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Making Reduced Agent Commission Adjustments
- Thread starter jackimoya
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gregb
Elite Member
- Joined
- Sep 3, 2011
- Professional Status
- Certified General Appraiser
- State
- California
Not exactly; if two Ferraris in the garage were included in the "sales price."
Ahhhh Yeahhhh
Junior Member
- Joined
- Jul 15, 2012
- Professional Status
- Certified Residential Appraiser
- State
- Georgia
Here's your sign!
Gobears81
Senior Member
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- Nov 7, 2013
- Professional Status
- Certified General Appraiser
- State
- Illinois
In the case of my first house, we agreed upon a price. My dad then went to the selling broker and said that he was going to forgo his 3% commission in lieu of my paying 97% of the agreed upon price (aka the meeting of the minds price). As previously discussed, the seller received the same amount. If this type of situation was considered for a comparable sale in a commercial assignment, I'd either use the initially agreed-upon price as the "base" or make a conditions of sale adjustment. If the house right next door was appraised and the appraiser put primary emphasis on my first house as the comp, they would most likely be a little too low on their value.
Ahhhh Yeahhhh
Junior Member
- Joined
- Jul 15, 2012
- Professional Status
- Certified Residential Appraiser
- State
- Georgia
Similar situation here with my first house. Mama gave up her comission, but she had both sides of the deal.
What you have to realize is that your dad didn't give up a comission. He gave you a gift. Uncle Same just didn't know about it. It was a gift that wasn't disclosed. It was an "under the table" gift of comission.
If it was done the correct way, your dad would have charged his same comission and shown it on the closing statement as a gift to you. Doing this means uncle sam gets his hands on the money... TWICE.
The sale shouldn't be used as a comp. If you do use it as a comp, you would need to make a positive concession adjustment. FNMA will not accept an appraisal with a positive concession adjustment no matter what kind of explanation you provide.
In my case, my mother (was an agent) gave me both sides of the comission. The listing was amended to indicate what happened so that an appraiser wouldn't think the sale was a true reflection of the sale price it would have sold for without the relationship of buyer/agent/seller.
In your case, the seller agreed to the price reduction based on your relationship with your dad. In essence at this point, this wasn't an arm's length transaction any longer since the seller (or seller's agent) was considering the buyer's needs in arriving at a price. In a true arms length transaction, the buyer and seller do not give a rats arse about each other's "needs"... The buyer and seller should only be considering their own respective needs.
What you have to realize is that your dad didn't give up a comission. He gave you a gift. Uncle Same just didn't know about it. It was a gift that wasn't disclosed. It was an "under the table" gift of comission.
If it was done the correct way, your dad would have charged his same comission and shown it on the closing statement as a gift to you. Doing this means uncle sam gets his hands on the money... TWICE.
The sale shouldn't be used as a comp. If you do use it as a comp, you would need to make a positive concession adjustment. FNMA will not accept an appraisal with a positive concession adjustment no matter what kind of explanation you provide.
In my case, my mother (was an agent) gave me both sides of the comission. The listing was amended to indicate what happened so that an appraiser wouldn't think the sale was a true reflection of the sale price it would have sold for without the relationship of buyer/agent/seller.
In your case, the seller agreed to the price reduction based on your relationship with your dad. In essence at this point, this wasn't an arm's length transaction any longer since the seller (or seller's agent) was considering the buyer's needs in arriving at a price. In a true arms length transaction, the buyer and seller do not give a rats arse about each other's "needs"... The buyer and seller should only be considering their own respective needs.
Gobears81
Senior Member
- Joined
- Nov 7, 2013
- Professional Status
- Certified General Appraiser
- State
- Illinois
Oh ok, nothing to see here
Though I miss doing residential work from time to time, this is a perfect example of why I don't envy you guys. If you are appraising the house right next door and CAN'T use this as a comp because positive concessions are not allowed, that seems off. The original price was a great indicator of market.
Elliott
Elite Member
- Joined
- Apr 23, 2002
- Professional Status
- Certified General Appraiser
- State
- Oregon
The OPs issue was about the 'cost' to sell the house related to marketing. FSBO 'typically' have to market and 'pay' a equalency. Realtors throw in parts of their commission all the time. Ask one.
Ahhhh Yeahhhh
Junior Member
- Joined
- Jul 15, 2012
- Professional Status
- Certified Residential Appraiser
- State
- Georgia
Its like when you are doing an operating income statement. Even if the owner manages the rental property, you still figure the cost to manage the property in the net.
If the FSBO seller is selling his own house he is essentially paying himself to do the agent's job.
Hypothetical.... If an agent lists their house FSBO.... They could either 1. reduce the asking price by their comission. OR they could charge the comission to themselves and show the comission back to them as the agent. So why don't they do this???? Because they don't want uncle sam getting his cut. This is essentially an under the table transfer of money that is allowed to happen.
If someone is listing a house for significantly less than what they COULD sell it for ON PURPOSE it is difficult to consider the seller a knowledgeable and prudent seller.
If MR FSBO wanted to he could list his house for the same price as MLS listings and sell it (theoretically). But Mr FSBO chooses to give up a portion of the sale price. What prudent seller would sell for less than they could? None.
Therefore, it shouldn't be used as a comp.... Its just a workfile filler now... go find another comp.
If the FSBO seller is selling his own house he is essentially paying himself to do the agent's job.
Hypothetical.... If an agent lists their house FSBO.... They could either 1. reduce the asking price by their comission. OR they could charge the comission to themselves and show the comission back to them as the agent. So why don't they do this???? Because they don't want uncle sam getting his cut. This is essentially an under the table transfer of money that is allowed to happen.
If someone is listing a house for significantly less than what they COULD sell it for ON PURPOSE it is difficult to consider the seller a knowledgeable and prudent seller.
If MR FSBO wanted to he could list his house for the same price as MLS listings and sell it (theoretically). But Mr FSBO chooses to give up a portion of the sale price. What prudent seller would sell for less than they could? None.
Therefore, it shouldn't be used as a comp.... Its just a workfile filler now... go find another comp.
TRESinc
Elite Member
- Joined
- Dec 1, 2011
- Professional Status
- Licensed Appraiser
- State
- Ohio
and how would an appraiser know this? i have seen many, many contracts where the agents reduce their commission to get the deal closed but that is only disclosed in the contract, not on the listing, and typically in an addendum long after the original contract date, or not the original contract. i call every agent on every comp i use (typically to check on concessions as our local MLS thinks it is against the law to report them for some reason known only to them when i have shown them multiple times that isn't the case) and never once have i asked them if they reduced their commission on the sale nor do i know of any appraiser anywhere in the world who routinely asks that question.
or it could be a seller who is knowledgeable and prudent but wants a fast sale. i buy, sell and restore classic cars as a hobby. when one is ready for sale i could hold out and squeak out every last cent if i wanted to, or i could lower my price a little, get a faster sale and move on to the next one.
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