New post on my blog: www.seattleshortsaleblog.com

I have read through the comments on Short sale superstars and compiled a post on my blog. I would love your opinion on this matter. Please feel free to comment on my blog. Thanks

*Email received from staff in the Bureau of Consumer Protection:
The FTC’s stay means that the mars rule does not prohibit real estate professionals who assist consumers in obtaining short sales from charging advance fees. However, the mars rule does not preempt state law. This, in turn, means that if a state law bars such advance fees, real estate professionals who operate in that state continue to be prohibited from charging them.

The basic premises of the debate amongst Realtors are:

  • There are realtors who believe charging an upfront fee to sellers who are already struggling financially is unethical and even unlawful in their respective states. It exposes homeowners to realtors who are not experienced in short sales but are hungry enough to take on the transaction knowing there is a considerable chance of failure. If the short sale transaction falls through, the homeowners will be put in a position worse than where they started.
  • On the other hand, there are numerous brokers who are experts in the field of short sales having successfully closed hundreds under their belt that advocate charging an upfront fee is fair because of their many hours put into the transaction.  If the seller simply decides to walk, the brokers do not receive any compensation for all their efforts put into the deal.  Remember, we are not talking about inexperienced, unsuccessful Realtors. The “stay applies only to real estate professionals who: 1) are licensed and in good standing under state licensing requirements; 2) comply with state laws governing the practices of real estate professionals; and 3) assist or attempt to assist consumers in obtaining short sales in the course of securing the sales of their homes.”

Is it wrong for them to charge a small upfront fee for their legitimate services? Some realtors claim that they had sellers who were excited for the upfront fees and hired them because of it. The upfront fee establishes a commitment in a transaction that is a prolonged process and requires many hours of effort dealing with banks/servicers, sellers, and buyers.

What is your opinion on this matter? Do you believe upfront fees are justified and even beneficial for the short sale or is it unethical for Realtors to charge prior to closing a short sale because of the detriment it may have on the homeowner in case of failure. Homeowner’s opinions are greatly encouraged.

Peter

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Hi Peter,

Thanks for initiating this interesting discussion as it is one I'm highly passionate about. Like nearly all other professions, upfront fees substantiate a commitment between the parties. Although the doctrine of capitalism isn't very concerned about ethics, on the surface it seems that all providers of goods and services should have an ethical obligation to their customers.

I would love to be able to obtain the benefit of a widget, a service, etc., or anything else without having to fork over money. I don't know a carpenter or an attorney who wouldn't require an upfront fee, retainer, or deposit of some sort. In the end, sellers would really start to sharpen their pencils before hiring the first goon who shows up at their door because it doesn't cost them anything upfront. Quite contrarily, the sellers will be losing thousands of dollars starting immediately because they went with the freebie (meaning no up-front fee) incompetent agent vs. a disciplined and highly competent broker who doesn't want to be bothered unless they get paid up-front.

Why legislators have given real estate professionals the highest legal and ethical obligations of all the trades while at the same time forcing them into stagnant and arcane business models is perplexing. In fact, an argument can be made that it is a direct result these laws that supposedly “protect” the consumer, that are in fact responsible for “hurting” the consumer. Assuming our ethical obligations remain unchanged, laws that prohibit unique and progressive models are responsible for the overwhelming consumer sentiment that commission rates are too high.

If the public wasn't so untrustworthy of agents perhaps we wouldn't have such issues. But, who can blame the public when the avg agent although is perhaps trustworthy they lack in competence. Personally, I believe upfront fees would help reduce commission costs to the consumers while improving job satisfaction for the competent professionals.

 

In my area, the avg home is listed with 3 different brokers before it gets sold. That means 2/3rd's of those transactions went uncompensated. Therefore agents rely on a hefty commission when they finally do close a successful transaction because they need to recoup the time and expenses that went into the unsuccessful transactions. Many agents who have 30-60 listings are ill-equip to provide the proper guidance. Instead, they are playing the numbers and they realize they need 90 listings a year in order for 30 of them to close. In their wake, they leave hundreds of angry and disillusioned consumers.

This is also why there is no single dominant franchise "brand" that conveys quality or craftsmanship. Most franchise branding is concerned simply with recognition rather even bothering for the lofty ambitions of performance or value. This is not a bash against franchises, its simply the fact that im not aware of a single national non-franchise brokerage to use as an example. However, one similarity that is true with almost all brokerages, is that their entire focus is on recruiting as many agents as possible, hoping that with enough raw numbers throwing slop up on the wall, some may eventually stick.
According to some stats, only 50% of agents are hired by their clients a 2nd time. That is a terrible stat and quite indicative of the consumer sentiments towards the agent they relied on for the biggest transaction of their life. The good news is that competent professionals usually get hired 2nd time regardless of which franchise flag they are waiving.

