Commission double-take

Ok, for those of you thinking from the title that I’ll be going back to the subject of dual agency and taking a seller and selling side of a commission this is about something else. What I’ve got a question about as well as a big concern right now is that I just got mutual acceptance on a deal for a client and I’ve just noticed that the listing agent has changed the commission on the listing data. It was at 3% on the day my clients saw the house and now, tonight when we got MA, it is at 2.5%. Anyone have an idea how the local MLS views this kind of thing? I have a feeling that she changed it just because an offer finally came in (it was full price on a big price tag) and as of 01/06/2007 it was at 3%.

[photopress:washer_dryer_photo.jpg,full,alignright]Considering the listing agent screwed up and had posted a washer/dryer as part of the listing also and then she couldn’t work that problem out with her client (happens to be her father-in-law) I was planning on using part of the commission to buy a set for my clients. That may be shot now with the reduction although (the set they want is $2600) [photopress:pennies.jpg,full,alignleft] but I’m planning on pointing out the change and requesting that she pay the amount she originally noted and submitting the printed copy of the listing as my documentation with the disbursement form. The MLS rules as I see them state that the “commission shall be paid as designated in the listing (or any change thereto).” Which this could mean that I’m hosed the money, BUT, I can’t tell if she changed it before or after we got mutual acceptance – which I find to be a possible ethical violation if it was the agent’s choosing. Furthermore, which rate would apply if it was changed after the fact? The same section of the rules states “consent required to change other member’s commission”. I’m pretty sure the seller or the listing agent decided to drop it when faced with an offer and for no other reason than to save the money even though this has been the SOC for months – this place had been on market for over 100 days. Anyone got a clue on this one?

Escrow agents and how they protect themselves

When you choose an escrow company (or “closing agent,” the person who does the work necessary to close the transaction), you look for several qualities: competence, service, location, etc. One factor you probably don’t consider is whether the escrow company is willing to be responsible for its own significant errors.

When escrow is opened, the closing agent sends both buyers and sellers a copy of its standard escrow instructions. These instructions supplement the purchase and sale agreement and instruct the agent as to how the transaction should be closed. There appear to be only a handful of templates used by the many different escrow companies, as it is very common to see the same set of instructions regardless of the escrow company. In the vast majority of those instructions (perhaps 85-90%), there is a little-noticed sentence, typically in the “Disputes” paragraph: “The parties jointly and severally agree to pay the closing agent’s costs, expenses and reasonable attorney’s fees incurred in any lawsuit arising out of or in connection with the transaction or these instructions, whether such lawsuit is instituted by the closing agent, the parties, or any other person.” The exact language of this sentence may vary somewhat, but the gist is the same: if anyone sues the closing agent for any reason, buyer and seller will be responsible for the closing agent’s attorney’s fees and costs.

The effect of this language is to insulate the escrow company from any liability that arises out of the closing agent’s negligence. Say, for example, the closing agent neglects to pay off an existing lien on the home. When buyer takes title, the buyer will now have to deal with this lien that was incurred by the seller. A reasonably prudent closing agent would have insured that all liens were satisfied at closing, and the agent’s failure to do so probably constitutes negligence. Under normal circumstances, the agent (and escrow company) would be liable to the buyer for the harm caused by this negligence. However, if the instructions contained the above language, the agent almost certainly will avoid liability. Why? Because if buyer were to file suit against escrow in this situation, buyer would be responsible for paying escrow’s attorney’s fees and costs in the lawsuit. As anyone who has used an attorney to defend them in litigation knows, attorney’s fees can be very, very expensive. Thus, the above language is an incredibly strong disincentive to seeking compensation from escrow, even in those instances where escrow’s negligence causes harm. I believe this is simply not fair to the buyer and seller.

In my experience, most (but not all) escrow companies are willing to modify the above language so that it does not effectively bar a suit against escrow based on escrow’s negligence. It’s certainly an issue you may want to address when deciding which escrow to use in your transaction. Needless to say, an attorney can quickly negotiate a change in these instructions on your behalf. [This post does not constitute legal advice. Consult a lawyer regarding your particular situation.]

Lynlee's Tips to maximize seller proceeds


Photo to right: Lynlee Kane w/ clients

We frequently close transactions in which the buyer offers a higher price than the list price in exchange for the seller paying buyer closing costs. Most of the transactions of this type actually result in the seller netting less than if they accepted a full price offer without concessions. We recognize that many buyers are cash poor and need to have the seller pay closing costs.

When writing your contracts please consider that the higher price will result in the seller paying higher excise tax, real estate commissions, escrow fee and title premiums.

For example, a very common $10,000 seller concession (offset by increasing the sales price) will cost the seller $778 (6%, 1.78% excise) in excise tax and commissions alone.

Sellers usually do not consider these costs until they come to the closing table and actually review the numbers on the settlement statement. This obviously creates an awkward situation for the listing agent who may have told them it was a wash.

Over the year, we have documented only one case where the listing agent addressed the increase in excise tax via a commission credit. Only about half the time we receive addendums stating that commissions will be based upon the lower or original list price.

While assisting 100% financed borrowers with closing costs is helpful in making a sale, make certain your sellers understand that it may cost them more.

  • Consider Excise tax at 1.78% in most jurisdictions
  • Consider the additional commissions at 6%
  • Consider that title and escrow premium may also increase

Wishing you all the best in smooth closings!

"Tiptoeing" through ethical minefields

It’s getting a little warm in the kitchen of Real Estate

Two questions have been eating at me for some time.
First, one of the most difficult questions to answer deals with my own brethren in the escrow industry. Why is it that a traditionally transaction “neutral escrow company or service” only receives compensation if a transaction successfully closes?

To me, at least in the realm of escrow, this is the mother of all potential conflicts of interest. Isn’t it a conflict of interest to the parties involved and our fiduciary duty to the lender (yes, folks we do have a duty to protect the lender from potential fraud, which is clearly stated in escrow instructions from some lenders) if we are only paid if the deal closes? Wouldn’t that create a lot of problems, particularly if you have pressure from loan officers or Realtors to “just get it done