Charging for negotiating short sales/Negotiators
As review you can see my blog from March 5, 2010 Short Sale Third Party Coordinators.
Here are some common questions and answers to these questions.
“What can you charge as a Nevada licensee in a short sale?”
ANSWER – A commission. Period. You cannot charge negotiating fee, a handling fee, only a commission. As a Nevada real estate licensee you can earn a real estate commission under NRS 645 for selling real estate. Specifically the law states that selling real estate means, “… sells, … or negotiates … the sale, … purchase, rental or lease of [real estate] …. the collection of an advance fee … in connection with … the sale … of …. real estate.” That’s NRS 645.030. Under NRS 645.323 you have to have a Nevada real estate license, to “accept an advance fee,” for selling.
“But what about all the loan negotiating I do in a short sale, is that OK?”
ANSWER – Well, first, remember, the only thing you can charge is a commission. You can negotiate with the lender during the Short Sale phase, per the NRED, provided you follow certain rules. As noted in the Nevada Real Estate Division Position Regarding Short Sales negotiations there may be no “separate or distinct payment or compensation for performance of activities defined as loan modification, … outside of a real estate transaction.” Activities that by definition might include aspects of “Loan Modification Consultant,” “Foreclosure Consultant,” or “Provider of Covered Services” must be part of a real estate transaction and all commission payments must still go through the broker in accordance with NRS 645.280. In other words, you can charge a commission for selling real estate and selling a short sale is real estate, so it’s OK. But you may not offer as an independent menu choice to provide services defined as loan modification or foreclosure consultation.
“And what about getting a negotiating fee?”
ANSWER – No. Only commission.
“But short sales are time consuming, I need to charge extra money.”
ANSWER – Fine. Charge a larger commission, but it is commission, must be disclosed as commission and paid as commission. Do not change its name to hide what it is. You have a real estate license, you have the privilege to charge a commission. That is it.
“And what about getting paid an advance fee?”
ANSWER – It’s OK, but there can be no advance fees paid to a real estate broker except in accordance with NRS 645.322 – 324 and do not forget to follow all of the requirements of NAC 645.675 which states that the Advance Fee Agreement must declare that, “a full refund will be made to the customer if the services for which the advance fee is being received are not substantially or materially provided to the customer.”
“But what if I set up a separate company and charge for ‘assisting’ in the transaction?”
ANSWER – I would ask back, “if it’s a real business, do you have a business license?” If you say, “yes I do have a business license.” Well, “what services are you providing?” NRS 645F says you are a loan modification consultant if you offer to assist a homeowner in changing the loan amount. If you negotiate the settlement of the loan down from its current outstanding principal amount, it would appear you are changing the loan amount. I do not see a legitimate way that such a business can charge a ‘fee’ in a real estate transaction without having an NRS 645F license. The application for a NRS 645F license is located here.
“Can’t the Seller hire a Negotiating Company?”
ANSWER – Of course. But, all loan negotiating companies in Nevada need to be licensed under NRS 645F (lawyers doing the actual negotiating are exempt.) Here is the list of every single licensed loan modification company in Nevada. There are thirty nine (39). If you don’t see the company your Seller wants to use…then they are not licensed to conduct loan negotiations in Nevada. Remember, attorneys are exempt from the provisions of Chapter 645F. You can confirm if an attorney is licensed in Nevada by searching the individual’s name on the State Bar of Nevada’s Web site through the attorney search option.
“Where should the Negotiating Fee get placed on the HUD1?”
It does not matter what line it is shown on, either in the commission section or the other costs section but not hidden on page 6, for example, of the HUD1. Remember also, a Listing or Selling Agent cannot typically be the “negotiator” as they can only charge a commission. If an agent sets up an LLC to divert these negotiation fees they must be licensed under NRS 645F. A legitimate negotiating company is easily fully disclosed on the HUD1 and they should be able to produce their license (or you can look them up).
October 1, 2010 at 4:05 pm
Darren, can you have the prospective buyer pay for the BAC on behalf of the seller in any amount?
Felipe
October 1, 2010 at 4:41 pm
Yes..it is commission…however…the lender of the buyer may only allow a certain amount of charge towards commission..often capped at 10% gross sales price.
Darren Welsh, Esq. 702 733 9310 ofc 702 245 1787 cell 702 862 4576 fax
October 2, 2010 at 6:37 pm
Can the seller pay the BAC fee to Prudential directly outside of escrow?
October 3, 2010 at 8:54 am
Short Answer – Yes, but it’s rare and only in certain circumstances.
Long Answer – It is always best that all monies are paid via escrow for accounting purposes. If a Buyer is using a Lender, the Lender requires that all monies paid towards closing be disclosed. If a Buyer was paying a cash commission outside of escrow, it is possible and would not have to appear on the closing statement (a HUD1 would not be used). NRS 645 does state all commission payments shall be disclosed. But where is not mandatory.
October 2, 2010 at 9:35 pm
Now some creative companies out there are charging an “advertising and marketing”advance fee is this acceptable in a short sale?
