Realtor Commission Notes - Posted by Ben

Posted by Todd on December 12, 1999 at 23:32:22:

I thank you profusely.

I’ve seen a lot of posts from you on this board…when are you going to produce your own course or book?

Realtor Commission Notes - Posted by Ben

Posted by Ben on December 05, 1999 at 19:51:31:

I just read an A.D. Kessler article which piqued my interest. The writer said he gets 30% returns buying
realtor commission notes. Has any ever heard of this and how would it work? Thanx.

Here is a way to encourage Realtor Commission Notes - Posted by Michael Morrongiello American Note

Posted by Michael Morrongiello American Note on December 05, 1999 at 23:12:25:

Many times in the past I have been asked by Realtors;

How can I get into the Paper business ? or How can I generate paper that is secured and provides a good rate of return?

Show your realtors that there are plenty of listings in the marketplace where an existing 80% LTV FHA or VA type loan that is assumable may exist and a buyer comes along with only 10% to work with as a cash down payment and they would really like to “assume” that older FHA or VA loan that is on the property.

Here is the scenario:

Home is valued at $100K and there exists an $80K FHA loan than can be taken over by the buyer who has $10K (10%^) cash to put down.

The problem with this scenario is that after paying the realtors typical 6% -7% sale commision the seller gets little cash left over for them and they really do not want to hold paper.

The realtor can approach the seller and agree to allow the sale to take place where the realtor will forego his / her 6% -7% sale commision IF the seller will allow the realtor to take back a 10% ($10,000.00) 2nd lien on the home and allow the buyer to assume the exisitng FHA $80K 1st lien.

Under this structure the seller is more incline to do the deal since ALL $10K cash as the down payment from the buyer now goes to the seller.

The realtor has foregone a $6,000.00 commission which would have been paid in cash to create a $10,000.00 2nd lien note. Assuming the note is written at 10% interest only terms with a 48 month balloon then the realtors $6,000.00 that is left in the deal is providing him/her a healty 26.25 % return on the $6,000.00 investment.

48 10 $10,000.00 83.33 $10,000.00
48 26.25 6,000.00 83.33 $10,000.00

I’ve taught Realtors to do this as a way to start creating some paper. If they need to pay bills or want the cash this won’;t work for them however if they are doing OK in those areas then why not make a deal happen that otherwise might not get done.

Michael Morrongiello
Operations Manager

Re: Realtor Commission Notes - Posted by John Behle

Posted by John Behle on December 05, 1999 at 20:51:57:

They are just a form of paper. We do it all the time and have for over 20 years. A smart Realtor will secure their commission note by real estate and do so with an LTV that would make it saleable. Some just take back unsecured notes, which are not as attractive. If the article mentioned getting a 30% yield, it has to do with the notes being unsecured or poorly secured (bad LTV ratio) and/or the fact that they are small and less attractive to buyers due to the size.

I teach agents at their sales meetings how to make these notes well secured and easily saleable.

Re: Realtor Commission Notes - Posted by MN~Chicago

Posted by MN~Chicago on December 05, 1999 at 20:50:31:

Nothing complicated here, Ben. All you
need to do is find the realtors who are
holding their commissions in notes.

Or, alternatively, show realtors how they
can take a note for their commission, and
you will pay them cash for it so they do
not have to wait 12, 24, 36 months, etc.

Just play with the numbers. Assume an
agent has a $6,000 commission, 12%, over
24 months.

Substitute 30% for your desired return,
and there you have your offer.

“Mr/Miss Agent, I’ll pay you $5,000
right now for your $6,000 commission

Or you could offer $4,500, or $4,800.
It’s up to you.

I am presuming you know how to do the
calculations. If not, let me know and
I will post how.

Re: Realtor Commission Notes - Posted by Todd

Posted by Todd on December 12, 1999 at 11:59:09:

Any chance that I could ask you to elaborate on what you meant by “doing the calculations”? This is an interesting idea and I’d like to understand as much of it as I can.


Follow-up - Posted by Ben

Posted by Ben on December 05, 1999 at 22:35:17:

Thanks for the responses. I understand the discount and the calculations but I was always under the impression the realtor just got paid the full commission at closing. How commonplace is it for a realtor to take back a note for commission?

Re: Realtor Commission Notes - Posted by MN~Chicago

Posted by MN~Chicago on December 12, 1999 at 23:24:22:

Hi Todd:

I do not know if you know how to
use a financial calculator. If not,
you will have to let me know.

I will take for granted that you do.

Using my figures, assume a broker
has agreed to carry a note for his
$6,000 commmission, at 12%, over
24 months:

N = 24…I = 12%…PV = -$6,000,

Enter these into your calculator,
there is no future value, FV = 0.

Press the “PYMT” key to get the
monthly PYMT = $282.44.

Now, as a buyer of that note,
you offer $5,000, (or $4,800,
whatever you want to negotiate).

Enter -5,000 into the PV, and
press the I key to calculate
your yield, = 31.11%.

If you bought the note for $4,800,
you would enter that figure, and
your yield would be 35.61%. That
is what I meant by playing with
the figures.

If you need more of an explanation,
please let me know what you do
not understand.

Re: Follow-up - Posted by John Behle

Posted by John Behle on December 05, 1999 at 22:41:21:

It’s not extremely common because most agents live month to month like the rest of the world and refuse to take their commission on a note.

Some do and are excited when they learn there are buyers out there. Some will realize that they could close many more deals if they would take a note - and would be willing if they knew they could sell it.

It is only a small percentage of agents that do take notes. Many more are willing when they are educated about it.