One of the sections that will impact REO agents nationwide is the prohibition of banks making the sale of a short sale conditional upon the lowering of commissions.

You’ve probably seen the following statement in REALTOR remarks:

COOPERATIVE COMPENSATION OFFER SUBJECT TO COURT OR LENDER APPROVAL AND MAY BE ADJUSTED.

Well now it not only violates MLS policy*, but it now also violates Fannie Mae guidelines.  

Servicing Guide, Part VII, Section 504.02: Contacting Selected Borrowers

No Negotiation of Preforeclosure Sales Commission

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.

Link to the whole Announcement 9-03

*See related post on FAQ no Short Sales from the AAR.

This is good news for REO agents, consumers, and banks in the long run, because it removes a large impediment that some agents had showing short sales.

©2010 Prescott REOs.com. All Rights Reserved.

Related Posts

• FAQ on Short Sales from the AAR and Michelle Lind

 Our buyer focused Prescott market area foreclsoure website,
www.prescott-area-foreclosures.com captures leads from prospects interested in REO properties in the Prescott, Prescott Valley, Chino Valley and Dewey-Humbolt market areas.   

The site and it’s accompanying blog, http://blog.prescott-area-foreclosures.com place highly on Google’s organic search and generate an average of 60 quality buyer leads per month.

These leads are made up of three types of buyer prospects:

1.  Investors looking to purchase REO properties to rent or rehab.

2.  Home buyers who are looking for a primary residence.

3.  Home buyers who are looking for a vacation home/secondary residence.

 Buyer prospects contact us after we have established their trust by providing quality, original, and relevant data about the local market and the issues facing foreclosure buyers. 

An example of our content is our weekly market report. 

The Prescott Arizona Area Real Estate and Foreclosure Market Report contains information about the local REO and short sale  market that is unique and not a regurgiation of a Trulia or Zillow market report.  Our customized MLS database queries and analysis of the Prescott Arizona Area MLS system allows us to present concise data like in the chart below: 

Prescott Foreclosure Market Stats

 If you are a REO asset manager or anyone else who wants to stay on top of the market, you can see the latest report and/or sign up to get one delivered to you by email by clicking on the image above.

P.S.  Don’t take our word for our Google ranking. 

Click on these search terms to see how we rank right now:

prescott reos
prescott reo agent
prescott reo broker
prescott area foreclosures
prescott bank owned

We’re not always #1, but we’re usually on the front page, if not in the top 5.

Related info on the web:

Use 25 Expert Techniques to Have a Successful Blog

Diversity is Power for Specialized Sites

10 steps to creating a successful blog

©2010 Prescott REOs.com. All Rights Reserved.

Related Posts

• Why we should be your Prescott area REO team – Reason 3/10
• Why we should be your Prescott area REO team – Reason 1/10
• Examples of bad MLS pictures that cost REO asset managers money

Some of these are comical and others are just plain sad.  It’s too bad that the REO asset managers who own these properties are giving away $1000s due to poor advertising by their REO agents. 

[View with PicLens]

If you are selling your company’s assets, don’t your shareholders deserve better?

Some other posts on the importance of good MLS pics:

Bad MLS Photos … Pitiful or Fun.

Horrible MLS Photo Of The Day #318

Is An Ultra Wide Angle Lens Camera Worth The Investment for Real Estate?

The Best Entry Level Real Estate Photography Combo

©2010 Prescott REOs.com. All Rights Reserved.

Related Posts

• Why we should be your Prescott area REO team – Reason 3/10
• Why we should be your Prescott area REO team – Reason 2/10
• Why we should be your Prescott area REO team – Reason 1/10

The increase in the number of short sales has resulted in many questions pertaining to the unique nature of these transactions. Many of these questions concern commission issues. The following Q&A will answer some of the most common questions.

For purposes of this article, assume the following facts:
The property is listed in the MLS as a short sale subject to lender approval. The buyer submits an offer through the buyer’s broker. The listing broker submits the offer and short sale package to the lender. The lender responds that it will approve the short sale if the total commission is reduced by 2%. Both buyer and seller demand that the brokers reduce their commission to allow the transaction to close escrow.

