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A good real estate broker can definitely be a valuable resource in helping you find, negotiate, purchase, and sell properties. Yet there are times a broker or agent may do even more. Say the property you're interested in is listed at $95,000 by a broker with a 6 percent commission fee. What if you could somehow use that $5,700 the broker should receive at closing as a down payment on the property?
Borrowing the broker's commission is sometimes possible, but before you approach a real estate professional about a loan, know who you're dealing with. Agents or sales associates work for brokers, who pay them a percent of the commission fee. In most cases brokers represent sellers, by listing the properties or selling them or both.
If the person you're working with is only the selling agent, then he or she will have to split the commission with the listing agent and will not be in a good position to make the loan. You'll have better luck with someone that is both the listing and selling agent or broker for the property. Remember, the broker is still the ultimate decision-maker.
And it's the broker you'll have to convince. "My responsibility is to the seller," says Oregon broker Jerry Corn, who over the years and under certain conditions has delayed or loaned his commission to buyers. "I'm not willing to risk myself for someone just looking to get rich quick."
Corn is willing, however, to help knowledgeable, credible investors with sound long-term goals. "Someone who's been around, who's shaved a few times." Mature investors It takes a mature investor with a track record and a good reputation at stake who won't just walk away from a property and leave Corn empty handed. "If they're not risking anything, why should I?" he says.
Be straightforward when approaching a broker or agent about this technique. Explain that you are very interested in the property, and borrowing the commission would make it happen for you.
The best strategy is to quickly present the benefits to the broker: Loaning you that $5,700 commission may be the only way to make a sale happen with a distressed property or listing that's been on the market too long. It could put you in a position to buy more properties--transactions that the broker can benefit from. Be very clear and professional about the details, just as you would with any loan.
Keep in mind, the broker does work for the seller and must answer to that responsibility first and foremost. But because broker and buyer become partners in a sense, it can appear as if the broker has switched sides. That's why the seller must be informed, as well as all lenders involved. This is not a back-room deal.
If a broker agrees to loan all or part of the commission to you, it will need to be secured by a note and mortgage, and terms will have to be negotiated. Corn, for example, says in the short term he might agree to 30 or 60 days interest-free or simply delay the commission while the buyer waits for other monies to come in.
For longer terms, brokers will expect to receive a reasonable rate of interest, a larger lump sum or 1 to 2 percent more commission. Most importantly, Corn points out that the term length should not be left open-ended. It must have a definite payoff date.
Partnering up with an agent or broker can be beneficial to everyone, if in the end the seller gets out from under, the broker gets a commission and the buyer gets in with little or no cash.
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