Commission Frustrations

I mentioned a while back how thrilled I was that my wife had gotten her real estate license; both from a control standpoint (making our own offers, doing our own negotiations, MLS access, etc) as well as from a financial standpoint (keeping our commissions).

Well, today we hit our first snag in our effort to capitalize on the fact that my wife represents us in our real estate transactions. It isn’t a big deal (we’ll be changing things around so that it doesn’t impact us in the future), but is worth mentioning for those other people who will be getting their licenses to support their business — maybe they can predict these types of situations and keep them from costing themselves commission.

When you buy REO property (bank-owned foreclosures), most sellers (the banks) stipulate that if you’re the real estate agent for your own transactions, you must forfeit any commission that you would otherwise make. So, for example, if my wife were buying a property in her name, and she were the agent, she couldn’t get a commission on that deal. We’ve avoided this situation in the past by buying property in my name, and letting my wife be the agent. While she has to disclose that she’s related to the buyer, it doesn’t impact her ability to collect commission — because she’s not technically the buyer.

Today, our lender for The Red Garage House told us that in order to finance the deal, we’d have to buy the property in our investment company’s name. So, we submit a contract addendum to the other agent requesting that the deal be put in the company name instead of my name. Unfortunately, with my wife being 49% owner of our investment company, she is now technically one of the buyers, and therefore will have to forfeit her commission.

While the $1400 commission isn’t that big of a deal, if we run into this issue on 20 purchases a year, that’s nearly $30K in lost commission!

There are certainly steps that we can take to eliminate this issue in the future. For example, we could:

• Have my wife relinquish all shares in the company. This will cause some strife for the lender, who would prefer that we both are “on the hook” for the loan guarantee, but may be possible;
• Find another agent who is in the same boat we are, and have her do our deals, and we do her deals. We pay each other a flat fee ($100 or so) for each deal, and then neither of us have to worry about losing commissions on our deals;
• We find another lender who is happy to write loans in just my name.

It’s also worth noting that we had the same issue with The DIY House, but the seller never caught it, and we were able to collect our commission. Perhaps the best solution is to not worry about it, and hope the REO sellers just aren’t paying very close attention.

Anyway, it’s not a huge issue, but for anyone who is considering getting their license, these are the types of situations that you should think about and prepare for ahead-of-time.