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How Much Should a Short Sale Cost?

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What could be worse, in times of financial hardship, than receiving news from your real estate agent that his or her services will cost you, out of pocket, before any work begins?

Now that would be adding insult to injury.

In a normal real estate transaction, the cost to sell a home is typically on the shoulders of the home-owner who has hired a listing agent to market the home.  A rate is negotiated, and the resulting fees are split evenly between the listing broker, and the selling broker, and these fees are drawn from the proceeds of the sale of the home at closing.

A short sale is a different beast altogether, because it’s assumed that the homeowner has fallen on hard times; specifically that they owe more on the house than it will sell for (see the article “What Does It Mean to Be Upside Down in Your House”)  When the amount you get at sale is less than what is owed, the seller either needs to come to the table with cash out of pocket to bridge the gap, which most cannot do, or seek out the approval of the lender to release the property for less than is owed.  Sometimes the lender will ask the seller to sign a personal note for the difference.  This is commonly asked, but rarely agreed to.  This happens all day long and for good reason.  Banks aren’t in the real estate business.  They’re in the money business.

The prime time  for a short sale to be approved by a lender is when it’s clear to the lender that the home is headed for foreclosure, or there’s an inevitable need to sell due to other unforeseen circumstances.

In the event of a short sale, whereby the seller has no money left over when the house sells, how do the REALTORS® receive compensation for their work?

That’s easy.  Fees are built into the transaction and paid for by the lender releasing the note.  The banks know that it takes time and expertise to properly sell a home, and since they aren’t in the real estate business, they’re more than happy to partner with REALTORS® to ensure the job gets done.  Selling your home short of what you owe lightens the blow on the property values in the neighborhood which is an additional plus for the banks, as they may own multiple properties near your home.  Save one, save many.

So, on a house that sells for $120,000.00 that has a payoff of $150,000.00, the bank will subtract the broker fees and closing costs from the final sales price, resulting in an even lower net payment to the bank.  In this example, it’s possible that the bank will only receive a payment of $105,000.00, maybe more, maybe less.  It all depends on what they’re willing to take.

What this ultimately means is that you, the home-owner, receive top notch professional representation at ZERO OUT OF POCKET COST to you.

There are implicit associated costs when you sell your house for less than you owe, but they come in the form of a temporarily affected credit rating, and potential tax consequences.  The impact upon your credit score if you foreclose is far greater than if you sell short.  What does zero cost mean to you?

It means my services are completely free of charge to you.

But what if we don’t want our credit to be affected?

The only way to protect your credit from the effects of a short sale (which are far less damaging than foreclosure), is to sell the home and cover the difference between what it sells for and what you owe, so the lender will report your account as “Paid in Full.”  Either cash at sale or a note for the deficiency will accomplish this.

If you have any questions about the process of preventing foreclosure, whether you’re just now considering it might be a possibility, or you’ve already received a Notice of Trustee sale, please contact me today: (602) 312-3262

How do Real Estate Agents Get Paid

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…and who pays them?

Before I was a REALTOR, I was a consumer, and I bought a house. Fortunately for me, or maybe it wasn’t so fortunate, my REALTOR was my father. He also owned the house that I purchased. This worked both for and against me, but we won’t go into that now. The point is, I had no idea how REALTORS made a living prior to diving into the business myself, and you may also have questions about how we get money on our european wallets.

Real estate agents are 100% commission based jobs. That means, we don’t get a paycheck unless we do business. Makes sense. Open up shop, provide a service, get paid, or sit on the couch all day wondering what to do.

Real estate agents also work as sales agents under a real estate Broker. That broker typically collects a percentage of what we make to cover the costs of running the company. At Realty Executives, we pay a premium to use the name while we conduct business according to their standards and the standards of the Arizona Department of Real Estate and the National Association of Realtors.

If we don’t sell a home, we still pay our broker, mortgage, utilities, etc. So we’re always in a position where cash is flowing out, but not always in a position where cash is flowing in. We’re also in a business where we need to be available when most of the rest of the world is not. This means that we sometimes have to work on the holidays that you get to spend having fun. On the other hand, we have the freedom to “take a lunch” whenever we want.

What does having a Realtor cost the Buyer? Answer: Nothing. Zero. Zip. Nada.

When you meet me for the first time and express an interest in purchasing a home, I assess how serious you are about purchasing, and then I begin to spend money on you to help you find that home. Searching for a home with a REALTOR costs you only time. You will spend nothing out of pocket, but we will commit a large portion of our business day(s) and marketing budget to provide you with the most pleasant showings as we possibly can. We fill our tanks, fill your stomachs, and become your city tour guide for the duration of your search. If you purchase a home without using us after spending all that time, we don’t get paid, but we also don’t hold it against you, because you may not have known, which is why I’m writing about it. 🙂

When the seller hires a broker to sell their home, the broker charges them a commission to do so. When that broker lists the property on the MLS, they indicate how much of that commission will be paid to the agent who brings YOU (the buyer) to the table to purchase the home.

The buyer won’t have to open their wallets until an offer is accepted, at which point a series of events begin that justify why the selling broker is willing to pay us in most cases half of the agreed upon commission.

What does having a Realtor cost the Seller?

The seller is the one who has the highest expense. From fixing up their property to staging it, the seller will bear the majority burden of cost in selling a home.

When the seller strikes an employment agreement with the broker, they typically agree to a set commission of the final sales price of the home and they offer a portion of that to anyone who brings a buyer. When the property closes escrow, the funds owed the listing brokerage are distributed according to the agreement between the two brokerages and each real estate agent is paid accordingly.