawyer, not your mother, not omniscient and I am not a Realtor licensed in every state. So please for the love of all that is good in this world – DO NOT take my word for anything here. Do your own due diligence, talk to your broker, ask around, check out other blogs if you like. Be cautious about making any ‘absolute’ statements to your clients as things are changing daily related to short sales. But don’t imagine that going to seminars held by banks is a place to get your answers. The bank is looking out for the bank, not for your clients as you need to be doing!

Good Luck out there and please don’t learn to do Short Sales by trying it on an unsuspecting home owner. You’re failure means they lose their home to foreclosure and all of the negative impact that goes with it. This is no time to play around with your ego and other peoples lives.
-Short Sale Steve

Welcome to Short Sale Steve (.com)

This blog is my way of sharing my thoughts and experiences working with home owners, buyer agents and the banks doing short sales. Commenting is open but only to registered users. I've limited to visitors that register to keep down the 'drive by' comments that add no value to the blog.

My hope is to help other Realtors that are new(er) at doing short sales find some answers quickly as to avoid a failed short sale. As you may know the national average for short sales success is only at 10%. That suggests that 9 out of 10 home owners end up going to foreclosure due to their failed short sale attempt. Those are horrible numbers and as Realtors serving our local communities we have to get the training, tools and knowledge to successfully represent home owners needing support to do a short sale.

So why is this free? For a few reasons. The more Realtors doing a better job and closing these deals the better for everyone and the local market. The other reason quite honestly is I would like your short sale referrals if you are too busy to work them. This blog allows me to spread the wealth as it were and generate short sale listing leads from Realtors that would still prefer not to do them yet. So stop back, check out the posts and if you are our here in Northern Virginia and need to refer a short sale keep me in mind.

To ask a question, refer a listing or anything that might be on your mind just click on the 'Contact Link' to send it to me.

Welcome!

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Short Sale Document Downloads

I will add to this page as often as I find resources or samples worthy of your attention. :) Select this article occasionally to see what might be new and download what you like to help you get started or streamline your short sale real estate business.

Please note that some of the PDF downloads are password restricted from printing and copying. This was done to keep the unscrupulous people out there on the Internet from taking these and re-branding the content and selling it to others. You will be able to open and easily read a duplicate what you need. Please note we do provide all of this with no security to the agents we consult with.

* Home Affordable Foreclosure Alternatives (HAFA) - 43 Page document describing the new program for short sales.

* BPO Form 4 Page
This is a 4 page document we use to complete and send in with our short sale packages.

* Short Sale Starter Package (3MB)
When I meet and work with Realtors trying to start their short sale business this package shows the types of forms we use. You can use these to recreate your own for you business.

* Sample Short Sale Package (2.5MB)
This is a sample of what we might submit on a short sale request over to a bank.

* Sample Short Sale Bank Approval Letters (.5 MB)
Here are a few sample bank approval letters we have received. Of course the sensitive data they contained has been covered over. :)