A short sale listing agent recently reached out to me to ask whether an agent principal can earn commission in a short sale transaction. This agent, Agent Alice*, was told that there are certain situations where licensees cannot earn a commission when buying a short sale.
The question:
Agent Alice received an offer on her listing from Agent Alex. Agent Alex is both the buyer and the principal. Agent Alice wanted to know whether the bank would pay a commission to Agent Alex at closing, since he is both the buyer and a principal.
The answer:
All of the major lenders including Fannie Mae and Freddie Mac employ some sort of arm’s length affidavit in which the buyers, the sellers, and the agents acknowledge (often in front of a Notary Public) that none has a business or familial relationship with another party outside of the transaction. Between this affidavit and investor guidelines for short sale commission, it is uncommon for the short sale lender to permit a commission to be earned by an agent principal.
Agent Alice then asked me whether Alex’s Broker, Broker Bob, could represent Agent Alex and earn a commission. While I do not work for the short sale lenders and cannot predict each short sale lender’s response, I’d say that it would be best to avoid this scenario, since the two have a business relationship outside of the transaction.
My two cents:
When I recently posed these scenarios to a group of agents, many shared creative ways to obtain a commission for Agent Alex. Remember that any creative solution whereby Agent Alex earns commission must also show his commission on the HUD-1 that is approved by the short sale lender prior to closing. As such, it is highly unlikely that there is a legitimate workaround for this problem.
The solution:
The easiest and safest way for Agent Alex to purchase Agent Alice’s listing is to seek representation outside of his brokerage. Not only will this assure that the buyer’s agent earns a commission, but it will also assure that all parties comply with the requirements of most lender short sale addenda.
*The names of the agents and the brokers in this post are pure fiction. Any relation to real listing or buyer’s agents is merely coincidental.