Unless our industry is allowed to evolve with progressive business models, commission amounts will remain virtually the same. Laws prohibiting such models are a disservice to the consumer; and are serving only to perpetuate the cycle of aggravation and frustration endured by both consumers and competent professionals alike.

Its no wonder the good agents don't want to back down on the rate they charge. Even if you paid them 3x’s what they earn, it may not be enough to deal with the headaches caused by 1 out of 3 ratios. Id rather charge 1/3 of my normal rate if I knew it was either paid up front or within a reasonable amount of time.

 

I'm interested in hearing thoughts from consumers as well as fellow real estate professionals.  Please don’t be shy!

 

Patrick Fleming

CEO & Principal Broker 

WorldSelect Real Estate

I am not a realtor, just a consumer.  My question is, why are buyers agents paid the same as sellers?  I think I would have liked to have paid something upfront to my buyers agent so that I would have felt more confident that they had my best interest in mind and not just making the sale so they can get paid.

 

Tracy. That is an EXCELLENT response and exactly the way a buyer's agent should work. I have been telling this to agents for years. buyers WANT their agent to be compensated and have no problem at all agreeing to pay then extra to ensure their interests are being looked after.
These are great responses for the pros of advanced fees. Tracy is a great example of a consumer who actually desires a monetary establishment with the agent for the betterment of a real estate transaction. According to the comments from the previous posts regarding upfront fees, it seems that many are opposed to having advanced fees charged to the sellers. Are there any cons/rebuttals? Would love to hear them!

*I am not taking sides with one side or the other. Rather, I would like to hear both sides to have an informed opinion on this matter.

Peter, I have never felt the need to charge an upfront fee but I can certainly understand why someone would.  I have some really good friends who were, up until the MARS issue, charging an upfront fee for short sales.  They have a team that closes up to 400 per year and that takes alot of manpower and expenses. They charged their fee because they were good and closed over 98% of their short sales and quite frankly they could charge the fee because because of that.  They also found that it weeded out certain sellers who may not be motivated to sell, it made the sellers more realistic and paid the team for their time spent.

I think it is a business decision that needs to be factored into a business plan.  To charge or not to charge is not much different than an agent saying I charge X% commission and that is not negotiable.  To each his own.

Peter,

You indicated that it seems "many are opposed" to having advance fees charged to sellers.  I haven't read these posts and was wondering if you could elaborate on what they cited as "cons".   I echo the comments made by Jeff Payne, "to each his/her own".  I dont know why the government feels this is an area that requires their intervention.  At best, i could understand government intervention for "non-licensed" shortsale providers.  Even then, why not just prosecute heavily for anyone who pulls a fast one?  Ive heard of more horror stories with people paying contractors up-front and getting nothing in return.  

 

My question is; would you be for or against a law prohibiting contractors from charging upfront fees, and why?

 

Patrick Fleming 

Peter J Kim said:

These are great responses for the pros of advanced fees. Tracy is a great example of a consumer who actually desires a monetary establishment with the agent for the betterment of a real estate transaction. According to the comments from the previous posts regarding upfront fees, it seems that many are opposed to having advanced fees charged to the sellers. Are there any cons/rebuttals? Would love to hear them!

*I am not taking sides with one side or the other. Rather, I would like to hear both sides to have an informed opinion on this matter.

Tracy,

In NYS, buyers agents are not compelled by law to be paid the same amount as sellers agents.  Although it is quite common, it is not the rule.  My agency requires buyers to sign an exclusive representation agreement that guarantees us a minimum flat fee or "x" % of the purchase price, whichever is higher.  This allows us to help our clients shop FSBO's (for sale by owners) while knowing we will be compensated even if the seller refuses to do so.  In almost all cases, FSBO's are willing to pay our fee.


Patrick Fleming 

Tracy said:

I am not a realtor, just a consumer.  My question is, why are buyers agents paid the same as sellers?  I think I would have liked to have paid something upfront to my buyers agent so that I would have felt more confident that they had my best interest in mind and not just making the sale so they can get paid.

 

Hello Patrick,

http://shortsalesuperstars.com/forum/topics/up-front-fees

If you look at the comments under this post, there are those who are opposed to the concept of charging upfront fees. I'd rather not reiterate what they said but it seems they have their reasons. I've been wanting to hear more specific "cons" on this matter which is why I put this post up.

 

I am in agreement with Jeff's statement, "to each his own." However, I will say thus far based on the responses, I am not opposed to upfront fees. I believe it would be more beneficial for all parties if there were monetary commitments to a short sale transaction.

Patrick Fleming said:

Peter,

You indicated that it seems "many are opposed" to having advance fees charged to sellers.  I haven't read these posts and was wondering if you could elaborate on what they cited as "cons".   I echo the comments made by Jeff Payne, "to each his/her own".  I dont know why the government feels this is an area that requires their intervention.  At best, i could understand government intervention for "non-licensed" shortsale providers.  Even then, why not just prosecute heavily for anyone who pulls a fast one?  Ive heard of more horror stories with people paying contractors up-front and getting nothing in return.  

