Should a Buyer Pay a 1.5% Negotiation Fee to Expedite a Short Sale ?
We had a recent short sale with a Keller Williams office in the county where their policy, or perhaps the listing agent's policy, was to charge the buyer a 1.5 percent negotiation fee to help expedite the short sale process. In the beginning when we submitted an offer for our buyer, I inquired with the listing agent and asked about this policy and he simply stated, "It helps me do more short sales. If I had to be on the phone with the bank, I would not get anything done." I inquired why charge the buyer and why not keep this on the sellers side and his reply was, that's how they do it and it works for him.
Okay, whatever. I had my issues with it but the buyers wanted the property. And I figured since they had the short sale well under way (or so I was told), perhaps the extra fee would not be that big of a deal. The buyer would be getting a great deal and the whole process would be expedited.
Fast forward... several months... Below is an illustration of the last conversation I had with the KW Agent. I was trying to wrap my mind around this agent's version of "expediting the short sale process" for a fee to my buyer. CAUTION ! Not for the faint of heart, of for people with anger issues !
Chuck, You say I should know there are no rapid responses in Short Sales.... Please! A Rapid response is not even possible at this juncture. When we got under contract in December LAST YEAR, you told me that this deal was well underway. "Well Under Way" Your words! You said you knew what the bank needed for a fast settlement and you had this "great company" that would "expedite" the process for a fee that had to be passed on to my buyer. THEN you had your seller accept our offer. THEN the story changed. That was just the beginning of the lies. We increased our offer price 2x's for the bank ! What happened? If we are giving the bank the net offer that they wanted 2x, we should be able to get some straight answers from you, right Chuck? What is the flipping hold up? That document that you say is "holding up the process", the sellers financial worksheet that you say needs to be sent to the negotiator... that should have been set to them months ago! Does this seller even have a real hardship, Chuck?
Why is the buyer paying 1.5% of the sales price, Chuck? We were misinformed numerous times that the bank accepted our offer. OOOPS ! That was a misunderstanding. I loved the one where the bank wanted to accept an offer LOWER than what we were offering. That was my favorite and that was what Lynn (from the negotiation company) told me. THEN I was told, OOPS! wrong again. The bank wants to NET another arbitrary number. So we agreed again to the numbers that were tossed at us. Then it was a need for an updated financial worksheet! Before that it was a "Government SHUT DOWN" ? Come on !! I am just trying to wrap my mind around what has been happening on your end. Honestly if you look at what has transpired in the last few months you'd have to agree, it just sounds messed up (not the language I actually used !!!). Why again is the buyer paying 1.5%?
Lower counters? Government shutdown? Whose kidding who?
Long story short, the property did finally settle. We did chip away at the negotiation fee a half percent for the despicable way that this was handled (should have waived the whole darn fee). That was even before our commission was chopped from the bank. Oh... But the cherry on this Banana Split was when they demanded the Buyer pay for a fee Keller Williams forgot to put on the final settlement sheet. Un Frigin Believable !
As many of our readers know, we DO A LOT OF SHORT SALES for our sellers. I am not exactly sure why the listing agent had to hire an outside company to do the legwork. But in the beginning of the deal, he was honest when he said, "it helps him do more short sales". During the deal, it must be said it was useless speaking to him since basically he took no part of the deal and did none of the negotiation with the bank. Thus, we were left dealing with the incompetence of the "negotiation" company, who we found out later were not attorneys. There was one woman there who stepped up at the eleventh hour who finalized the deal by perhaps luck but am not sure what they did.
Thus, this leaves me with the following questions:
- With this model, is it fair for consumers to pay for the growth of the listing agents business ?
- Same question goes for the growth of this Keller Williams office ?
- Is it common in other states for this type of a negotiation fee being passed to the buyer ?
- Is this practice similar in other Keller Williams offices ?
For example, I have seen other Keller Williams agents in Philadelphia brag about their "in-house" short sale department. I hope that this in-house department is not passing the cost to the consumers. I have a problem with that. I also have a problem with a high cost on the sellers side as well as that could interfere with the negotiation process with the lender. An expert listing agent with the proper resources and training can handle doing these short sales. Ever hear of the Certified Property Distressed Expert (CPDE) designation ? (On a side note, I have nothing against Keller Williams and am not picking on them. This may be an isolated situation.)
Before writing this blog post, I consulted my friend Bill Gassett, a top producer , a short sale expert, who uses an attorney on his short sales. He stated that he had never heard of having that type of cost being passed to the buyer.
What are your thoughts ?
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I think that this is not a good recipe for success. Having a buyer pay for the services of a company that they did not choose does not bode well. Also, do they get paid whether it closes or not? If it does not settle are they still entitle to the fee? And I do wonder who the third party is loyal to...the KW agent who brought them in or the buyer who is paying their fee. I have a feeling that you are not going to hear many supporters of this model!
To me this sounds very fraud like. I would have not done business with this Joker. I just tried to do a deal that sounds very much like yours. The other Agent was the most incompetent Realtor I have ever tried to work with. She wouldn't respond to emails, phones, texts nada!! I couldn't get anything out of her until I emailed her that I was going to report her to TREC. Then months later, my client finally said, I want my earnest money back (yes after 6 months), I send the release and 3 weeks later, no response. I then called her Broker, NIMRODS like your guy and this lady need to go away!
I think if any fee is to be paid it would be a credit to the buyer and not an extra profit for the listing office/agent. We are in a buyer's market after-all.
All good points guys. The only concession for us is that the buyer got a fantastic deal. Thankfully they saw the reward, were willing to take the risk to get it, and they were flexible. Still, the experience left us thinking- is it the model that left us with such a bad taste or was it the Seller's Brokerage that made this model appear to have so many weaknesses.
Hello-I have seen some short sale fees in the Seattle area passed on the the buyers. What would have happened if they didn't agree to pay the fee and the offer was submitting without agreement? What a mess, good job on getting it closed. Best.
This is something I'm seeing more and more of in my area too. RE Companies and even agents are opening up a separate entity just so they can collect more money for "negotiating services".
If the buyer really wants the prperty then as part fo the purchase offer be sure to ask the seller for a 3% contribution towards closing costs. Half of this can pay the negotiation fee.
I have no problem with folks charging the fee. Just be sure to provide the sevice you are charging for.
Good advice Bryant. We are going to try different approaches in the future if this should come up again.
Adrian- if we did not agree they would not have accepted the offer we presented. Messed up right? Smells unethical to us.
Chris..We use attorneys also who have the banks pay their fees
Hannah