Who Pays the Commission on a Short Sale?

A short sale is a transaction in which the sale proceeds fall short of paying off a home loan balance. Increasingly present when home prices decline sharply, short sales are a means of getting rid of an unmanageable mortgage obligation. They require the lender's voluntary agreement to take a financial loss. Lenders try to recoup as much money from the sale as possible because they must also pay settlement fees, including agent commissions, at closing.

Most lenders require that the sellers hire a real estate agent to represent them in a short sale. Although in some states a seller may initiate a short sale request directly with his lender and even market the home and receive an offer on his own, it is likely that at least one agent will be involved -- either representing the buyer, the seller or both. Real estate commissions vary by agent or real estate brokerage, market and location.

In a traditional sale, where the transaction results in net proceeds to the homeowner, agent commissions are the responsibility of the seller. In rare markets, a buyer may also pay agent commissions. In a short sale, the commission technically remains the responsibility of the seller, but the lender covers it with part of the sale proceeds. Because short sales are designed for financially-distressed homeowners, sellers seldom can afford to contribute money to close the deal. The lender effectively plays the role of seller in decision-making and bearing the expenses of selling.

The federal government has streamlined the short sale process for more than 100 lenders participating in its Home Affordable Foreclosure Alternatives Program, or HAFA. The lender can pay up to 6 percent of the sale price in agent commissions on a HAFA short sale transaction. In general, lenders base the maximum commission fee allowed in a short sale on what is "reasonable and customary" for the market. Lenders sometimes lower the commission when a single agent represents both the buyer and seller, known as a dual agent.

Agents split the commissions paid by the lender. The listing agreement determines what percentage of the commission the listing agent receives and how much the seller will pay a buyer's agent. Agents may agree to a 50-50 split or a difference of usually one-half to 1 percent in commissions. The primary mortgage lender, or first lien holder, pays commissions from the sale proceeds. Second and third lien holders typically receive a small amount to agree to the short sale and do not pay any commissions.