How banks are making mistakes with real estate agents doing short sales

Working toward the same goals

In theory the incentive a listing agent has to sell a house for more money has to do with the fact that their commission is directly tied to the final sales price.  This aligns the agent financial goals along with the sellers.  However, now that residential short sales have become commonplace in this market most banks have mandates that total commissions on short sales will often only be 5%.  This may contradict the listing agreement that the agent has signed with the sellers, but since the banks have the final approval on the short sale, the listing agreement that defines the commission paid really becomes secondary. 

Commission reductions

I’ve done my fair share of short sales acting as both a buyer’s agent and a seller’s agent both for
residential as well as commercial short sales.  I’ve also had banks demand that the total commission be reduced on every single sale, some as low as 4% total.  While I’m not going to go into the end results of these demands from the banks, it’s important to remember that we as listing agent  wind up acting for two interests, the sellers and the banks.  And many times, with the banks trying to lower commissions and the sellers just wanting to get rid of the property as fast as possible, those two interests collide.

Sales delayed

For example, banks demand that the property be continuously marketed until short sale approvel is given, however, by doing so the sale process can be delayed if multiple offers are submitted.  Most agents I know of are taking and submitting only the first offer that comes in.  This protects the buyers interests, the sellers interest to get the deal done quickly, but not the banks interest to obtain the most money possible for the sale.

commission reductions = wrong decisions

Banks demanding that commissions be reduced causes the agents to act in the other parties interests by encouraging fast sales rather than maximizing price.  If the banks would not insist on commission reductions they would probably get better results as the agents would feel that their efforts are going to be rewarded rather than attacked.  The way that the banks are acting is forcing listing and buying agents to align somewhat against the banks interests.  If the banks would speed their response times and leave the listing agreements alone, the sellers and banks would be much better off.

This entry was posted on Tuesday, December 1st, 2009 at 4:50 pm and is filed under Colorado Real Estate and Homes, Commercial Colorado Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.