Short sales have a tendency to make all aspects of a real estate transaction more complicated, and the payment of cooperative commissions is no exception. Here are a couple of tips to help you avoid commission questions and potential arbitration when dealing with a short sale:
Indicate the possibility that the commission may altered by the homeowner's lender
Most MLSs are allowing, and oftentimes requiring, that a short sale be identified as a short sale when it is listed. Along with this designation is the option of putting in a buyer's agent commission along with a note that indicates the BAC may be altered by the seller's lender.
If you don't indicate that the BAC may be lowered and it does get reduced, then you may be picking up the entire loss yourself as the listing brokerage. Consider the following example:
You have a short sale listing and have a total commission of 12 percent. You offer 6 percent BAC but do not indicate the possibility of the seller's lender requesting that the total commission be lowered.
You get an offer, and it is accepted. The lender approves the offer but asks for the total commission to be lowered to 8 percent. You lower the total commission and expect to only pay 4 percent to the buyer's broker. At closing, the buyer's broker demands the full 6 percent because they never agreed to a lowered commission. In this case, you will probably be stuck taking a 2 percent commission and paying the buyer's broker 6 percent because you offered the 6 percent BAC unconditionally.
Tell how the commission will be split
After you identify on the MLS that the total commission may be reduced, you will need to indicate how the total commission will be split if it is lowered. Most MLSs will allow you to detail how the commission will be split in the "Agent Remarks". It is easiest to put in a percentage split, e.g., 50/50, 60/40, etc.
Do not simply put a range for the BAC. Saying the BAC is 3-5 percent leaves many questions unanswered. Can the buyer's broker count on 3 percent if the overall commission is lowered? Is the commission 5 percent if it isn't lowered? Or is the commission 3 percent if the listing broker decides they only want to give 3 percent?
If you put in a range, it will likely cause problems at settlement because the buyer's broker has no idea what to count on and will likely dispute the percentage given. MLSs do not like, and usually do not allow, a range in the BAC.
Our very best suggestion - Once the short sale is approved by the lender(s), send a Commission / Escrow Agreement to the buyer's agent explaining exactly what the compensation will be and have the buyer's agent and the buyer's broker sign the agreement so that there is no misunderstanding at closing.
