Information for home buyers concerning agent commission contributions

[usctrojanman29_IHB]

I wanted to pass along information that some will find very helpful. In the past few weeks on the buyside with two buyers I have learned from 2 different lenders (a large southeast bank and a national tarp bank) that lenders no longer allow buyers agents to contribute any part of their commission into escrow for their buyers' recurring and non-recurring closing costs. I was surprised when the first lender told me I couldn't do that but then realized that it is now standard practice to not allow that nowadays after the second lender said the same thing. I never had a problem doing that on my previous transactions (prior to 2008) but I guess things have changed in the lending world. Both of the escrow officers were pretty surprised by the lenders not allowing my buyer's agent contribution because they also thought it was OK.



Anyhow, there is a backdoor way of getting this accomplished with the lender's approval...you would have the sellers credit the buyers for their recurring and non-recurring closing costs and then have the buyers' agent commission reduced by the same amount (this is done via an Amendment to the Escrow Instructions - buyers and sellers sign this form AND an Amended Instructions to Pay Commissions - both brokers sign this form). That way, everyone is happy because the net change to the seller proceeds is zero and the contribution is not taxable to the buyers. I would suggest that this is brought up to the listing agent after all of the contingencies are removed as not to spook the sellers (and as many listing agents don't like the thought of seeing an agent contributing a portion of their commission to their clients because they fear their sellers might ask them for the same thing).

 

[cletus_IHB]

What's the justification the lenders give for why they won't allow you to do this? If the client qualifies without the kick-in, why do they care where the money comes from?



Maybe they just don't want YOUR money

 

[IrvineRenter_IHB]

I suspect lenders will work to close any loophole you come up with because they know people who put very little down default. This is why the FHA eliminated downpayment assistance programs.



I came up with the idea recently to have sellers list with 9.5% commission; there would be a standard 3% for the listing agent, 3% for the buyers agent, and a 3.5% buyers agent kickback that the buyer could use to cover their FHA downpayment. This would make the property much easier to sell and much more desirable which will more than compensate the seller for paying the additional 3.5%. Do you think the FHA would allow that loophole to stand? I doubt it.

 

[Soylent Green Is People_IHB]

For a credit of that size to work, you'd need either an equity or capitulation seller who has 10% to give away or a sales price and an appraisal high enough to support that kind of credit. The first scenario is as rare as a jackalope. The second scenario should be avoided like the Chupacabra.



My .02c



Soylent Green Is People.

 

[usctrojanman29_IHB]

[quote author="Soylent Green Is People" date=1249949312]For a credit of that size to work, you'd need either an equity or capitulation seller who has 10% to give away or a sales price and an appraisal high enough to support that kind of credit. The first scenario is as rare as a jackalope. The second scenario should be avoided like the Chupacabra.



My .02c



Soylent Green Is People.</blockquote>
Yeah, the credit would never get that high...most of the time it would range between 1-2% of the sales price. The other plan C route to take (this is a bit more tricky and needs to be done upfront) is to reduce the price of the home by the amount the buyer's agent will contribute. Although, it can be like trying to push a car uphill with most listing agents, sellers, and escrow officers.

 

[usctrojanman29_IHB]

[quote author="C Delroy Spuckler" date=1249935884]What's the justification the lenders give for why they won't allow you to do this? If the client qualifies without the kick-in, why do they care where the money comes from?



Maybe they just don't want YOUR money </blockquote>
Not sure, but most likely an over reaction on the conservative side as lending parameters tighten up. From the e-mail chain from the underwriter (who gave the final loan approval), it seems like it was current policy and it even caught the lending officer off guard because when we asked her when we locked the rate on the loan (a few days after we went into escrow) she said the buyer's commission credit to the buyers was OK. There was never an issue of whether or not my client qualified for the loan or not because they put over 25% down, but it was just the fact that the buyer's agent could not give any money to the buyers. That being said, the underwriter stated that the sellers could contribute the lessor of 1) up to 3% of the sales price for a primary residence or 2) actual closing costs to the buyers. They didn't care how the commission side was adjusted. Or maybe they have a thing against realtard money even though my commissions are just as green as their loan proceeds. haha

 

[usctrojanman29_IHB]

[quote author="IrvineRenter" date=1249939609]I suspect lenders will work to close any loophole you come up with because they know people who put very little down default. This is why the FHA eliminated downpayment assistance programs.



I came up with the idea recently to have sellers list with 9.5% commission; there would be a standard 3% for the listing agent, 3% for the buyers agent, and a 3.5% buyers agent kickback that the buyer could use to cover their FHA downpayment. This would make the property much easier to sell and much more desirable which will more than compensate the seller for paying the additional 3.5%. Do you think the FHA would allow that loophole to stand? I doubt it.</blockquote>
IR, we are talking about 1-2% of the sales price as the contribution but there is that lessor of 3% of the sales or actual closing costs amount the lenders allow the sellers to contribute to the buyers if it's a primary residence purchase both with conforming and jumbo non-conforming loan programs (not sure how different it is with an FHA loan because I don't have any FHA buyers). So you could potentially get away with the 9% commission on conforming and jumbo non-conforming loans as long as the buyers comes with a 20%+ downpayment...3% to the listing agent, 3% to the buyer's agent, and 3% as a seller's credit to the buyers (you just have to make sure the buyers have 3% worth of closing costs which means they'd have to pay points to buy down their interest rate to get there). Or you could just always lower the list price by 3%.