Creative Real
Estate Financing
Technique #13...
Borrow the real estate brokers money and/or real estate agent commission when
looking for creative financing home buying.
From time to time you will come across
a property listed by a broker that is being offered for a 10% down payment.
Typically, the seller is asking for 10% to cover the broker's commission, as well as closing costs.
The brokers money and or the real estate agent commissions are generally 5% to 7% of the purchase price. If a
real estate broker both lists and sells the property, the broker receives the entire commission. If another broker is involved the usually this commission is split 50/50.
Borrowing a portion of the commission or giving the broker a portion of the ownership in lieu of all or part of the commission is sometimes possible, especially when
buying a home and dealing with a listing broker. If the listing broker is also the selling broker, the commission will not be
split, and the broker will be in a better position to loan part of it to you.
If you find some initial reluctance from the real estate broker, you might try to make the proposition more attractive by offering to give the broker a note for an amount larger than the commission. For example, if the
real estate agents commission is $5,000, you might consider offering
$6,000 promissory note. The note might bear interest at 10% with payments of 1% per month. In other word, every month you would make a payment of $60 to the broker. At the end of the year you would have reduced, or amortized, the note by 2%, or $210. The note could become due and payable
in five to seven years. Generating all or part of the down payment in this way is relatively inexpensive.
Before approaching an agent or real estate broker about borrowing commission, it is important to understand how the commission is determined in a real estate office. When a seller lists a piece of property with a broker, the broker's compensation is spelled out in the contract. It is
usually computed as a percentage of the total selling price. Similarly, a real
estate agent or salesperson has an agreement with the broker that sets the amount of commission received by the salesperson when a transaction is completed. The rate of a broker's and salesperson's commission is
always negotiable.
Another way of doing business is the Re/Max method and is one of the best ways to exercise this creative financing technique. Re/Max is a nation-wide brokerage firm that rents office space to its agents. In addition to rent, they also must pay a fee for the benefits of
advertising done by Re/Max. The real estate agent receive 100% of the commission on property sold. These agents and brokers are usually more receptive to lending all or a part of their commission to you than the more traditional agents and brokers. Check with your broker to find out about the
commission arrangement for his or her salespeople when buying a home.
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Example
Summary
Technique #13
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Borrow
the Real
Estate Broker
Commission
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What
You Need To
Begin:
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A
broker or
agent who is
willing to
give up
commission
until a future
date, a
listing broker
or real estate
agent is
best.
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Summary
Of Terms:
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Broker's
commission is
usually 5% to
7% of the
purchase
price.
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Procedures:
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- Initially offer the
broker a
portion of
commission
or part
ownership.
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- Offer broker a note for
a slightly
higher
amount
with
interest
and a
payment
schedule.
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Results:
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- You have alleviated the
need to
put 10%
down at
closing.
This is a
true no
money down
deal.
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Specific
Situations to
Apply
Technique #13
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The
Property
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Property
Listed for Sale
by Broker
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The
Buyer
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No Cash at
All
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Lump
Sum Cash Due
Soon
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Large
Monthly Income
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The
Seller
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Real
Estate Broker
Money to Create A
Note
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