How The Government Actually Makes It Harder To Buy And Sell Short Sales

In response to my last blog post about how a bank refused to pay my commission on a short sale that I was buying for myself the Chicago area MLS did some further research on the issue and was in contact with the Chicago Association of Realtors with their findings. They referred me to so a summary of rules that the Illinois Association of Realtors produced for the HAFA program, a government program that is intended to facilitate the short sale process and make it attractive for all parties involved.
According to these rules a realtor buying a HAFA short sale for himself cannot receive the commission on the sale. Huh? What’s the rationale? I can only assume they are trying to prevent some kind of realtor abuse but instead of limiting the commission to a reasonable amount they simply outlaw any commission at all. So a program designed to facilitate a short sale actually discourages realtors from participating in it on the buy side. Basically a short sale costs me 2.5% (on average) more than any other buyer because I have to pay “my broker” (me) out of my own pocket. I have to do the same work on my own purchase that I would have to do for any of my clients so either broker Gary works for free or buyer Gary pays broker Gary out of his own pocket.
Now, in reality I have been unable to find out if my purchase was a HAFA short sale or not. I really doubt it because the bank cut the total commission on the deal to 4% and they’re not allowed to do that on a HAFA short sale. But I think it’s possible that, as with many government rules, this rule has been adopted more broadly, even for activities that occur outside HAFA.
But wait there’s more! In a HAFA short sale the buyer is not allowed to receive any rebate of their realtor’s commission. So, since we rebate a portion of our real estate commission to our buyers, our buyers have a disincentive to buy short sales where this rule is in effect. In reality we may have totally legal ways of providing an equivalent economic benefit but I can’t always guarantee that these will be permitted by the parties to the transaction.
Incidentally, my first experience with the HAFA program was on a deal where we were the listing brokerage and the seller’s bank forced me to take a higher commission as required by the program. Yep, that’s right. Not only is the bank not allowed to cut the commission on a HAFA short sale but apparently I’m not allowed to discount it either. I took the higher commission kicking and screaming 🙂

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