The banks never cease to amaze me with their utter stupidity when it comes to short sales. The list is topped by their convoluted internal processes, slow response times, unrealistic expectations, and their gullibility in being duped by unscrupulous realtors. However, what just happened to my wife and me in our own attempt to purchase a short sale sheds a whole new light on just how messed up these banks are. Yep...they deserve to be in trouble.
We had an offer on a short sale for a single family home in West Town which the bank ultimately accepted after 3 months. However, when I tried to confirm the co-operating commission that I would receive the listing agent sent me a copy of correspondence from the bank that said the following:
After a review of the file, the following changes to the HUD are needed...Buyer is acting as his own agent, Buyer cannot receive commission, Commission must be reduced to 4%. 4% will go to [listing brokerage name here].
What? I was outraged. What is the logic here? I did just as much work on this deal as any agent would so why am I not entitled to the commission? And why is the listing brokerage entitled to the entire commission? Where is the logic in that? It was as if they expected us as buyers to pay our "broker" out of our own pockets simply because our broker was me. Frankly, I don't normally get "insulted" by negotiations but if I'm being perfectly honest I have to admit that I was totally insulted by this.
I called the listing agent and pointed out the obvious: I could have my partner act as my agent. I could act as my wife's agent. I could lower my offer price and forgo the commission. The listing agent attempted to explain common sense to the bank. They're response: "This deal is done. It's not even in our department any more."
I contacted a couple of attorneys we work with and asked them about this. They both confirmed that in the last year they've seen this happen more and more with real estate agent purchases of short sales. However, aside from just being plain stupid there are a couple of serious problems with this stance by the banks. First, by doing this they set up a conflict of interest with the listing agent - i.e. the listing agent now has an incentive to favor lower offers from real estate agents than from regular buyers because they will earn a higher commission. Since the listing agent controls the offers the banks may never see the highest offer.
The other issue is that real estate listed for sale in the MLS is supposed to honor the co-operating commission listed in the MLS. I contacted the Chicago Association of Realtors for their opinion on this matter and they quoted section 9.15 of the Chicago area MLS rules and regulations:
There will be fines issued for failure to remove conditions on cooperative compensation and/or failure to offer the same cooperative compensation to all participants regardless if said participant holds a particular license or credential, engages in a particular trade or profession, or if the range of potential participant is otherwise arbitrarily restricted.
Sure sounds like a blatant violation to me. The Chicago Association of Realtors went on to tell me that "if compensation is not paid in accordance with what is listed in the system (prior to an offer coming in on the property), you can also file for arbitration against the listing broker – after the closing."
I had suspected that arbitration would be my only recourse and of course there are no guarantees. After careful consideration we decided to pull the plug and submit a new offer where I made it clear that I expected a discount for not receiving my commission. However, in the meantime other offers appeared at our approved price from buyers that didn't have to pay their brokers out of their own pockets. At a disadvantage, we decided to sadly let this one go.
Once this property closes I'll share with you the address and all the details.