October 3, 2010 at 11:03 am
Only a commission can be charged, but if it is coined / phrased as an “advertising and marketing”advance fee and the word “COMMISSION” is thrown in – that can work…here are the rules for advanced fees.
Firs here you have the NAC, it is very clear on what the agreement needs to look like, below you have the NRS which has some terms but refers you back to the NAC section. This law was first passed in 1957…
NAC 645.675 Agreements for advance fees . (NRS 645.050 , 645.190 , 645.324 )
1. Each agreement for an advance fee used in Nevada must:
(a) Be in writing;
(b) Contain a definite and complete description of the services to be rendered;
(c) Specify the total amount of the fee involved and clearly state when the fee is due;
(d) Not imply or purport to guarantee that the real property involved will be purchased, sold, rented, leased or exchanged as a result of the services rendered;
(e) Specify the date of full performance of the services contracted for;
(f) Not imply or purport to represent to purchasers and prospective purchasers of the advertising or promotional services offered that a buyer for the property is immediately or soon available; and
(g) Provide that a full refund will be made to the customer if the services for which the advance fee is being received are not substantially or materially provided to the customer.
2. Any oral representation or promise made to a purchaser or a prospective purchaser of the advertising and promotional services offered pursuant to an agreement for an advance fee to induce the purchaser or prospective purchaser of the services to sign the agreement is incorporated into the agreement. The agreement must not relieve or exempt the vendor of the services from any oral representation or promise incorporated into the agreement.
[Real Estate Adv. Comm’n, IX subsecs. 1 & 2, eff. 10-31-75]-(NAC A by Real Estate Comm’n by R031-04, 11-30-2004)
http://www.leg.state.nv.us/nac/nac-645.html#NAC645Sec675
ADVANCE FEES
NRS 645.322 Accounting of use of advance fee charged or collected; Division may demand accounting. Any person or entity who charges or collects an advance fee shall, within 3 months after the charge or collection, furnish to his or her client an accounting of the use of that money. The Real Estate Division may also demand an accounting by such person or entity of advance fees so collected.
(Added to NRS by 1957, 211; A 1963, 667; 1995, 2075)
NRS 645.323 License required for acceptance of advance fee listing. A person shall not accept an advance fee listing unless he or she is licensed as a real estate broker, broker-salesperson or salesperson pursuant to this chapter.
(Added to NRS by 1985, 1260)
NRS 645.324 Forms of brokerage agreements; reports and forms of accounting; regulations; maintenance of agreements for review and audit; grounds for disciplinary action.
1. The Commission may require such forms of brokerage agreements which include provisions for the payment of advance fees to be used, and such reports and forms of accounting to be kept, made and submitted, and may adopt such rules and regulations as the Commission may determine to be necessary to carry out the purposes and intent of NRS 645.322 .
2. A licensee shall maintain, for review and audit by the Division, each brokerage agreement that is entered into by the licensee.
3. Any violation of the rules, regulations, orders or requirements of the Commission constitutes grounds for disciplinary action against a licensee.
(Added to NRS by 1957, 211; A 1995, 2075; 1997, 959)
http://www.leg.state.nv.us/nrs/NRS-645.html#NRS645Sec322
October 8, 2010 at 9:37 am
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January 17, 2012 at 2:56 pm
How does the division feel about sellers trying to charge buyers 1% for the short sale negotiations or “attorney review”?
January 17, 2012 at 3:30 pm
The Nevada Real Estate Division I believe is concerned about agency, but not costs. Buyer’s historically have asked that Sellers pay for some or all of Buyers’ closing costs. Such a request would say something to effect of “Buyer requests that Seller pays up to $1,000 of Buyer’s closing costs.” Usually, historically this was a Buyer’s loan origination fee, etc. Now, just as a Buyer can request such a cost be borne by the Seller, it is currently not uncommon for a Seller to request of a Buyer, in the negotiations of a sale, to pay a non-recurring closing cost on behalf of a Seller. This can be a transfer fee, a pre-payment penalty, a lawyer’s review of the transaction, an accountant, etc. If the Seller counters for a Buyer to pay a non-recurring closing cost of a seller, the Buyer has no obligation to pay such a cost, nor is there a prohibition to the Seller asking for it. Just as there is no prohibition from a Buyer requesting that the Seller pay a cost for the Buyer from the proceeds of a sale. It is just that the real estate culture is used to Buyers requesting closing costs, and not the Seller. But there is no difference.
January 3, 2013 at 2:58 pm
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May 31, 2013 at 1:06 pm
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July 8, 2013 at 11:07 am
Is it legal for a bank you are working a short sale with; to lower the commission just because they want to? Is there any law that protects our commission against the banks? (Bank is IndyMac.. if it matters) They lowered agent commission from 6% per the listing agreement to 5%.
July 17, 2013 at 4:29 pm
It is legal. Remember the short sale lender is not a party to the listing agreement. They are a lien holder. So they can require just about any change in the terms of the agreement they desire. Usually they try to cut costs initially by reviewing all commissions and fees.
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