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January 26th, 2009 by Temple City Tribune
Like any other profession, there is always a person who feels that they could pick up some extra business if they paid a bonus, commission or money to another for getting them that extra business. In some cases it just doesn’t feel right doing so, and in other cases ethics should just turn such offers down.
Real estate sales are bad for many people, and that extra money may sound to good to turn down; and those extra dollars received may not be illegal either. It is a problem, and it gives me a great deal of heartache to hear of these offers, especially when they come from a major financial institution.
People are losing them homes, yet there are programs out there that may help them by acting as an intermediary between the lender and borrower. What these mitigation companies do is put together the financial package for the lender to review, showing what the borrowers current liabilities are, and how much they can offer in monthly payments. If reasonable and workable, the lender may consider altering the borrowers loan in accordance with what the mitigation company has suggested. If not, then the package prepared may allow the borrower to sell the property as a “Short Sale”, for less than what they currently owe. It could be a good deal for everyone, as the mitigation company has done much of the lenders work making it easier for the borrower.
Naturally, there would be a fee paid to the mitigation company, by the borrower, if the lender agrees to alter the loan. If not, and the lender allows the borrower to sell the property for less than what is owed, the fee to the mitigation company could even be paid by the listing and selling real estate agents, if they should agree to do so. It is still a good deal for all parties. Here is the part that I object to.
I had just received a call from a major lender saying that they would pay me a $750 bonus for every in trouble homeowner that I recommend to them in obtaining a new loan. These people, meaning the troubled property owner, are already having a problem with their finances, and here is a lender who is providing a valuable service, charging an inflated rate for doing so. That extra cost is being paid to the real estate agent just for giving them a name. In my mind, charging the property owner a lower rate would be the right thing to do. I am certain that this one company is not the only financial company making such an offer.
Only suggestion that I can give for those that are seeking this help, is to ask the mitigator if a commission is being paid to the agent who referred them, and if so you can then decide if you wish to continue or to search for another company that would offer a lower fee for handling the mitigation.
IS GIVING A BONUS A GOOD IDEA?
For the real estate agent: With the real estate market being as it is, the receipt of a bonus, in addition to receiving the normal commission for a real estate agent sounds like a good thing. Our responsibilities to the seller, is just that, to sell their property. When representing a buyer the real estate agent wants to find that right property, as a happy and satisfied buyer is the best form of advertising. So just who would be paying the bonus when one is offered? It certainly isn’t the seller, as the bonus is built into the price of the property.
While some bonuses seem to be outrageously high, the average seems to be around $5,000. I have seen a bonus being offered for twice that amount, while others are doing much more. Would the property sell faster if the property were priced $5,000 lower? How would an appraiser look at this bonus when appraising the property? Most likely this amount would be deducted from the sales prices. Does the real estate agent have a responsibility to disclose that a bonus of this amount is being offered? I would think so. I applaud those agents that disclose this information, and then offer to pay the buyers non-recurring closing costs from this amount. On average, buyers non-recurring closing costs would not amount to $5,000, and the agent could receive something, but at least the buyer feels that they have benefited from the agents honesty, and would have no hesitation if referring other buyers to this agent.
For the buyer: This past week, while attending a real estate meeting, and during the period when we could present properties, one agent said that his seller is offering $100,000 towards all of the buyer’s closing costs, with any balance of funds to be released to the buyer. Sounds like a good bonus for the buyer, but this bonus is excessive and may be considered as fraud. Lenders have allowed for the seller to pay for a buyers non-recurring closing costs, but any funds above that are actually being paid by the lender, and that is the part that would be considered as fraud. At the same time, an appraiser would take that ”over” amount and deduct it from the value of the property.
It is a buyers market, and if interested in a particular property, and the offer being made is reasonable, then asking for the seller to pay for the buyers non-recurring closing costs are not out of line. This may not be possible if the property being sold is a “Short Sale”, or bank owned, but it never hurts to try. Your real estate agent may not be able to suggest this option to you; it really is up to you. Remember, offering a substantially lower price than what the seller is asking, and then ask for the seller to pay your non-recurring closing costs will usually result with the seller not willing to make the sale.
Louis Perlin CRS, GRI is a Syndicated Writer, Author, Professional Real Estate Witness and Mediator. Lou can be reached by calling Marilyn Perlin Realtors, Inc., at (760) 327-8401 or by E-mail (firstname.lastname@example.org).