Short Sales: Coming Up Short

A new rule approved by NAR's Board of Directors aims for calm when lenders cut commissions

August 1, 2008

Are lenders getting more responsive to short sales? The view of real estate professionals is mixed, with some saying yes and others saying no, depending on the lenders they work with and where they are.

But one aspect of short sales that has proved troublesome across the board is compensation.

Some MLSs have a rule requiring listing agents to let their colleagues know if a listing is, or is potentially, a short sale, and thus subject to a possible last-minute change in the commission by the lender.

To encourage the adoption of such a rule by MLSs that don’t have one, the NAR Board of Directors in May approved model language for a rule specifying that if you know there might be a short sale, you say that, and put the selling agent on alert that a lender might want a change in commission rate. The goal of the new language is to make at least this one aspect of short sales less painful. Under the model language, MLSs can choose to make disclosure optional or required.

“The amount of time it takes lenders just to get back to you on your loan application is the real problem with short sales, and we can’t control that,” says Colleen Badagliacco, ABR®, CRB, chair of NAR’s Multiple Listing Issues and Policies Committee. “But this rule at least helps eliminate the conflict that arises when lenders come back and want to give us a haircut on our commissions.”

It’s not uncommon for lenders to demand a cut in real estate broker commissions as a condition of approving a short sale. Lenders reason that they’re being asked to accept a payoff of their original loan less than what’s owed.

For practitioners, conflict can arise when there’s no indication in the MLS that the property is, or is potentially, a short sale, and the buyer’s representative finds out only at the last minute.

If, under the offer of compensation, selling agents receive, say, 2.5 percent, listing agents can find themselves in a squeeze if the lender insists on limiting total commissions to, say, 2 percent.

Conflicts like this typically end up in arbitration. Although the rule passed by NAR is voluntary, Badagliacco thinks many MLSs will adopt it for their members.

Far less certain is the direction of lenders in speeding their processing of short sale applications. 

You Told Us

  • 54% Involved in a short sale in the last 12 months
  • 87% Faced impediments by lenders or loan servicers
  • 94% Cited lack of response by lender or servicer as a chief impediment

Source: NAR Research, online survey of 3,530 practitioners

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.