Buyer's Broker Commissions as Concessions

[FLRealEstateValuator]

As I look at the second sale contract that mentions Buyer Broker Commissions in the Additional Terms section, I re-ask myself if this should be considered "financial assistance to be paid by any party on behalf of the borrower." The sale contract says, "Seller to pay 2.5% of the purchase price toward buyer broker commission." If the seller is paying something that the buyer would otherwise pay, isn't this similar to the seller paying 2.5% of the purchase price toward the buyer's closing costs? I want to say yes, and consider it a concession. But, the first time I saw something like this, I asked my old supervisor, and he said he would not consider it a concession, because the broker is getting the money, not the buyer. What do you think? How are you handling this?

 

[J Grant]

As I look at the second sale contract that mentions Buyer Broker Commissions in the Additional Terms section, I re-ask myself if this should be considered "financial assistance to be paid by any party on behalf of the borrower." The sale contract says, "Seller to pay 2.5% of the purchase price toward buyer broker commission." If the seller is paying something that the buyer would otherwise pay, isn't this similar to the seller paying 2.5% of the purchase price toward the buyer's closing costs? I want to say yes, and consider it a concession. But, the first time I saw something like this, I asked my old supervisor, and he said he would not consider it a concession, because the broker is getting the money, not the buyer. What do you think? How are you handling this?

This has already been covered, on the board and Fannie has addressed it with lenders. An internet search can find the Fannie view, and some lenders publish it such as Rocket Mortgage.

 

[alebrewer]

It's still a fluid topic. If the buyer agent compensation is negotiated to be paid by the seller, I don't disagree with you that it would be financial assistance paid on behalf of the borrower. However, that scenario is exactly the scenario that has been in place until now, meaning that the scenario you discuss is 'business as usual'. However, under the new rules, the buyer agent compensation can be paid by the buyer as well (actually - it always could have been, but it's been formally clarified now). The rub is, how is that going to affect sales prices and 'cash equivalency'? That remains to be seen. At this point, I would personally be tracking concessions payments (which would involve verifying who paid the concessions) for all comparable sales and looking to see if the method of compensation resulted in any market driven reaction to the sales price. If so, I'd probably start incorporating adjustments into my analysis. Not sure we have enough data at this point to make that determination, though.

 

[sputnam]

As I look at the second sale contract that mentions Buyer Broker Commissions in the Additional Terms section, I re-ask myself if this should be considered "financial assistance to be paid by any party on behalf of the borrower." The sale contract says, "Seller to pay 2.5% of the purchase price toward buyer broker commission." If the seller is paying something that the buyer would otherwise pay, isn't this similar to the seller paying 2.5% of the purchase price toward the buyer's closing costs? I want to say yes, and consider it a concession. But, the first time I saw something like this, I asked my old supervisor, and he said he would not consider it a concession, because the broker is getting the money, not the buyer. What do you think? How are you handling this?

What is typical in the subject market?

 

[jay trotta]

As I look at the second sale contract that mentions Buyer Broker Commissions in the Additional Terms section, I re-ask myself if this should be considered "financial assistance to be paid by any party on behalf of the borrower." The sale contract says, "Seller to pay 2.5% of the purchase price toward buyer broker commission." If the seller is paying something that the buyer would otherwise pay, isn't this similar to the seller paying 2.5% of the purchase price toward the buyer's closing costs? I want to say yes, and consider it a concession. But, the first time I saw something like this, I asked my old supervisor, and he said he would not consider it a concession, because the broker is getting the money, not the buyer. What do you think? How are you handling this?

IMO- if we just step back a bit, for years the seller paid 5% (an example) and split that with the buyer broker (2.5%) how has that changed. The seller pays a commission, the buyer's offer includes whatever the commission is, when the Asking Price is negotiated, the commission is negotiated within the contents of the Price/Commission originally set. Sometimes we all overthink what is taking place within the deal.

 

[J Grant]

IMO- if we just step back a bit, for years the seller paid 5% (an example) and split that with the buyer broker (2.5%) how has that changed. The seller pays a commission, the buyer's offer includes whatever the commission is, when the Asking Price is negotiated, the commission is negotiated within the contents of the Price/Commission originally set. Sometimes we all overthink what is taking place within the deal.

NAR and the GSE's ensured that the $ result would not change, except the verbiage and now the agents/brokers can not list the commission splits on MLS. The GSE's let the lenders know win a letter that the seller paying a buyer broker fee will not be added to the lender or other cap on concessions.

Everyone else in the RE food chain gets their thousands and tens of thousands of dollars in fees and commissions protected, but there is a ton of outrage about a measly differential in an appraisal fee in the hundreds of dollars, .

 

[jay trotta]

NAR and the GSE's ensured that the $ result would not change, except the verbiage and now the agents/brokers can not list the commission splits on MLS. The GSE's let the lenders know win a letter that the seller paying a buyer broker fee will not be added to the lender or other cap on concessions.

Everyone else in the RE food chain gets their thousands and tens of thousands of dollars in fees and commissions protected, but there is a ton of outrage about a measly differential in an appraisal fee in the hundreds of dollars, .

How would anyone explain a commission as a concession?? When it is part of a Contract??

 

[J Grant]

A lender has a cap on what a concession can amount to - between 3 % and 6 % of a loan.A concession is usually specified in the contract. ( seller to pay 3% of closing costs as an example)

The new RE settlement from the lawsuit specifies who pays which splits of the commission (traditionally, the sellers paid the whole thing. ) so now even though a "buyers broker " is engaged by the buyer, if the seller opts to pay that brokerage fee, and lets say it is $20,000, the lender does not count the 20k as part of the concession capped amount.

For the appraiser, IMO, any seller paid $ that affects teh price higher than typical the seller paid $ can acted as a concession that affected price .

 

[alebrewer]

traditionally, the sellers paid the whole thing.

So I think this is part of the rub. We have this paradigm that the seller has traditionally paid the commission on both sides - probably because it's on the seller side of the HUD or CD. When, in fact, the sales price is inflated to accommodate some, if not all, of the commission - meaning, of course, that in reality - the buyer pays some, if not all, of the commission... which brings into question whether a sales price on a property that has agent representation is truly 'cash equivalency'...

My ex wife sold our property (after divorce) through Open Door. She was able to sell the property for a competitively lower price AND still capture more $ by not using Realtor representation.

 

[ZZGAMAZZ]

How would anyone explain a commission as a concession?? When it is part of a Contract??

In my experience, a formal contract is the logical/only legal place that an agent commission should be addressed, either in the listing agreent between seller and listing agent, the buyer's contract between buyer and his or her agent, termed the Selling Agent, or in the buyer's offer and the various counter offers, in which the seller's commission paid to the Selling Agent is described. Of course an appraiser typically would't have access to that info that isn't published in MLS any longer.