Must the listing broker agree to reduce their commission to allow the transaction to close? No. The listing broker has no fiduciary duty to the seller to reduce the commission to allow the transaction to close.

Must the buyer’s broker agree to reduce the commission to allow the transaction to close? No. The buyer’s broker has no fiduciary duty to the buyer to reduce the commission to allow the transaction to close.

If the listing broker agrees to reduce their commission, must the buyer’s broker agree to split the reduction? No. The buyer’s broker’s has no obligation to agree to split the reduction in commission. The buyer’s broker is entitled to the cooperative compensation offered in the MLS at the time the broker produced the offer. Standard of Practice 3-2, which requires the listing broker to communicate any changes in offers of compensation before an offer to purchase is produced, states:
REALTORS® shall, with respect to offers of compensation to another REALTOR®, timely communicate any change of compensation for cooperative services to the other REALTOR® prior to the time such REALTOR® produces an offer to purchase/lease the property. (Amended 1/94)

What if the listing broker and buyer’s broker get into a dispute over the lender’s refusal to approve the short sale unless the commission is reduced? A.A.C. R4-28-1101(D) states: “A licensee shall not allow a controversy with another licensee to jeopardize, delay, or interfere with the initiation, processing, or finalizing of a transaction on behalf of a client.” However, the Rule is clear that “[t]his prohibition does not obligate a licensee to agree to alter the terms of any employment or compensation agreement or to relinquish the right to maintain an action to resolve a controversy.” Therefore, this Rule does not apply to a dispute arising from a refusal to reduce the agreed upon commission; it applies primarily to procuring cause disputes. Thus, if the brokers can not reach an agreement, neither will reduce their commission by the full amount demanded by the lender, and the lender will not approve the short sale without the commission reduction, the transaction simply will not close.

If the listing broker agrees to reduce the listing commission and instructs the escrow company to reduce the buyer’s broker’s commission as well, can the buyer’s broker agree, allow the transaction to close, accept the lower commission and then pursue the listing broker for the reduction amount? No. If the buyer’s broker agrees to accept a reduced commission amount, the buyer’s broker is bound by that agreement.

Isn’t the buyer’s broker in the above situation accepting the lowered commission under duress? The buyer’s broker may be under duress in that the broker wants or needs to be paid, but that does not constitute the type of economic duress that would invalidate the agreement to accept the reduced commission amount. As an Arizona Court explained: “[a] charge of economic duress or business compulsion must be based on the acts or conduct of the opposite party and not merely on the necessities of the purported victim, or on his fear of what a third person might do, and the mere fact that a person entered into a contract with reluctance, or as a result of the pressure of business circumstances, financial embarrassment, or economic necessity does not, of itself, constitute business compulsion or economic duress invalidating the contract . . . Unless wrongful, unlawful or unconscionable pressure is applied there is no business compulsion amounting to duress . . .” USLife Title Co. v. Gutkin, 152 Ariz. 349, 732 P.2d 579 (1986).

Could the listing broker have avoided this issue by offering a split of the commission approved by the lender (for example, 50/50), instead of offering a specific percentage of compensation for buyers’ brokers when posting the listing in the MLS? No, offering a split would conflict with MLS Rules. The NAR Model MLS Policy requires that the compensation specified be a percentage of the gross selling price or a definite dollar amount. Therefore, the listing broker could not offer to split the commission 50/50.

In conclusion, brokers who are involved in a short sale transaction must be prepared to address the many issues these transactions present, including the potential of a demand for a reduction in commissions. These situations should be handled professionally in all cases and any agreement to alter the previously agreed upon commission structure should be reduced to writing to avoid any misunderstandings or disputes after close of escrow.

By K. Michelle Lind, Esq.

Michelle is general counsel to the Arizona Association of REALTORS® (“AAR”) and a State Bar of Arizona board certified real estate specialist. She serves as the primary legal advisor to the association, provides legal direction in the development of standard forms, is involved in legislative advocacy, and assists in the association’s educational efforts.

Please note that this article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.

©2010 Prescott REOs.com. All Rights Reserved.

Related Posts

• New Fannie Mae Rule prohibits banks from lowering commissions during preforeclosure short sales