 

My question is; would you be for or against a law prohibiting contractors from charging upfront fees, and why?

 

Patrick Fleming 

Peter J Kim said:

These are great responses for the pros of advanced fees. Tracy is a great example of a consumer who actually desires a monetary establishment with the agent for the betterment of a real estate transaction. According to the comments from the previous posts regarding upfront fees, it seems that many are opposed to having advanced fees charged to the sellers. Are there any cons/rebuttals? Would love to hear them!

*I am not taking sides with one side or the other. Rather, I would like to hear both sides to have an informed opinion on this matter.

Peter,

In Florida, The Foreclosure Rescue Fraud Protection Act of 2008 (FS-501.1377) Prohibits the charging of up-front fees for foreclosure related rescue services. For awhile, there was a debate as if a real estate professional could do a short sale. It was later determined, that real estate professional may effect short sales, provided no other fees are charged (up front or otherwize)  other than the standard real estate commission.

I would not attemp to charge any type of up front fee, or service fee at closing! I would not want to become a "Case Study!" However, where allowed... it should be up to the Broker.

The following is from the Florida REALTOR site:

 
FAR field guide to short sales

Foreclosure Rescue Fraud Prevention Act

Q: Does Florida’s new Foreclosure Rescue Fraud Prevention Act (F.S. 501.1377) prohibit real estate licensees from being involved in short sales?

A: According to Florida Attorney General Bill McCollum in a letter to FAR President Chuck Bonfiglio, the answer is no, provided the only compensation sought by the licensees is the commission on the sale. The new law, which took effect Oct. 1, 2008, seeks to protect homeowners who face the threat of foreclosure from individuals who would prey on them.

McCollum’s interpretation is based on the following scenario: A licensee secures a listing agreement on a home for sale, ascertains that the fair market value of the home is less than the loan amount, and lists the property at the lower amount. If a buyer agrees to pay less than the loan amount, the licensee then asks the lender to accept the lesser amount in order to avoid foreclosure.

“As long as there is no upfront or other fee for the negotiating service other than the normal real estate fee charged for the sale of the property, that activity [participating in a short sale] would not appear to fall under the provisions of F.S. 501.1377,” according to McCollum.

Beverly, In Florida, we can however charge an upfront fee for our realty services. Part of those services can be short sale negotiations.We just can't charge a fee specific to the short sale. It would need to be across the board to all of your sellers. Then it's just a normal part of doing business.

So.....can a broker charge an upfront fee when the listing is a short sale? YES. You just have to know how to do it. And also remember not all short sales are in foreclosure. And if not then they certainly wouldn't fall under the Foreclosure Rescue Fraud Prevention Act.

 

FAR and Bill McCollum seem to have missed these two little facts in their responses.

 

But of course this is just my opinion.



Bryant Tutas said:

Beverly, In Florida, we can however charge an upfront fee for our realty services. Part of those services can be short sale negotiations.We just can't charge a fee specific to the short sale. It would need to be across the board to all of your sellers. Then it's just a normal part of doing business.

So.....can a broker charge an upfront fee when the listing is a short sale? YES. You just have to know how to do it. And also remember not all short sales are in foreclosure. And if not then they certainly wouldn't fall under the Foreclosure Rescue Fraud Prevention Act.

 

FAR and Bill McCollum seem to have missed these two little facts in their responses.

 

But of course this is just my opinion.

Bryant,

By the way, thank you for hosting such a great site! (PS can you add spell check?)

There have been several posts, which I understood to be upfront fees for Short Sales specifically... A Broker of a company can determine, what they want to do, and if it is right for them and implement policies that they feel comfortable with. (Not the agent). "Transaction Fee" comes to mind! (personally, I think this is a bunch of  junk also) Although the cost of doing business to a Broker is astronomical, (By the way,,, have you noticed all the discount Brokerages are no longer around? I havent see a "Thank By Owner Commercial in ages! and the "Limited Service Ageement MLS either!) REALTORS finally have a value!. Even the "servicers/lenders are leaving our paychecks alone!

 

I guess my point is, there is no harm in charging an up front fee as long as it is done correctly and with good intention and you get what you pay for!. I dont believe that is always what happens!  You need to qualify the motivation of the seller as well! I would not choose to facilitate a stagegic default, to keep an owner in the property etc, not even for an up front fee.  Let them list with some else!

As a fellow Florida Real Estate Professional, I am sure you have seen and heard of all kinds of stuff that harms the consumer! We had a seller who paid their last $2,500 to a loan mod company who dissappeared! They so wanted to stay in their home and thought they had the answer! ! We were able to effect a short sale in about 90 days just under the foreclosure sale date. That was not what they wanted, but was the best alternative.

 

So, for Peter... the PRO yes if you are getting what you pay for ... the CON... Many consumers may be "conned"

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